World markets had another week of choppy trading. Rising tensions between China and Taiwan, uncertainty around the debt ceiling in the U.S., Pandora papers revelations about how heads of state, billionaires and celebrities use offshore companies kept investors in a firmly risk-off mood. Inflation fears, the energy crisis in Europe (and not only) and Chinese debt worries also dampened sentiment. But all was forgotten by Friday after the US senate approved the Republican proposal to raise the debt ceiling by $480 billion up to December 3, thereby avoiding a default on October 18.
As the world economy is entering the final quarter of 2021, policy makers insist the spike in inflation is temporary and trade will continue to recover but a mounting number of headwinds is threatening to slow the recovery from the recession. Supply chain issues are not getting better, they seem to be getting worse, geopolitical tensions are escalating and business insolvencies are expected to jump 15% on year in 2022 as governments withdraw support measures according to Euler Hermes.
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AMERICAS
CANADA
Toronto Stock Exchange’s S&P/TSX composite index returned 1.32% after four straight weeks of losses. Canada’s economy added 157,000 new jobs in September, Statistics Canada said, as against an expected addition of 65,000 jobs. The gains concentrated in full-time work. The unemployment rate in Canada declined to 6.9% in September, falling for the fourth straight month and employment returned to pre-Covid levels for the first time. On the monetary policy front, the Bank of Canada has about two weeks to decide what it will do to its stimulus program before its next interest rate announcement on Oct. 27.
US
The major U.S. stock indices recovered from a sharp decline on Monday and posted a weekly gain as Congress reached an agreement to temporarily extend government funding to avoid a default at least until December. The Labor Department’s closely watched monthly jobs report showed much weaker than expected job growth in September. The economy generated 194,000 new jobs last month while economists had expected employment to jump by 500,000 jobs. The disappointing 194,000 gain in non-farm payrolls in September probably still counts as ‘decent’ enough for the Fed to begin tapering its asset purchases next month,” said Andrew Hunter, Senior US Economist at Capital Economics.
Despite the much weaker than expected job growth, the unemployment rate fell to 4.8% from 5.2% but risks remain, including accelerating inflation and rising rates. St. Louis Federal Reserve President Jim Bullard that he was “concerned that inflation risks are to the upside.” Wall Street is preparing for third-quarter earnings season, set to unofficially kick off next week as heavyweights from the Financials sector report results after being among the best performers this year.
LATAM
Brazil’s benchmark BOVESPA index jumped more than 3% on Friday, its biggest daily gain in nine months, before closing up 2.03%. Data showed Brazil’s official inflation stood at 1.16% in September, the highest result for the month since 1994 due to higher fuel and electricity prices. Rising inflation has pushed Brazil’s central bank into hiking interest rates five times this year, with more hikes to come.
Meanwhile, the production of Brazilian industry fell in seven of 15 locations surveyed in August, compared to July, according to data from the Regional Monthly Industrial Survey (PIM Regional), released on Friday by the Brazilian Institute of Geography and Statistics (IBGE). In trade news, the governments of Brazil and Colombia on Friday signed a memorandum of understanding (MOU) to increase bilateral trade. Colombia’s COLCAP index returned 2.24% over the week. In Mexico, the IPC advanced 0.15%. On average, Latin America’s gross domestic product (GDP) will grow 6.3% this year, the World Bank said in its semiannual report on the region presented Wednesday.
ASIA/PACIFIC
JAPAN
Japanese stock markets lost ground for the third week in a row dragged down by concerns over global inflation, the slowing Chinese economy and rising oil prices. New Prime Minister Fumio Kishida’s suggestions of increased levy on capital gains also spooked investors. The hashtag “Kishida Shock” trended on Twitter. Kozo Yamamoto, an ally of Kishida told Bloomberg capital gains tax could be raised to 25% from the current 20%, which could be perceived as a step back from efforts to make Japan more shareholder-friendly. The Bank of Japan downgraded its economic assessments on five of the country’s nine regions as the economy took a hit from supply shortages of semiconductors and other components that have hit manufacturers.
CHINA
Chinese stocks gained ground in a return to action following the weeklong Golden Week holiday.
Investors looked past the property sector turmoil and a nationwide power crunch which hurt production in industries across several regions. The crisis at developer Evergrande continues to cast a shadow as the firm drowns in a sea of debt worth more than $300 billion and struggles to find the money to stay afloat. Property developer Fantasia defaulted on a bond payment, developers reported sharply lower sales for September, and Fitch Ratings downgraded property developer Sinic Holdings after the company said it had missed interest payments and due to uncertainty over a $246m bond repayment due later this month. The market mood turned positive following upbeat economic data. The Caixin China Services PMI for September showed output in the sector jumped back into expansion territory.
REST OF ASIA
In India, the NIFTY returned 2.07% while the SENSEX 2.20%. The Reserve Bank of India ( RBI) kept the key benchmark rates unchanged for the eighth consecutive time and promised to maintain the status-quo on rates “as long as necessary to revive growth.” Data released by IHS Markit showed business Activity in India’s private sector rose further last month, as both manufacturing and services output continued to expand. The Composite PMI Output Index stood at 55.3, little-changed from 55.4 in August and thereby pointing to a marked rate of growth while the services PMI stood at 55.2.
