Most stocks markets proved resilient this week despite the hotter-than-expected October inflation reports out of the U.S. and China but U.S. stocks pulled back. Consumer prices in the world’s largest economy jumped more than 6.2% in October vs. the previous year. That’s the highest reading since 1991, casting increasing doubt on the idea of “transitory” price pressures. The possible Federal Reserve reaction to it was also a dominant theme in financial markets. Persistent inflation could force the US central bank to increase the pace of its tapering program and hike rates earlier than expected. With CPI printing a monster, all eyes will be on October retail sales data next Tuesday (Nov. 16) as consumer spending represents nearly two-thirds of US GDP.
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The Canadian stock market climbed 1.46% in the week.
The market has been hitting new highs consistently since early last month. The TSX scaled a new peak on Friday, bolstered by a jump in the shares of e-commerce giant Shopify Inc- the most valuable company on the TSX by far- and gains for the heavily weighted financial services group. Toronto’s market has advanced 24.9% since the beginning of the year with energy being a major driver.
Major U.S. indices retreated as investors tried to digest the eye-popping CPI report.
The S&P 500 lost 0.31% over the past five trading days. The Dow Jones and Nasdaq took their lumps too, falling 0.63% and 0.7%, respectively, for the week. Not only did consumer price inflation come in hot. The Michigan Consumer Sentiment Survey hit a 10-year low. “Consumer sentiment fell in early November to its lowest level in a decade due to an escalating inflation rate and the growing belief among consumers that no effective policies have yet been developed to reduce the damage from surging inflation” they survey said.
And yet the earnings season tally has been particularly good. Of the 460 S&P 500 companies that have reported thus far, roughly 68% have topped revenue forecasts and nearly 81% have bested profit projections, according to Bloomberg data. Elsewhere, The U.S. Federal Reserve’s twice-yearly financial stability report warned risk assets could tank if the economy takes a turn for the worse.
Mexico’s the IPC returned -1.05%.
The Mexican central bank decided to raise its benchmark interest rate by 25 basis points, from 4.75% to 5.00%, marking the fourth consecutive hike. Meantime, consumer inflation data for October showed a hotter-than-expected increase in prices of 6.24%.
In Brazil, the Bovespa was up 1%. October inflation accelerated to 10.67%, or more than expected. According to the IBGE, the result was the highest variation for October since 2002. Producer Inflation rose 1.60%.
In Chile, the IPSA jumped 2.23%.
Presidential election will be held on November 21. A report by Swiss investment bank Julius Baer says that “regardless of the presidential result, Chile’s fiscal position will continue to deteriorate.” The annual inflation rate in Chile surged to 6% in October from 5.3% in the prior month. It was the highest rate since January of 2009.
Japanese stocks fell.
Worries about China’s economy, inflation and perceptions that valuations were lagging behind U.S. peers provided some tailwinds. Fumio Kishida was reelected as Japan’s prime minister Wednesday and will form his second Cabinet in a month by reappointing most of his ministers. Kishida promises to create a reinforcing cycle of growth and is compiling an economic stimulus package of about JPY 30 trillion (around USD 265 billion) with government seeking to pass a supplementary budget by year-end to fund the stimulus package.
The corporate goods price index (CGPI), which measures the price development of goods traded in the corporate sector, surged 8.0% in October from a year earlier, exceeding market expectations for a 7.0% gain, Bank of Japan data showed on Thursday. The increase was the fastest pace since comparable data became available in January 1981 and was attributable to both rising commodity prices and supply chain bottlenecks.
Chinese markets advanced despite risks from the country’s commercial property sector.
Customers of international clearing firm Clearstream received overdue interest payments on three U.S. dollar bonds issued by Chinese indebted developer Evergrande but the specter of property companies’ defaults continues to loom over the sector.
Adding to woes, China’s producer price index (PPI) surged by 13.5% year-on-year in October 2021, a 26-year high, beating market expectations of a 12.4% gain and following September’s figure of a 10.7% rise on sharply higher energy prices.
On the banking front, new bank lending fell dropped last month indicating that tight loan supply could pose a headwind to growth. The markets also digested results from China’s “Singles’ Day,” an online sales event that came in stronger than the performance posted in 2020.
The ASX200 index finished the week down 0.19%.
The unemployment rate in Australia climbed to 5.2% in October, from 4.6% a month earlier and above market estimates of 4.8%. This was the highest reading since April. Employment is still sitting 1.2% below its pre-Covid peak in 2020.
