World markets swung between gains and losses throughout the week but a strong start to US earnings season sparked optimism. One of investors’ fears during the week was a China property crisis.
Reports on Friday afternoon that China’s leading property developer Evergrande made an overdue interest payment to international bondholders, sparked a rally in the cash-strapped company’s bonds and shares. Meanwhile, China’s central bank which said the situation was manageable and that a systemic crisis had been avoided. Still, things may still seem a little uncertain for investors looking toward the end of the year due to supply chain bottlenecks, inflationary pressures, and labor shortages. All in all, looks like things are going to get considerably worse.
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The Canadian stock market returned 1.38%. The S&P/TSX Composite hit a new all-time high on Friday, led by gains in energy and industrial sections, finishing higher for the thirteenth straight session- its longest run since 1985, according to data compiled by Bloomberg. The index is up 22% this year, outpacing the S&P 500 Index’s 21% rise, thanks to its large weighting in banks and commodity stocks. Canadian retail sales climbed 2.1% in August over the previous month, data from Statistics Canada showed. On an annual basis, they rose 8.4% in August, after rising by 5.3% y-o-y in July.
A series of upbeat quarterly results pushed US indices higher over the last five trading sessions with both the S&P 500 and the Dow reaching new record high territory. The Cboe Volatility Index fell to its lowest level in nearly four months. With more than 20% of S&P500 earnings reports in, roughly 67% have topped revenue forecasts and approximately 81% have bested profit projections. Compared to last year earnings are up about 46%. In its Beige Book, the Federal Reserve said the U.S. economy is still growing at a solid pace but labor shortages and supply-chain bottlenecks are restraining growth and triggering higher inflation. Many businesses said they expected higher prices and supply shortages to last another year or so. Fed Chair Jerome Powell said on Friday that the central bank was on track to begin reducing its asset purchases soon. But he also sounded a note of concern over persistently high inflation. Twitter co-founder Jack Dorsey said “hyperinflation” will happen soon in the U.S. and the world. “It’s happening ” Dorsey tweeted Friday night.
In Brazil, the main stock index of the São Paulo stock exchange, B3, the Bovespa Index, plunged about 7%. Brazilian assets were affected by great fiscal uncertainty surrounding the government’s plans to increase social spending in 2022, a year of elections. Meanwhile, the central bank’s currency intervention failed to calm the market. The central bank has been intervening in the currency market in an attempt to stabilize the real, which has been weakening and contributing to already elevated inflation via higher import prices.
In Latin America and the Caribbean, the adverse effects of the Covid-19 on productivity, employment, and human capital could “take many years to reverse,” the International Monetary Fund (IMF) warned Thursday. The Washington-based institution estimated inflation of 9.7% for 2021 and 6.9% for 2022.
“We see that it will take some time, perhaps not even in our five-year forecast horizon, for the region’s GDP to return to the pre-crisis trend,” IMF Americas Department acting director Nigel Chalk said.
In commodity news, Ecuador’s mining export revenue grew 134% in first eight months of 2021,
the Ministry of Energy and Non-Renewable Resources reported.
Japanese stocks, which have seen increased volatility after strong September, registered losses for the week, as the country posted a merchandise trade deficit of 622.8 billion yen last month. That missed forecasts for a shortfall of 519.2 billion yen. Meanwhile, overall inflation in the country was up 0.2% on year in September, exceeding expectations for an increase of 0.1% following the 0.4% drop in August. More positively, the manufacturing sector continued to expand in October, and at a faster pace, the latest survey from Jibun Bank showed on Friday with a manufacturing PMI score of 53.0. Takayuki Kobayashi, the new minister for economic security, expressed his resolve to strengthen supply chains for strategic goods such as semiconductors and rare earth minerals.
Chinese equities got off to a weak start after data released Monday showed that economy expanded 4.9% year-on-year in the third quarter of 2021, easing sharply from a 7.9% growth in the previous period and slightly missing market consensus of 5.2%. It was the slowest pace of expansion since the third quarter last year. However, Chinese markets managed to advance led by property and internet stocks, as news that embattled developer China Evergrande Group made a bond payment just before a 30-day grace period expired, settling investors’ nerves. Other data released in the week showed that industrial production slowed to 3.1% from 3.8% due to energy shortages. Retail sales improved to 4.4% y-o-y last month from 2.5% in August, beating expectations of 3.5%.
In Hong Kong, the Hang Seng Index returned 3.14%. China Evergrande shares jumped 4.3% on Friday after reports it had come up with cash to pay a bond interest payment that was due this weekend .
The Australian market finished ahead for the third straight week with the ASX200 returning 0.73%.
Australia manufacturing sector continued to expand in October, and at a faster pace, the latest survey from Markit Economics showed on Friday with a manufacturing PMI score of 57.3. Thats up from 56.8 in September, and it moves further above the boom-or-bust line of 50 that separates expansion from contraction. The Reserve Bank of Australia bought A$1 billion ($746 million) of April 2024 government securities in an unscheduled operation on Friday.
In New Zealand, the benchmark NZX-50 Index rose 0.49% this week and had a relatively quiet session on Friday ahead of the three-day weekend. The country’s credit card spending declined for the second straight month in September, albeit at a softer pace, the Reserve Bank of New Zealand.