AUSTRALIA/NZ
The Australian sharemarket shrugged off world economic worries to end the week in the green. The benchmark ASX200 index closed up 1.87%. Investor sentiment got a boost at the end of the week with state government revealing a roadmap out of lockdown for Sydney and an easing of restrictions for some parts of regional NSW. In New Zealand, the NZX 50 fell 1.58%. The Reserve Bank of New Zealand (RBNZ) announced a first rate rise since June 2014, joining the banks of South Korea and Norway. RBNZ policymakers said the decision was appropriate to maintain low inflation and support maximum employment. Headline inflation is expected to increase above 4% in the near term before returning towards the 2% midpoint over the medium term.
EUROPE
EUROZONE
European equities managed to finish higher despite significant volatility. The energy crisis continues to hit the headlines as natural gas prices surge to record highs. Prices declined somewhat after Russian President Vladimir Putin said Gazprom, the state-owned energy giant, intended to increase its gas exports to Europe, particularly in view of the completion of the Nord Stream 2 pipeline.
Meanwhile, the minutes of the European Central Bank’s September meeting released on Thursday, revealed concerns over eurozone’s inflation forecasts with the bank admitting that inflation could be higher than expected in the coming months. ECB President Christine Lagarde reiterated her stance on inflation, saying the situation did not require the financial institution to react. She added that ECB might create a new asset purchase plan to replace the PEPP which runs out in March 2022. “The December meeting could bring somewhat more tapering than markets are currently pricing in” ING’s Global Head of Macro Carsten Brzeski said in a note.
CEE/SEE
In Hungary, the BUX was up 0.68%. The National Bank of Poland, or NBP raised its benchmark reference rate by 40bps to 0.5% on Thursday (Oct. 6), catching markets by surprise. It was the first increase in the main rate since 2012. The zloty jumped over 1% to a three-week high against the euro following the announcement. The central European nation’s inflation surged to 5.5% in September, its highest in 9 years. The central bank targets 3% headline inflation with a tolerance band of a percentage point on either side.
In Romania, the BET index returned 0.87% in a week full of political turmoil. The government collapsed following a no-confidence vote among MPs on Tuesday. Romanian President Klaus Iohannis said that he will begin consultations with the political parties in parliament next week. The National Bank of Romania raised its benchmark interest rate by 25bps to 1.5% for the first time since 2018.
Despite the political drama, the Romanian capital market surged by 29% in the first 9 months of the year, when looking at the BET index. According to Refinitiv Eikon and BVB data, at the level of price return indices, after the first nine months, the BET index (+ 28.9%) registered a double growth pace compared to US’s S&P 500 index (+ 14.7% ) or to Europe’s STOXX600 (+ 14%).
REST OF EUROPE
In the UK, the FTSE100 was higher by 0.97%. The Bank of England’s (BoE) new Chief Economist Huw Pill answered questions from members of Parliament on the Treasury Committee and warned inflation is rising faster than expected and will last for longer than anticipated, due to severe supply shortages and rising household energy bills. BoE has already had to raise its forecasts for inflation several times this year. Pill, who was appointed last month, also said negative interest rates were “both feasible and likely to ease monetary conditions.” In Switzerland, the SMI returned 1.64% over the week but closed roughly flat on Friday with investors largely staying cautious and refraining from making significant moves.
MIDDLE EAST
(Note: Trading days from 03-07/10/2021)
In Israel, the Tel Aviv Stock Exchange’s (TASE) TA35 index returned 0.06%. Of note, TASE holds the world’s second largest rate of new companies as the unprecedented surge of IPOs saw 108 new companies join Israel’s only public stock exchange since the beginning of 2020 to the end of August 2021. The Bank of Israel left its benchmark interest rate at its all-time low of 0.1% on Thursday for a 12th straight policy meeting. The central bank also said it was prepared to end its purchases of government debt if Israel’s economic recovery continues and suggested it could raise rates in 2022.
In Saudi Arabia, the benchmark TASI index returned 0.83%. TASI-listed oil giant Saudi Aramco hit a $2 trillion valuation on Thursday, a mark it had hit in the previous session and in December 2019, days after the company’s debut on the Saudi stock exchange. The rally for Aramco came as Brent crude oil prices climbed to around $82 a barrel, the highest in seven years. OPEC led by Saudi Arabia said this week they are maintaining a gradual approach to restoring production levels that had been slashed during the pandemic, agreeing to increase production by 400,000 barrels a day next month .
In Egypt, the EGX30 was up 0.18%. The Arab country’s Financial Regulatory Authority (FRA) has approved the publication of the initial public offering (IPO) prospectus of e-finance, the state-owned fintech platform, according to a statement filed to the Egyptian Exchange (EGX). Trading of the issuer’s shares on the EGX is expected to start on/around Oct. 18.
AFRICA
In South Africa, the JSE Top 40 jumped 2.75%. In fixed income markets, SA bond yields climb this month, and could see further elevation, Investec says. Meanwhile, the government plans to make changes in infrastructure development legislation to boost investments, SA’s Independent Online reported. South Africa is projected to grow by 4.6 percent in 2021 on the back of better performance in services, industry and agriculture, the World Bank said on Wednesday.
In Nigeria, the All Share Index returned 1.61%. The Nigerian Exchange Group has announced that its shares will soon be available for trading on the Main Board of its trading platform. In currency news, Nigeria’s foreign reserve recorded a boost of $209.5 million on Wednesday to close at $37.99 billion. The country’s current reserve level represents the highest since Jan. 31, 2020. The World Bank has projected a 2.4% economic growth for Nigeria this year.
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