Trading in stock markets over the week was marked by increases in prices in the leading share indices. Markets seemed to react favorably to the week’s economic data, even though consumer prices last month notched their largest annual gain in nearly four decades in the world’s largest economy. The data reinforced expectations the Federal Reserve will accelerate the wind-down of its bond-buying program at the central bank’s final meeting of the year next week. Heading into 2022, the risk of disappointing economic growth expectations is very high. Wages are not keeping up with the rising inflation of daily living costs and the acceleration of tapering liquidity and hiking interest rates will prove unkind to investors chasing highly overvalued securities.
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Despite three successive days of losses, the TSX gained about 1.2% in the week.
As widely expected, the Bank of Canada decided to keep its target for the overnight rate at 0.25% and to maintain its forward guidance which sees a rise in the overnight rate sometime in the middle quarters of 2022.
Data from Statistics Canada showed Canadian industries operated at 81.4% of their production capacity in the third quarter of 2021, down from 82% in the second quarter and below market expectations of 83%. It was the first decrease after four consecutive increases.
U.S. equity markets bounced back this week, after two weeks of losses.
The S&P 500 Index recorded its best weekly gain since February and has climbed 25% this year.
The strength on Wall Street came even after the U.S. Labor Department revealed that consumer price index (CPI) inflation soared 6.8% annually in November, the biggest jump since 1982 and marking the sixth month in a row in which the rate topped 5.0%.
While the elevated rate of inflation may lead the Federal Reserve to accelerate the pace of tapering its asset purchases next week, traders seemed relieved that the price growth was not even faster.
Data also showed U.S. jobless claims hitting their lowest rate since 1969 last week, as 184,000 people filed new unemployment insurance claims.
A separate report from the University of Michigan showed consumer sentiment in the U.S. climbed to 70.4 in December after dropping to a ten-year low of 67.4 in November.
In Brazil, the Bovespa index jumped 3%.
Despite some recent weaker-than-expected economic data, the Central Bank of Brazil unanimously decided to raise the Selic rate by 150 basis points to 9.25% on Wednesday. It was the seventh consecutive interest rate hike in 2021. Meanwhile, inflation rose 0.95% month over month in November. This was weaker than expected.
In Mexico the IPC Index returned 1.22%.
Mexico’s annual inflation rate advanced to 7.37% last month from 6.24% in October, surpassing market expectations of a 7.22% rise and moving further away from the central bank’s 3% target. It was the highest increase in CPI since January of 2001
In Chile, the IPSA returned 0.83%.
The country saw an inflationary rise of 0.5% in November, while the accumulated 12-month rate standing at 6.7%, the highest rate since 2008, when it reached 7.1%.
Japanese stocks gained over the week.
Sentiment among Japan’s manufacturers rose to a four-month high in December, according to the Reuters Tankan Survey. The economy contracted by an annualized 3.6% in the third quarter, more than the preliminary estimate of 3.0%, revised figures for GDP released by Japan’s Cabinet Office showed. Prime Minister Fumio Kishida’s administration intends to stimulate consumption and strengthen the ecosystem surrounding start-ups, such as by reviewing the rules for becoming listed on an exchange, so that start-ups that have achieved listing are able to grow further.
Chinese indices ended the week higher.
The People’s Bank of China will cut the reserve requirement ratio (RRR) for banks by 50 basis points effective December 15, its second such move this year as China seeks to bolster slowing growth. After this move, the average RRR for all banks will be 8.4%.
The rate cut will release CNY 1.2 trillion in long-term liquidity into the economy. But banks will still decide on whether to turn this liquidity into loans. “If they do, real estate developers with high levels of debt should be avoided” ING said as worries about property sector defaults persist. After months of struggling to pay down its massive debts, cash-strapped developer China Evergrande Group has defaulted, Fitch Ratings Fitch Ratings ruled on Thursday but the market’s reaction was limited.
In economic news, China’s consumer price index rose 2.3% in November from a year ago, while the producer price index rose 12.9%. On the trade front, exports rose 22% year on year in November,
while imports surged 31.7%.
The Australian market posted gains for the week for the first time in five.
The ASX200 finished 1.55% higher with all sectors in the black. The Reserve Bank of Australia decided to keep its monetary policy stance unchanged. The cash rate was unchanged at a record low of 0.1% for the 13th month in a row as expected. Policymakers noted that inflation pressures are less than they are in many other countries, amid modest wages growth.
In other news, the $22 billion merger of Australian oil and gas company Santos and Papua New Guinea’s Oil Search completed on Friday. Oil Search will disappear from the stock exchanges of PNG and Australia at the end of the year, almost 93 years after it was first incorporated.