“As the labour market tightens ahead, and if global inflation pressures persist – evident by another surge in the US CPI leading markets to speculate on earlier Fed rate hikes – it would raise the risk the RBA could also increase the cash rate in [second half of] 22,” George Theranou,Chief Economist at UBS said in a note to clients.
European equities rose.
Robust third-quarter figures helped allay inflation concerns. The European Commission (EC) raised its 2021 economic growth forecast for the eurozone to 5.0% this year from 4.8% but the report also mentioned “mounting headwinds” including rising energy prices and supply side disruption. Eurozone industrial production fell in September: Output from factories, mines and utilities across the region fell 0.2%. Economists polled by Reuters had expected a monthly decline of 0.5%. Economists polled by The Wall Street Journal had forecast a 0.7% decline. In other news, European countries began re-imposing restrictions on mobility and economic activity.
In Hungary, the BUX sank 5.07% .
Uncertainty prevailed over the pace of a rate hike by the country’s central bank next week. A Reuters poll of analysts expects a 30 basis-point hike to 2.1%. Meanwhile, the government said it would impose a cap on fuel prices to keep a lid on surging inflation. Hungarian inflation jumped to 6.5% year-on-year in October. The price cap “will have about 40bp downward impact on headline inflation in December, while the effect on the November CPI should be less pronounced,” Morgan Stanley said.
Romania’s annual inflation rate increased to 7.9% in October from 6.29% a month earlier. It was the highest reading since May 2011, The country’s central bank it its November Inflation Report released Thursday, revised upwards its annual inflation forecast to 7.5% in December 2021, up 1.9 percentage points than the level anticipated in August.
REST OF EUROPE
In the U.K., the FTSE100 advanced 0.60%.
UK economic growth slowed to a 1.3% rate in the three months ended September 30 as rising prices, supply constraints and shortages of goods weighed on activity, That’s down from 5.5% in the second quarter and below the 1.5% forecast by the Bank of England. The British Chambers of Commerce said 80% of U.K. businesses are feeling the effects of inflation.
In Switzerland, the SMI returned 1.58%. The benchmark moved closer to its peak on Friday as investors indulged in some strong buying at several frontline counters. Richemont, the world’s biggest jewellery company soared nearly 11% amid robust corporate earnings, outperforming the European retail goods sector. In economic news, Switzerland’s producer and import prices rose 5.1% year-on-year in October, data from the Federal Statistical Office showed on Friday.
(Note: Trading 07-11/11/2021)
In Egypt, the EGX30 was off 0.34%.
The Arab country plans to reduce a series of fees on trading in Egyptian securities as a means of improving the investment environment. The reductions include fees on trades on the stock market, payments to the Financial Regulatory Authority, fees to the state-run Misr for Central Clearing, Depository and Registry and fees to the Investor Protection Fund, the cabinet said in a statement on Wednesday.
In Abu Dhabi, the ADX General Index returned 3.38%.
The Abu Dhabi Securities Exchange (ADX) and the emirate’s Department of Economic Development (DED) have submitted a proposal to the Securities and Commodities Authority (SCA) for the introduction of an SPAC framework, potentially opening the door to a slew of Gulf-focused deals involving special-purpose acquisition companies (SPACs).
In South Africa, the FTSE/JSE All Share Index (ASI) booked a 3.1% weekly gain.
It was the biggest gain in eight months while the JSE Top 40 jumped 3.51%. The benchmark ASI extended gains for a third straight session to close 1.1% up at a record level of 69,921 on Friday, helped by an over 10% jump in shares of luxury goods holding company Richemont, tracking its Swiss counterpart amid better-than-expected first half results. SA’s Finance minister Enoch Godongwana tabled his first Medium-Term Budget Policy Statement with investors welcoming his decision to stick to his predecessor’s tight grip on spending, despite noting the lack of clarity on how to boost the post-Covid economic recovery.
In Nigeria, the NSE All Share Index returned 2.95% this week.
However, trading activities on the Nigerian Exchange Limited closed on a negative note on Wednesday, Thursday and Friday. The market negative performance was driven by investors profit-taking in large and medium capitalised stocks.
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Kyriaki Balkoudi is a markets editor for World Markets Daily. She has a bachelor’s degree in Balkans Studies from Aristotle University of Thessaloniki, Greece and a master’s degree in International Politics from City University London, UK.
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“Weekly market wrap”. Edward Jones. Nov. 12, 2021
“Weekly Market Recap”. John Hancock Investments. Nov.12, 2021
“Schwab Market Update”. Charles Schwab. Nov. 12, 2021
“Market Analysis”. Edmond de Rothschild. Nov.12, 2021
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