World markets had a tumultuous week marked by concerns about soaring inflation, slowing global growth, the uncertainty surrounding cash-strapped Chinese property developer Evergrande and a possible US debt default. Risk appetite was again fragile amid the political drama in Washington where there is lack of progress in raising the debt ceiling before the October 18 official deadline. JPMorgan CEO Jamie Dimon told Reuters on Tuesday that the largest lender in the U.S., has begun preparing for the possibility of the country defaulting on its debt. Mark Zandi, chief economist at Moody’s Analytics, likened the inability to repay debt to “financial Armageddon.” The mood remained cautious
despite assurances from the world’s leading central bankers that the current spike in prices would ultimately prove temporary. Markets are getting more prepared for “sticky” inflation. Imminent monetary tightening by several central banks would also be a catalyst for increased market volatility.
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AMERICAS
CANADA
The Canadian market posted a decline for the week with the Toronto Stock Exchange’s S&P/TSX composite index falling 1.23%, its fourth straight weekly decline. Data showed that Canada’s economy contracted 0.1% in July, on decreases in agriculture, manufacturing and construction, but likely grew by 0.7% in August on jumps in companies and manufacturing, Statistics Canada mentioned.
The IHS Markit Canada Manufacturing PMI came in at 57 in September little changed from 57.2 in August. It was the 15th straight month that the PMI was above the 50 threshold marking growth in the sector, with the latest expansion among the sharpest in the 11-year history of the survey.
“Material scarcity led to higher prices, shipping delays, and subsequent increases in incomplete work,” Shreeya Patel, an economist at IHS Markit, said in a statement.
US
Equities began Q4 on a high note but major indices recorded their biggest weekly declines since February and rounded it out the worst monthly drops since the early days of the Covid-19 as September lived up to its reputation. The S&P 500 finished the month down 4.8%. The Dow Jones and the Nasdaq Composite plummeted 4.3% and 5.3%, respectively, suffering their worst months of the year.
Political risks were heightened as lawmakers in Washington continued to struggle to find common ground on the debt ceiling. The US Congress managed to reach a short-term deal to fund the government on Thursday but the outlook for the bipartisan, USD $1 trillion infrastructure bill also remained clouded. The government risks running out of money in a matter of days and speaking to the House Financial Services Committee Treasury Secretary Janet Yellen reiterated a default would be “catastrophic” for the country. S&P Global Ratings said in a bulletin on Thursday it anticipates the Congress will address the debt ceiling in a timely manner, either by raising it or suspending it.
“It would be unprecedented in modern times for an advanced G-7 country, like the U.S., to default on its sovereign debt,” the rating agency said. The United States has never defaulted on its credit. This would be uncharted territory. Adding to woes, US consumer confidence dipped for the third month in a row, hitting its lowest point since February.
LATAM
In Mexico, the IPC dropped 0.09% this week. The Bank of Mexico (Banxico) on Thursday (30) raised interest rate to 4.75% which represents the second consecutive 25 basis points increase of the target, reflecting inflation fears. In Brazil, the Bovespa was little changed. The central bank raised its GDP growth projection to 4.7% for 2021 and also forecasts that inflation in 2021 will reach 8.3%, well above the 5.8% it had projected in June.
The president of the institution, Roberto Campos Neto, said the central bank is working on projects to regulate cryptocurrencies as an investment vehicle first and then as a means of payment. Cryptocurrency transactions transactions have grown a lot in Brazil. Through August they totaled $4 billion. Meanwhile, unemployment in Brazil fell to 13.7% in the May-July trimester, IBGE data showed. On the trade front, the country recorded a trade surplus of $4.322 billion in September, the lowest level in the last seven months.
In Chile, the IPSA returned -1.15% as a bill to allow citizens to make a fourth withdrawal from their pension funds, advanced in the Congress. In total, Chileans have withdrawn some $50 billion from their pension funds since the beginning of the pandemic. The government and the Central Bank have warned that passing the bill would negatively affect the economy. The Chilean economy grew 1.1% month-on-month and 19.1% year-on-year through August and unemployment fell to 8.5%, the lowest figure since Covid-19 struck.
In Colombia, the COLCAP jumped 4.65%. Positive economic data boosted sentiment. Colombia’s unemployment rate dropped to 12.3% in August. In the January-August 2021 period, Colombian exports stood at $24.9 billion registering an increase of 22.5 %, compared to the same period of 2020, driven by oil, according to the National Administrative Department of Statistics (Dane).
