World markets saw widespread gains this week. Economic data out of the world’s largest economy of the U.S. has been solid and a better-than-expected start to Q3 earnings season with encouraging company results boosted sentiment. The cost of living picked up last month, with the consumer price index rising 0.4%, exceeding economists’ expectation but favorable reads on jobless claims contributed to the continued strength on Wall Street.
However, investors around the world remain aware of elevated expectations of tighter global monetary policies, a deepening energy crisis, inflation pressures, supply chain blockages and mounting worries over the ability of companies to maintain margins. The IMF warned that equity and property markets could suffer a sharp correction as central banks get ready to reduce monetary support.
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The Canadian stock market hit a new record high and ended on a firm note on Friday with the benchmark S&P/TSX Composite Index gaining about 2.5% in the week, the biggest weekly rise since March this year. The energy sector rallied on the back of firm crude oil prices, as U.S. West Texas Intermediate (WTI) crude futures jumped $0.97 to $82.28 a barrel. Brent crude futures rose 86 cents, or 1%, at $84.86 a barrel. A report by the International Energy Agency’s report said oil demand is likely to increase significantly due to the energy crunch continuing to support prices.
Upbeat Wall Street earnings added to positive market sentiment. Financials, which account for about 30% of the TSX’s market value, advanced 0.9% to a near two-month high. Official data showed wholesale sales in Canada edged up 0.3% over a month earlier to C$ 70.3 billion in August, below expectations, while producer prices most likely rose by 1.0% in September.
Major indices posted strong weekly advances helped by positive earnings surprises, the lowest increase in producer prices this year and news that weekly jobless claims had fallen to 293,000, for the first time since Covid-19 struck. Q3 corporate earnings season kicked off on a high note thanks to strong results from the heavyweights in the Financials sector amid strong growth in investment banking revenues.
Producer prices for final demand increased 0.5% in September from the prior month, the smallest increase so far this year, and below market forecasts of 0.6%, Labor Department data showed. Meanwhile, the annual producer inflation continued to accelerate to 8.6%, reflective of the current inflationary climate.
Initial jobless claims fell to 293,000 for the week ended Oct. 9, the first reading below 300,000 since mid-March 2020. The Dow Jones estimate for claims was 318,000.
Federal Reserve officials have been paying close attention to incoming job market data, as the central bank weighs when to start reducing emergency pandemic support for the economy. Minutes released Wednesday from the Fed’s September meeting suggested a willingness to start asset purchase tapering before the end of this year ( between mid-November and mid-December) with a reduction in the amount of bonds it buys each month up to mid-2022.
Furthermore, the U.S. Commerce Department reported a surprise rise in retail sales in September which rose by 0.7% month-over-month.
In Brazil, the benchmark BOVESPA index returned 2% as the IMF estimated that the Brazilian gross public debt will fall from 98.9% of GDP in 2020 to 90.6% in 2021 and 90.2% in 2022. Brazil’s economic activity fell by 0.15% in August compared to the 0.23% acceleration recorded in July, while The median of the projections of market economists for the National Wide Consumer Price Index (IPCA) in 2021 rose from 8.51% to 8.59%.
In Chile, equities as measured by the S&P IPSA Index sank 3.94%. On Wednesday, the central bank
lifted its monetary policy interest rate by 125 bps to 2.75%. This 125-basis-point rate increase was larger than expected, as the evolution of the macroeconomic scenario has increased the risks regarding the convergence of inflation to the 3% target within the policy horizon. To Chile’s delight, copper, the country’s main export product, is about to close October with a cumulative increase of 12.86%, its best month since February this year.
According to a report from Bank of America (BofA), this trend will continue for a while, pushing the red metal above US$5 per pound. The commodity jumped 5.86% to US$4.788 per pound on the London Metal Exchange on Friday, according to the Chilean Copper Commission (Cochilco). The Andean nation, the world’s no. 1 copper producer, also holds the world’s largest known lithium reserves. Chile’s Mining Ministry said on Thursday it will allow companies to bid for licenses for the extraction of 400000 tonnes of lithium.
The Japanese stock market’s returns were positive for the week. The country’s new Prime Minister Fumio Kishida approved the dissolution of the powerful Lower House on Thursday, setting the stage for an Oct 31 general election. Markets breathed a sigh of relief after Kishida said he won’t seek to change the country’s taxes on capital gains and dividends for now. “His quick retreat on plans to raise the country’s capital gains tax shows that he is certainly listening to stock traders” Bloomberg wrote.
The government, in its October economic outlook report, cut its export view for the first time in seven months but retained its overall assessment for the Japanese economy as continuing to pick up.
“The economy continues to pick up but the pace of recovery is slowing,” the report said.
In currencies, the dollar rose to a near-three-year high against the yen at 113.885 yen on Friday. Finance Minister Shunichi Suzuki said currency stability is “very important” and the government will will continue to closely watch the economic impact from the foreign exchange moves.
Chinese equity markets ended nearly unchanged. Factory-gate inflation in the world’s second largest economy rose to the highest level on record in September, data released on Thursday showed.
The official producer price index jumped 10.7% last month from a year earlier, mainly due to soaring commodity prices. China’s export growth unexpectedly accelerated in September Exports jumped 28.1% year-on-year, from a 25.6% rise in August and easily beating market expectations of 21% increase, amid solid global demand. Imports decelerated a little to 17.6% missing market expectations of a 20.0% advance and easing from a 33.1% rise seen in August.
