1H September Global Market Recap
1st September 2021 – 15th September 2021
Macro: The U.S. economy gained jobs at a far slower rate in August, as an initial wave of reopened hiring subsided and fears about the Delta variant grew. The U.S. added 235,000 nonfarm payrolls in August, far below expectations of 750,000. Inflation fell slightly in August but remained uplifted as pandemic related labor and supply constraints continued to drive up prices. The headline CPI index rose 5.3% from a year ago, slightly below the 5.4% increase in the previous two months. China's economic growth momentum and resilience were further affected by the resurgence of Covid-19 cases and extreme weather in August. Retail sales rose 2.5% on a year over year basis in August, significantly below the medium forecast of 7.4%. Industrial Production rose 5.3% from the same period last year, slowing from a 6.4% growth in July and falling short of the market consensus of 6%. The growing ‘scissors gap' between PPI and CPI indicates that Chinese manufacturers' profit margins are deteriorating, putting more downward pressure on activity growth in the coming months. The market is paying more attention to fiscal policies and possible increase in infrastructure investment as Beijing has signaled that it is unlikely to further ease monetary policies for now.
Stocks: U.S. stocks struggled to maintain confidence amid the backdrop of a possible shift in the Fed policy, slower growth, disappointing labor market and concerns with high inflation. The University of Michigan consumer sentiment index remained close to a near-decade low. All three major indexes registered losses in the first half of September. The S&P 500 index dropped 0.9%, the Nasdaq Composite and The Dow Jones Industrial Average traded down 0.6% and 1.5%, respectively. Persistently high average daily turnover of the A-share market has been above Rmb1trn for 43 consecutive trading days from 21st July to 17th September, breaking the previous record of 43 trading days in May‒July 2015. China’s total outstanding balance of margin transactions reached 1.926 trillion yuan, the highest level in 6 years. Small- and mid-cap stocks and cyclical industries are major growth drivers. CSI 300 Index and CSI Smallcap 500 Index rose 1.5% and 4.6% respectively, while ChiNext Index decreased 0.4% in the first half of September.
Rates: Investors will be watching closely as the Fed policy makers meet on 22nd September to consider when to start reducing asset purchases, and to update their quarterly forecasts for when to raise policy rates. The 10-year U.S. treasury yield decreased by 1bps in the first half of the month and has fallen by 16.9bps so far since the start of Q3. The People’s Bank of China is turning to its relending program, providing loans to commercial banks for lending to customers. Tenors longer than 5 years saw an overall downward shift in the curve while those between 1 to 5 years steepened as compared to 3 months ago.
Credit: Overall, the global credit market remains relatively stable, but market sentiments has become less positive as the delta variant continues spreading quickly. Post-Labour Day, a record 21 U.S. companies with investment-grade corporate ratings look to borrow a total of about $35 billion in the bond market. Issuers are taking advantage of an attractive funding environment as borrowing costs are expected to rise when the Fed tapers its support for the financial markets. In China, credit market stress spreads from lower-rated property companies to stronger peers and banks. Investors awaits as authorities have yet to spell out whether the government would allow a major debt restructuring or bankruptcy.
FX: The Chinese Yuan has remained resilient, despite a resurgence in Covid cases and Beijing’s crackdown on the country’s biggest technology companies. A recent call between President Xi Jinping and his U.S. counterpart raised hopes of improved relations between the two nations as the Yuan is headed for its strongest close in nearly three months. A boom in corporate dealmaking, surging input costs and a focus on short-term cash flows in the pandemic have sent companies rushing to hedge their currency exposures this year, giving a boost to banks that sell foreign exchange products.
Commodities: Brent and WTI crude oil prices rose by 3.4% and 6.0% as U.S. output remains slow to return two weeks after Hurricane Ida slammed into the Gulf Coast and worries another storm could affect output in Texas this week. China made headlines with the news that it was going to release some crude oil from its strategic petroleum reserve and sell it. Natural Gas prices surge by 24.5% and gained 118% YTD as an unusually hot summer, plus disruptions associated with weather disasters such as Hurricane Ida, played a role in kickstarting the jump in natural gas prices. The CoreCommodity CRB Index has reached levels back in mid-2015 as the global economy recovery continues.