ASIA/PACIFIC
JAPAN
Japanese equities fell sharply. Rising U.S. bond yields, concerns over cash-strapped Chinese property developer Evergrande, China’s economy, and end-of-month NIKKEI 225 portfolio reshuffling weighed on stocks. The index shrunk by 4.89% over the week but has risen more than 7% in September in the run-up to the Liberal Democratic Party’s leadership election. Fumio Kishida, Japan’s former foreign minister, will replace the outgoing party leader and prime minister, Yoshihide Suga, who is stepping down after serving only one year.
Bank of Japan Governor Haruhiko Kuroda told an European Central Bank conference a new prime minister will not cause the central bank to change its stimulative monetary policies. Kishida has vowed to tackle “national crises” including the Covid-battered economy. He has called for establishing a 10 trillion yen ($90 billion) university fund to expand investments in science and technology and the market is now hoping that digital technology will benefit from his policy approach. In other news, sentiment at Japan’s large manufacturers improved in the three months to September, according to the Bank of Japan’s quarterly tankan business sentiment survey.
CHINA
Chinese stocks finished mixed in a holiday-shortened week. Markets in mainland China are closed for the Golden Week holiday from Friday till Oct. 7. Despite the magnitude of troubled property giant Evergrande’s debt problems (a debt pile of $US305b), worries have eased somewhat after People’s Bank of China (PBOC) on Wednesday, vowed to protect homebuyers’ interests. Beijing is encouraging state-owned firms and financial institutions to cooperate with the government to help stabilize the housing market according to Reuters. In a filing to the Hong Kong exchange on Wednesday, Evergrande also announced it will be selling off a $1.5 billion (9.99 billion yuan) stake in Shengjing Bank to a state-owned asset management firm to help reduce its debt load.
Once China’s top-selling developer, Evergrande has missed two deadlines to pay over $180 million worth of interest to foreign investors, who hold its US dollar-denominated bonds, in the space of one week. Evergrande is now expected to be one of the largest-ever restructurings in China. While some analysts saw Evergrande crisis becoming a “Lehman Moment” for the nation, some others do not think that a default by the company will cause systemic risk in China’s credit markets.
REST OF ASIA
In South Korea, the KOSPI shrunk by 3.39%. The country’s September exports gained 16.7% from a year earlier, government data showed on Friday, slowing down from a 34.8% jump in August and marking a 11th straight month of expansion. In India, the Sensex returned 2.14% while the Nifty dropped 1.80 over the week. India‘s Manufacturing PMI rose to 53.7 in September from 52.3 in August and above market consensus of 51.8, indicating a stronger expansion in overall business conditions across the sector. India and Taiwan are in talks on an agreement that could bring chip manufacturing to South Asia along with introduction of tariff reductions on components for producing semiconductors by the end of the year, Bloomberg reported citing people familiar with the matter. Taiwan’s TWII sank 3.99%.
AUSTRALIA/NZ
Australian stocks notched heavy losses with the benchmark ASX200 index plunging 2.14% as global economic uncertainties hung heavy over the bourse throughout the week. Gold stocks recorded the largest gains on Friday as investors looked for safe haven. Travel stocks proved resilient following news that Australia will reopen its international border from November. Since March 2020, the country has had some of the world’s strictest border rules. The local share market has, essentially, wiped out all the gains it made since early June but despite a tough week, the ASX200 still managed to post gains of 2% for the September quarter. New Zealand equities reversed initial losses to end on a flat note on Friday as the new quarter kicked off. The NZX 50 returned 0.06% over the week.
EUROPE
EUROZONE
Persisting worries about rising inflation, slowing growth and fears that higher energy costs would hit household spending rendered the mood bearish. Political uncertainty in Germany contributed as well to the subdued trend in the markets. Eurozone inflation accelerated to the highest level in 13 years on surging energy prices in September, deepening concern among policymakers. Headline inflation came in at 3.4% last month, according to preliminary data from Eurostat. The rate was also above economists’ forecast of 3.3%. It comes after German consumer prices hit 4.1% in September — the highest level in 29 years. Inflation will be on Monday’s Eurogroup docket as the 19 eurozone finance ministers meet as there’s not much hope for an easing of inflationary pressures in the short term.
European Central Bank (ECB) President Christine Lagarde told the European Parliament that inflation in the eurozone could exceed the central bank’s forecasts. At the ECB Forum on Central Banking in Sintra she expressed her frustration over supply-side bottlenecks which are lasting longer than previously assumed — risking slower growth and higher prices. Federal Reserve Chair Jerome Powell added that the situation could last into 2022.
