World markets digested a plethora of earnings and economic data this week , while continuing to grapple with supply-chain disruptions, concerns about inflation (Eurozone inflation shot past expectations in October to hit a 13-year high), challenges facing business activity and uncertainty regarding the path of global monetary policies. As the month draws to a close, underlying sentiment was kept cautious with traders having decided that central banks will be forced to hike rates early. In the US, the world’s largest economy, third quarter GDP growth eased to 2% marking the weakest quarter of growth since the mid-2020 as deepening supply bottlenecks affected goods from autos to food. In China, the world’s second largest economy, continued concerns about the strength of the property sector weigh. On the bright side, Russian President Vladimir Putin encouraged state-owned Gazprom to start refilling its European gas-storage facilities as soon as next month, sending prices lower.
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The Canadian stock market was lower this week. Investors digested a slew of earnings updates and economic data. The economy expanded 0.4% month-over-month in August, missing estimates,
as supply chain woes weigh Statistics Canada said. Third quarter annualized GDP increased by just 1.9% according to a flash estimate, much less than the 5.5% forecast by the Bank of Canada on Wednesday. In a separate release StatsCan said the industrial product price went up 1% month-over-month in September, in line with preliminary estimates. Meanwhile, the Raw Materials Price Index increased 2.5% from an upwardly revised 3.1% decrease in August.
Most US indices notched up gains and reached new high thanks to earnings announcements.For the week, the tech-rich Nasdaq jumped 2.7%, the S&P 500 advanced 1.3% and the Dow Jones moved up 0.4%. It was also a busy week for US macroeconomic data. The Commerce Department revealed its advance estimate that GDP growth slowed in the third quarter to 2%, down from 6.7% in the previous quarter and below consensus estimates of roughly 2.7% .The Commerce Department also said personal income in the world’s largest economy decreased by much more than expected in the month of September. A separate report from the University of Michigan showed the consumer sentiment index deteriorated by slightly less than initially estimated in the month of October. Pending home sales showed a notable pullback in September after spiking in August, according to a report released by the National Association of Realtors. New weekly jobless claims fell, for the fourth week in a row.
Brazilian assets were under pressure this week with the Bovespa index plunging 3%. The Sao Paulo stock exchange registered a cumulative drop of 6.7% in October, the worst monthly result of the year,
due to fears Brazil might relax fiscal rules. Brazil’s Central Bank increased its benchmark interest rate to 7.75% per year on Wednesday, its sixth interest rate hike in 2021 and the biggest in almost two decades. The market was already forecasting a hike, but there were still doubts about the level that would be set. Meanwhile, the Consumer Price Index rose 1.20%, is highest for October since 1995, the Brazilian Institute of Geography and Statistics (IBGE) reported. The result was above the 28 projections of analysts from consulting firms and financial institutions consulted by Valor Data.
In Chile, the IPSA returned 0.19%. The Chilean central bank published the minutes from its October 13 monetary policy meeting, at which rate-setters unanimously decided to raise the key interest rate from 1.50% to 2.75%. “In Chile, the financial markets have deteriorated much more strongly and systematically, standing at the extremes of international movements. This is explained by idiosyncratic factors, especially the change in the inflation outlook and uncertainty surrounding political and legislative issues, most importantly new withdrawals of pension funds” the minutes read.
Ahead of the October 31 Lower House election, stocks ended the week more or less flat. A cautious undertone prevailed after data showed Japanese industrial output fell for the third straight month in September on weak auto production amid a global chip shortage and disruption in supply chains in Southeast Asia, government data showed. It was the lowest level in 13 months. The Bank of Japan (BoJ) left its key short-term interest rate unchanged at -0.1% as widely expected. I In a quarterly outlook report, the central bank slashed its projected rates of the GDP to 3.4% compared with 3.8% projected in July for this fiscal year, citing sluggish consumption and a slowdown in exports and output as supply disruptions persisted. The BoJ also downgraded its forecast for consumer price inflation in fiscal year 2021 to 0.0%, from an earlier forecast of 0.6%, due to the impact of cellphone fee cuts and the effects of rebasing the price index.
Chinese equity markets retreated as new lockdowns were introduced in certain areas. Continued concerns about the strength of the property sector also weighted on sentiment as Fitch and S&P Global reduced their credit ratings on several Chinese developers. Cash-strapped developer Evergrande made an overdue interest payment on dollar bonds shortly before the end of a 30-day grace period on Friday, averting what would have been the world’s second-largest emerging market corporate debt default.
In other news, industrial profit growth jumped 16.3% on-year to 738.74 billion yuan ($115.72 billion) in September, quickening from the 10.1% gain reported in August, the statistics bureau said.