The People’s Bank of China (PBoC) told a news briefing on Friday risks to the financial system stemming from troubled developer Evergrande-which is shouldering more than USD 300 billion in liabilities- are “controllable” and unlikely to spread as authorities and local governments are resolving the situation based on “market-oriented and rule-of-law principles.” PBoC official Zou Lan also urged banks to maintain current lending to the real estate sector. In other news, China will allow foreign investors to trade more onshore derivatives, the China Securities Regulatory Commission announced on Friday.
Australian stocks finished stronger for a second week in a row as easing restrictions in Sydney and Melbourne and earnings news coming out of the US provided support. The travel and aviation sectors benefited from the reopening news with Qantas announcing it will accelerate the restart of its international flights by two weeks to November 1. Meanwhile rising base metals, oil, and gold prices lifted materials and energy stocks. But this week’s market gains were mostly courtesy of technology stocks. In New Zealand, the NZX 50 Index finishing the week 0.61% lower amid rising yields and new data suggesting post-lockdown rebound was weaker than last year.
Markets in Europe closed out the week with gains on strong corporate earnings. Industrial output in the Eurozone declined by 1.6% from a month earlier in August, due to supply chain blockages and slowing global trade, Eurostat data showed. The biggest falls were in capital goods and durable consumer goods. Meanwhile, trade surplus narrowed sharply to EUR 4.8 billion from EUR 14.0 billion in August last year and well below market expectations of EUR 16.1 billion, mainly due to a 26.6 percent jump in imports amid a rally in energy prices. Investors remained aware of the energy crisis and problems with the global supply chain. A group of leading German economic institutes -DIW, Ifo, IfW, IWH and RWI – on Thursday slashed their GDP growth forecast to 2.4% this year, from a previous estimate of 3.7%, as “contact-intensive activities” necessary for the economy are unlikely to resume in the short term. Supply chain bottlenecks are also “hampering” manufacturing.
In Romania, the blue-chip BET index returned -0.83%. Romanian President Klaus Iohannis on Monday named chairman of the Save Romania Union (USR) Dacian Ciolos as PM-designate, a week after a no-confidence vote brought the government down. Under the country’s constitution, the PM designate has ten days to form a government and win a vote of confidence in Parliament but public distrust and anger with the political class is rising in the Southeastern country.
Romania’s annual inflation rate kept its upward trend in September 2021, surging to 6.29% from 5.25% a month earlier. The average net salary in the country fell by 1.6% in nominal terms in August compared with July, to 3,487 lei (EUR704.6) and the country’s total external debt increased by EUR8.4 billion to EUR135.2 billion in the first eight months of the year.
In Hungary, the BUX closed up 1.50%. Attention is turning towards the National Bank of Hungary (NBH) rate-setting meeting next Tuesday where another hike is expected, after four consecutive increases since June. According to a Reuters poll of analysts, the central bank it is expected to raise its base rate by 15 basis points to 1.8%.
REST OF EUROPE
In the UK, the FTSE 100 returned 1.95% this week as the country released rather encouraging labour market figures. British employers added 207,000 staff to their payrolls in September, before the end of the government’s wage subsidies program, data from the Office of National Statistics showed.
Separate official data showed the unemployment rate was 4.5% in the three months to August.
Meanwhile, gross domestic product (GDP) is estimated to have grown by 0.4% in August month over month as the hospitality industry benefited from the first full month of reopening but it remains below its pre-Covid level.
In Russia, the MOEX was higher by 0.56%. As critics of the Kremlin have raised the suggestion that Russia has been capitalising on Europe’s energy troubles, Russian President Vladimir Putin denied using gas supply as an economic weapon against Europe, calling the suggestion “absolutely out of the question”. Speaking on Wednesday at the plenary session of Russian Energy Week in Moscow, the Russian leader also promised that his country is ready to boost natural gas shipments to Europe. Russia is the EU’s leading gas exporter.
(Note: Trading days from 10-14/10/2021)
In Israel, trading in the Tel Aviv Stock Exchange (TASE) in the second week of October was marked by price rises in all of the leading share indices. The index increased 2.5% over the week, bringing year-to-date cumulative gains to 23.3%. The Bank of Israel has published an updated macroeconomic forecast, according to which GDP is expected to grow by 7% and 5.5% for the years 2021 and 2022, respectively.
In Saudi Arabia, the TASI had its third straight weekly gain amid rising oil prices. Saudi Arabia’s energy minister Prince Abdulaziz bin Salman told a forum in Moscow that OPEC+ has done a “remarkable” job as so-called regulator of the oil market. The oil-rich kingdom also dismissed calls for additional OPEC+ supplies. Fitch Ratings on Wednesday said the impact of Covid-19 on Saudi Arabian banks had been contained.
In Nigeria, the Nigerian Exchange’s All Share Index returned 1.39%. The Nigerian Exchange Group Plc listed its shares on the main board of NGX on Friday. A total of 1,964,115,918 shares were admitted to trading. Nigeria’s headline inflation declined again in September to 16.63% from 17.01% in August. This is the 6th consecutive monthly decline and the lowest inflation rate in the last 8 months.
In South Africa, the JSETop 40 jumped 2.81%. While South Africa remains the dominant stock exchange on the continent, smaller bourses are leapfrogging ahead in terms of incentives, and technology to attract small investors, according to the 2021 Africa Financial Markets Index, compiled by Absa in partnership with the Official Monetary and Financial Institutions Forum (OMFIF), an independent think tank.
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