“Constantly higher inflation rates and a high risk that the ECB has actually entered a period in which its longer-term inflation forecasts frequently turn out to be too low, compared with too high in the years prior to the pandemic will put more pressure on how much monetary accommodation the euro zone economy really needs,” Carsten Brzeski, global head of macro at ING Germany, wrote in a note.
The final manufacturing Purchasing Managers’ Index fell to 58.6 in September from 61.4 in August. This was the lowest since February and below the ‘flash’ print of 58.7.
CEE/SEE
In Hungary, the BUX jumped 4.15% this week. Deputy Governor at he central bank in Budapest
Barnabas Virag said rate hikes will continue. “The NBH monetary-policy stance continues to tighten further,” Virag told reporters on Friday. “It’s a long road, and I think we’re far from the end.”
In Poland, the WIG20 gained 1.25%. The manufacturing purchasing managers’ index, or PMI, fell to 53.5 in September from 56 in August, easing for the third month in a row survey data from IHS Markit showed. Meanwhile inflation rose 5.8% year-on-year in September, following a 5.5% increase in August.
In Romania, the BET returned 1.64% The censure motion against the government initiated by the Social Democratic Party (PSD) was read on Thursday in the joint plenary session of the Senate and the Chamber of Deputies. In currencies, a monthly poll by CFA Romania showed that financial analysts expect the Romanian leu to depreciate to over 5.0261 units to the euro within the next 12 months, while seeing inflation averaging 4.38% during the same period.
REST OF EUROPE
In the UK, the FTSE 100 was off 0.35% as the energy crisis has wreaked havoc in Europe, prompting U.K. Prime Minister Boris Johnson to put the army on standby to ease a fuel shortage. Shortages at petrol stations will persist for at least another week Policing minister Kit Malthouse told the BBC Radio 4 Today program.
Bank of England (BoE) Governor Andrew Bailey said on Wednesday that Britain’s economy probably won’t recover to its pre-pandemic level until early next year, a few months later than previously predicted. Gross domestic product grew 5.5% in the second quarter on robust consumption instead of 4.8% growth estimated previously. The final Chartered Institute of Procurement & Supply manufacturing Purchasing Managers’ Index fell to a seven-month low of 57.1 in September from 60.3 in August.
In Switzerland, the SMI gave up 2.05%. A leading indicator for the Swiss economy signaled further weakening in the economic recovery in the coming months. The economic barometer fell to 110.6 in September from 113.5 in August, results of a survey by the KOF economic institute showed. The rich Alpine country approved its first ever dedicated crypto fund this week.
MIDDLE EAST
(Note: Trading days 26-30/09/2021)
In Israel the TA-35 returned -0.13% in a holiday-shortened week. Tel Aviv Stock Exchange was closed on Monday and Tuesday in observance of the Festival of Tabernancles.
The Egyptian Exchange (EGX) ended the downtrend that lasted for three sessions during Thursday but the blue-chip EGX30 returned -1.17% for the week. Egypt came as the best attractive destination for investment in Africa for the fourth year in a row, according to “Where to invest in Africa” report issued by the Rand Merchant Bank in 2021.
Saudi Arabia’s TASI jumped 2.00% this week. The benchmark index added a 4.7% over the July-September period, although at a slower pace than the previous two quarters. Oil prices, a key catalyst for the Gulf’s financial shares will see modest gains for the rest of the year and into 2022 as consumption resumes its recovery to pre-pandemic levels, a Reuters poll showed.
AFRICA
In South Africa, the JSE Top40 returned 0.65% this week but the Africa All Share Index posted its worst quarter since the first three months of 2020. An energy crunch weighing on China’s economic growth will impact demand for commodities and China is the biggest buyer of South African raw materials. Inflation is also making things worse. The rand, an investor-favourite carry trade currency, tracked nominal gains for the week.
In Nigeria, the NSE All Share Index jumped 3.23%. On Thursday, the Nigerian Exchange Limited’s core index rose to its highest in eight months amid bullish buyer interest.
In Kenya, the Nairobi Stock Exchange NSE 20 index dropped 0.08%. Half of Nairobi Stock Exchange firms fail to recover from Covid. Of the 58 actively traded counters, 31 are trading below their closing price on March 12, 2020, when Kenya announced the first case of Covid-19, according to Business Daily Africa.
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