The People’s Bank of China injected a total of CNY 200 billion (USD 31.29 billion) of seven-day reverse repos at an interest rate of 2.2% for a 5th straight day on Friday.
Australian markets fell as rising inflation remained a key concern and investors digested the implications of the Reserve Bank of Australia failing to purchase April 2024 target bonds on Friday. They also priced in a rate hike as soon as early next year. Meanwhile, the Australian Securities and Investments Commission (ASIC) has given the green light to a range of cryptocurrency-related ETFs, which could see Bitcoin and Ethereum-backed investment funds trading on the ASX in the coming months. In economic news, Australia’s retail sales rebounded in September from three months of steep declines.
European stock markets edged higher this week supported by solid corporate earnings. The EU logged a sequential growth of 2.2% in the third quarter taking the annual expansion to 3.7%. Separately flash data from Eurostat showed that annual inflation rate in the eurozone jumped to 4.1% in October from 3.4% in September and higher than market forecasts of 3.7%. It is the highest reading since July of 2008, amid higher energy prices. The European Central Bank met on No major shifts were expected and no policy changes were made with the statement being largely unchanged from the September version, though markets continue to price a rapid pace of policy tightening, not just in Europe, but across the globe.
In Poland, the WIG20 dropped 0.50%. Flash data showed Poland’s annual inflation rate climbed to 6.8% in October, from 5.9% in the previous month and slightly above market forecasts of 6.5%, strengthening expectations of a rate hike. Poland’s central bank will hold its next rate meeting on Nov.3.
“We expect the NBP to deliver a measured 25bp hike, with non-negligible risks for the central bank to remain on hold and a smaller probability of a larger 50bp hike,” Morgan Stanley analysts said in a note on Friday.
In Romania, the BET was lower by 0.14%. The ongoing energy crisis, inflationary pressures and investors’ expectations that Romania’s central bank and other central banks will start a more aggressive interest rate hike cycle, have brought first mutual fund withdrawals in Romania (RON67 million) in September 2021. Meanwhile, financial analysts Romania sees the Romanian leu depreciating to 5.0547 units to the euro in the next 12 months, while the annual inflation rate is seen at 5.01% during the same period, a monthly poll by CFA Romania showed.
REST OF EUROPE
In the UK, the FTSE100 returned 0.46%. The Office for Budget Responsibility increased its forecast for the rise in GDP this year from 4% to 6.5%. In 2022, the economy will grow another 6%.The forecast was close to the International Monetary Fund’s estimate that British gross domestic product will grow by 6.8% in 2021. The bad news is that the fiscal watchdog expects inflation to average 4% over the next year. In Switzerland, the SMI was up 0.43%. The KOF Economic Barometer in Switzerland fell to 110.7 in October from an upwardly revised 111 in September, registering its fifth consecutive decline after hitting a record 143.6 in May.
(Note: Trading days 24-28/10/2021)
In Israel, trading in the Tel Aviv Stock Exchange (TASE) in the fourth week of October was marked by a mixed trend in the leading share indices. The TA-35 index returned -0.6%, bringing year-to-date cumulative gains to 23.4%. In a joint initiative of the Accountant General in the Treasury and the TASE – for the first time, government bonds issued abroad will be able to be listed for simultaneous trading also on the TASE. The first six series will begin trading this coming Sunday.
In Saudi Arabia, the TASI returned -1%. The benchmark index was weighed down by a 2.6% fall in Saudi Basic Industries Corp (SABIC) on Thursday, the Gulf’s largest petrochemical firm, which reported a net profit of 5.6 billion riyals ($1.5 billion), missing Refinitiv-compiled analysts’ consensus estimate of 6.1 billion riyals.
In South Africa, the JSE Top 40 was higher by 0.66%. South Africa’s trade surplus shrank to R22.24 billion in September. The sharp increase in the oil price, the country’s biggest import, contributed to a sharp 16% increase in imports (R135 billion), while exports fell by 1% to R157 billion, the South African Revenue Service (SARS) revealed on Friday (Oct. 30).
In Nigeria, the NSE ASI was up 0.47%. Nigeria on Tuesday (Oct 26) became the first African nation to introduce an official digital currency, by launching the eNaira. Already, 33 banks are fully integrated and live on the eNaira platform, with over 2,000 customers onboard and over 120 merchants, according to the central bank.
In Kenya, the NSE ASI fell 0.32%. The Nairobi Securities Exchange (NSE) will introduce day trading from November 22 to deepen capital markets, where turnover and trading activity has remained flat in recent years. The NSE said on Tuesday (Oct. 26) it had received approval from the Capital Markets Authority (CMA) for the roll out of day trading next month.
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