1H October Global Market Recap
1st October 2021 – 15th October 2021
Inflation in the US continued to climb in September. The YoY CPI reached 5.4% in September, the highest level since July 2008 and has remained above 5% for four consecutive months. The PPI and core rose 8.6% and 6.8%, respectively, driven largely by supply chain disruption, shortage of raw materials, and insufficient labor supply. As of 15th October, the 10-year inflation expectations in the United States have risen to 2.56%, the highest since March 2013.
China domestic consumption remains weak whilst showing signs of improvement. There were 515m visitors travelling within China’s 7-day National Day holiday, 30% lower compared to pre pandemic level as more consumers chose to stay closer to home. Exports outperform market forecasts by rising 28.1% and hitting record high dollar values driven by strong external demand. China’s PPI hit a 26-year high and widening PPI-CPI scissor spread indicates an ongoing upstream pricing pressure and weak downstream demand. Government’s attempts to ensure electricity and coal supply could reduce upward pressure on upstream pricing in China. Furthermore, the weakening TSF and RMB new loans, especially medium- and long-term loans to individuals and corporations, indicate that weak demand remains the major reason.
Major U.S index registered gains in the first half of October, as market sentiment recovered substantially thanks to the postponement of the debt limit risk and the peaking of the global delta variant. The S&P 500 rose by 3.8% in the first half of the month, while the Nasdaq increased by 3.1% and the Dow was up 4.3%.
The A-share market sentiment dropped slightly after a break from the National Day holiday due to growing concerns about stagflation. As of 16th October, 62% of the companies that have 3Q21 results reported earnings growth, which remained strong while lower than the 69% growth in 2Q21. In the first half of the month, the Shanghai Composite Index climbed by 0.1%, the CSI 300 index grew by 1.4%, and the ChiNext Index rose by 1%. The Hang Seng Index increased by 3.1%. driven by a recovering US market, rising hopes for policy support and a less stringent regulatory attitude in China. In the near term, we believe the market will continue to fluctuate as it digests various concerns including rising commodity prices, higher US rates, and persistent policy uncertainties.
Multiple tenor treasury yield climbed in the first half of the month after the Federal Reserve signaled in September to start pulling back on its massive debt purchases in the upcoming month. All the 2-year, 3-year and the five-year reached their highest levels since early 2020. New Zealand raised interest rates for the first time in seven years to rein in property prices and inflation. China's central bank rolled over maturing medium-term loans and kept interest rates unchanged, heightening speculation policymakers might need to ease monetary settings to support the economy amid risks from stagflation. Tenors between 1 to 30 years on the yield curve saw a major upward shift as compared to 3 months ago.
China’s dollar junk bond yields soared to 20% with other debt markets remaining relatively calm, as fears of contagion risks intensified over the past two weeks after a surprise default by Fantasia Holdings Group and a warning from Sinic Holdings Group that its default was imminent. Chinese regulators have signaled a willingness to prop up healthy property firms by asking banks to refrain from cutting off funding to developers all at once. China's credit growth slowed in September, as weakness in the property market weighed on financing and lending activities. The issuance of residential mortgage-backed securities (RMBS) in September hit the highest level this year.
The Dollar Index fell by 0.3% as global risk appetite rebounded, helping reduce demand for the safe-haven currency. The Japanese yen fell by 2.6% against the dollar, hitting levels back in 2018. The Chinese Yuan has remained resilient, despite the recent rise in the Dollar. A PBoC governor mentioned the development of the digital yuan will be focused on domestic and retail use at this stage.
Brent and WTI crude oil prices rose by 8.1% and 9.7% as the market forecast a supply deficit in the next few months on top of the easing of coronavirus-related travel restrictions spurring demand. Bitcoin rose by 44% and topped US$60,000 for the first time in 6 months as hopes grew that U.S. regulators would allow a futures-based exchange-traded fund (ETF), a move likely to open the path to wider investment in digital assets. The CoreCommodity CRB Index is reaching levels back in late 2014 as the global economy recovery continues.