European stocks rebounded despite large protests in Brussels and Austria and the implementation of stricter rules in some countries.
In Germany, the DAX returned 2.99%. The country’s industry output rose much more than expected in October, but orders tumbled, Federal Statistics Office data showed.
German consumer price inflation crossed 5% last month. The consumer price index rose 5.2% year-on-year following a 4.5% increase in October. Meanwhile, the European Central Bank will reportedly continue to buy €40 to €60 billion in bonds after the end of the Pandemic Emergency Purchase Programme (PEPP) in March.
Earlier this week, ECB Governing Council member Peter Kazimir said he expects its asset purchase program (APP) to be a “key instrument in the future,” but insisted the bank should not tamper with it at the moment. Media reports suggested the Frankfurt-based institution is planning to debate a limited and temporary increase of its APP at its December meeting.
In Poland, the WIG20 rose 1.56%.
The National Bank of Poland raised its benchmark reference rate by 50bps to 1.75% on Wednesday, in line with market expectations. It was the third consecutive increase of the main rate, as central banks around the region have hiked interest rates in recent months to battle surging price growth fueled by both external and domestic factors.
In Hungary, the BUX added 0.34%.
Inflation data showed the headline rate spiking almost a full percentage point to 7.4% in November, a 14-year high.
Romania’s BET index was up 1.23%.
On the macro front, the Romanian gross domestic product (GDP) advanced 7.4% year-on-year in Q3 of 2021, faster than a preliminary figure of a 7.2% growth but slowing sharply from a 13.9% expansion in the previous period. Meanwhile, Romania’s public debt has increased by RON57 billion since the beginning of 2021 and reached RON556.4 billion (50.2% of Romania’s GDP) in the last four quarters.
REST OF EUROPE
In Russia, stocks as measured by the MOEX index returned -3.91%.
The Russian market has been falling over the last month on geopolitical tensions and lower oil prices.
In the UK, the FTSE 100, London’s premier index jumped 2.38%.
Goldman Sachs who previously expected the Bank to raise rates 15 basis points at its next meeting of rate setters on 16 December now expects the central bank to raise rates in February next year.
GDP in the UK expanded 0.1% in October as the construction industry shrank due to rising costs and supply disruptions.
In Switzerland, the SMI jumped 3.55%.
The Swiss National Bank (SNB), Banque de France (BdF), and Bank for International Settlements’ (BIS) Innovation Hub have successfully completed Project Jura, an experiment in cross-border wholesale CBDC, in collaboration with SIX Digital Exchange, Accenture, Credit Suisse, Natixis, R3 and UBS.
(Note: Trading from 05-09/12/2021)
In Israel, trading in the Tel Aviv Stock Exchange (TASE) over the week was marked by increases in prices in the leading share indices, similar to the trend in stock exchanges worldwide.
TA-35 index advanced 1.9% over the week, bringing year-to-date cumulative gains to 27.2%.
The Bank of Israel released figures indicating that foreign investors acquired US$ 400 million net in shares in September 2021, following acquisitions of shares of about US$ 170 million net in the previous month.
In Saudi Arabia, the TASI was up 0.52%. Saudi Tadawul Group, the owner of the kingdom’s $2.5 trillion dollar bourse, raised 3.78 billion riyals ($1.01 billion) via an initial public offering (IPO) that was 121 times oversubscribed on Wednesday.
In Egypt, the EGX30 returned 1.17%. In macro news, the Arab country’s annual consumer price inflation stood at 6.2% in November last month.The Central Bank of Egypt aims to achieve an inflation rate of 7 percent (±2) percentage points on average during the fourth quarter of 2022.
In South Africa, the JSE Top 40 climbed 1.69% this week. A confidence index compiled by the South African Chamber of Commerce and Industry fell to 92.8 in November from 94.9 in the previous month.
The business mood is likely to be dampened further as more than 90 countries have imposed a travel ban to and from South Africa right before the summer holiday season. “Without decisive action to address obstacles to investment and reduce the government’s need to borrow, growth and employment will not pick up” a report by International Monetary Fund (IMF) says.
In Nigeria, the NSE All Share Index was off 0.68%. The market capitalization of the top five banks, referred to as the Tier-1 banks, increased to N2.61 trillion as at close of business, on Friday as investors in these banks gained a total of N151.03 billion during the trading week. According to data from the Nigerian Exchange (NGX), the market capitalization of the top five banks grew to N2.61 trillion to appreciate by 6.1% during the week.
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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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