European stock markets were mostly higher this week as solid corporate earnings in the region continued to roll in. However, Eurozone business activity growth slowed sharply to a six-month low in October amid increasing supply bottlenecks and ongoing coronavirus-related disruptions, dropping most markedly in manufacturing though also cooling in services, IHS Markit said. Soaring prices weighed on companies. In Germany, Jens Weidmann, a fierce critic of the European Central Bank’s loose monetary policy, said he would quit as president of Bundesbank for personal reasons at year-end—more than five years before his latest contract expires. His exit comes amid heated debate about the future of ECB policies. Meanwhile, the three German parties embroiled in coalition talks hope to conclude negotiations by the end of November, Reuters reported.
In Romania, the BET was higher by 0.32% this week. The National Bank of Romania has cleared banks in the country, some of which are controlled by foreign financial groups from Austria, France, Italy, the Netherlands and Greece, to pay dividends to shareholders following a two-year hiatus due to the Covid-19 crisis. Meanwhile, the political crisis
Nicolae Ciuca, interim Defence Minister, was designated by President Klaus Iohannis, on Thursday , as a candidate for the office of prime minister. Iohannis hopes Ciuca will gather the support of MPs to rapidly form a Cabinet, after Dacian Ciolos failed to get parliament’s confidence vote. Romania remains caught up in a political crisis, as last month, the governing coalition collapsed.
In Poland, the WIG20 returned -1.50%. On Friday, Polish rate setter Rafal Sura was quoted by news agency PAP as saying he thought rates should return to pre-Covid levels but he declined to say when he would vote for a further hike.”I cannot say whether I will vote in favor of another interest rate hike in November or in the following months, because the (monetary policy) council will be the first to know my decision,” he said.
Of note, the economies of the 23 countries of Central, Eastern and Southeastern Europe (CESEE) are expected to grow by 5.4% this year, according to Vienna Institute for International Economic Studies (wiiw) Autumn Forecast 2021.
REST OF EUROPE
In the UK, the FTSE100 slipped 0.41%. The annual inflation rate in the UK edged down to 3.1% last month from a 9-year high of 3.2% in August and below forecasts of 3.2% but still well above the Bank of England’s 2% target. BoE’s new chief economist Huw Pill said in an interview with the Financial Times that he would not be shocked to see inflation in Britain surpass a “very uncomfortable” 5%
in the coming months and the question of whether to raise interest rates was a “live” one at its early November meeting.
In Switzerland, the stock market ended marginally up on Friday after moving in a very tight range as investors largely refrained from making significant moves amid a lack of fresh triggers. The SMI returned 0.79% over the week.
(Note: Trading days 17-21/10/2021)
In Israel, trading in the Tel Aviv Stock Exchange (TASE) in the third week of October was marked by price increases in most of the leading share indices. The TA-35 index increased 0.7% over the week, bringing year-to-date cumulative gains to 24.1%. Meanwhile, TASE held its first visit to Paris this week, accompanied by leading Israeli public companies, exposing the business community in France to Israeli innovation and discovery of the opportunities that France represents for the Israeli companies’ development in Europe.
On the macro front, The Central Bureau of Statistics released third estimate data, indicating that Israel’s GDP at constant prices increased in the second quarter of 2021 by 16.6% in annual terms, compared with the previous quarter.
In Egypt, the Egyptian Exchange’s EGX30 index returned 1.24%. The EGX, in coordination with the Financial Regulatory Authority, has decided to amend the temporary suspension limits, upon which trading sessions would be suspended when the small- and mid-cap EGX70 equal-weight index (EWI) drops by 10%, instead of 5%. Moreover, trading sessions would be closed if the EGX100EWI plunged by 20%, instead of 10%.
In Saudi Arabia, the local bourse rose in early trade on Thursday (Oct. 21), holding on to a 15-year high
and jumped 2.06% over the week. The oil-rich kingdom will see 5.1% economic growth next year after a modest 2.3% expansion this year and a sharp 4.1% contraction last year, according to a Reuters poll of economists who warned a decline in oil and gas prices was the biggest risk to the outlook.
In South Africa, the JSE Top 40 was higher by 0.05% this week. South Africa will raise its benchmark interest rate if accelerating inflation becomes persistent, South African Reserve Bank’s Governor Lesetja Kganyago said in a virtual webinar hosted by Bloomberg on Friday (Oct. 22). Last month inflation increased slightly to 5% from 4.9% in August, according to Statistics South Africa. This is the fifth consecutive month where the annual increase is higher than the midpoint (4.5%) of the central bank’s monetary policy target range.
In Nigeria, the NSE-All Share Index was up 0.78% leading up to another week of positive return Optimism in respect of third quarter financial reports lifted shares’ prices. Mr Haruna Mustafa, Director, Banking Supervision of the Central Bank of Nigeria said the Global Standing Instruction (GSI) would be expanded to corporate accounts and microfinance banks in the country. The official said this at the 2021 Financial Correspondents Association of Nigeria workshop in Ibadan, Oyo State.
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