Weekly Markets ReviewGlobal Markets Weekly Review: Week 35, 2021

Global Markets were mixed this week as data from various fronts; from the U.S jobs data which was released on Friday and the growing anxiety over the shifting Fed policy adding new wrinkles to various analysts across various global markets.

United States

The benchmark indexes for the top global market ended the week mixed after the S&P MidCap 400 Index joined the S&P 500 and Nasdaq Composite indexes in reaching new intraday highs on Thursday. The small real estate sector outperformed within the S&P 500, while financials lagged. Trading volumes were generally subdued during what is widely considered the last week of the summer vacation season. Markets were scheduled to be closed the following Monday in observance of Labor Day.

On Wednesday, payrolls firm ADP released its own tally of August private-sector job gains, which came in well below expectations. The bad news was largely taken as good news, according to our traders, as it seemed to make the Federal Reserve less likely to begin tapering asset purchases later this year.

 This chart shows moderating employment growth, falling sharply in August.

The slowdown in the global market employment gains was confirmed in the official August report on Friday, which seemed to provoke a mixed reaction in markets. Nonfarm payrolls grew by 235,000 versus consensus expectations for a gain of around 750,000. Previous months’ gains were revised higher, however, and the unemployment rate fell to a new pandemic-era low of 5.2%. While the impact of the delta variant of the coronavirus was clear—hiring in leisure and hospitality ground to a halt in August—many observers pointed to constraints in labor supply rather than lower demand. Indeed, weekly jobless claims, released Thursday, fell again to their lowest level since March 2020, and average hourly earnings jumped 0.6% in August, roughly double expectations.

Index Friday’s Close Week’s Change % Change YTD
DJIA 35,369.09 -86.71 15.56%
S&P 500 4,535.43 26.06 20.75%
Nasdaq Composite 15,363.52 234.02 19.21%
S&P MidCap 400 2,760.55 -6.51 19.68%
Russell 2000 2,292.05 14.90 16.06%
Europe

Shares in Europe were little changed, as investors assessed signs of slowing economic momentum. In local currency terms, the pan-European STOXX Europe 600 Index ended the week roughly flat. Major indexes were mixed. Germany’s Xetra DAX Index fell 0.45% on global markets, while Italy’s FTSE MIB Index gained 0.22%. France’s CAC 40 Index and the UK’s FTSE 100 Index were almost flat.

Core eurozone government bond yields rose on higher-than-expected eurozone inflation and hawkish commentary from some ECB policymakers, who called for a reduction in the purchase pace of the Pandemic Emergency Purchase Program. Peripheral eurozone and UK government bond markets mostly tracked core markets.

Eurozone inflation accelerated more than forecast to 3% in August—up from 2.2% in July and well above the ECB’s 2% target. Higher energy, food, and industrial goods prices drove the increase, according to the EU’s statistics agency.

Final eurozone and UK purchasing managers’ indexes (PMIs) showed that business activity in August slowed more than indicated by preliminary estimates. IHS Markit said the UK composite activity fell to a six-month low due to a decline in service sector activity that appeared to stem from normalizing demand, labor shortages, and supply chain obstacles.

Asia

Chinese stocks rose for a second consecutive week. The Shanghai Composite Index gained 1.7% and outperformed the large-cap CSI 300 Index, which rose 0.3%, according to Reuters.

Chinese companies listed across global markets posted robust earnings for the June quarter, with a 36% annual increase in earnings per share, according to mainland broker CITIC. Upstream resources sectors saw the strongest earnings growth, followed by new energy vehicles and semiconductors.

TradingView Chart
China’s large-cap CSI 300 Index, technical performance chart.

The consumer, pharmaceutical, and telecom sectors lagged. On a two-year basis to smooth out impacts from the pandemic, net profits increased by over 10% over the second quarter of 2019, according to CITIC.

The new exchange is aimed at providing equity financing for small and mid-size enterprises and reflects China’s strong commitment to its capital markets. News of the new bourse comes as many foreign investors have grown more wary of investing in Chinese assets following a regulatory clampdown on a number of industries. Foreign investors’ share of domestic Chinese equities fell in August to the lowest level since 2014, according to fund flow data from EPFR.

The yield on the 10-year Chinese government bond fell four basis points to 2.85%. The renminbi currency appreciated 0.5% against the U.S. dollar to 6.451.

The People’s Bank of China said that it would provide RMB 300 billion in low-cost funding to banks for lending to small and medium-sized enterprises (SMEs). Improving credit access for SMEs is a long-term objective for the central bank and does not necessarily signal a shift in monetary policy, according to analysts.

Japan

News of Prime Minister Yoshihide Suga’s resignation contributed to a strong rally in Japanese equities and regional rally for global markets across Asia, removing some political uncertainty and raising expectations of increased economic stimulus. Gains were underpinned by Japan’s accelerating COVID-19 vaccination drive. The Nikkei 225 Index soared 5.38%, while the broader TOPIX Index rose 4.49%, reaching a 30-year high. The yield on the 10-year Japanese government bond rose to 0.04% (from 0.02% at the end of the previous week), while the yen weakened slightly to JPY 109.98 against the U.S. dollar (from 109.83 the prior week).

TradingView Chart
The Nikkei 225 index, technical peformance chart.

Japan’s industrial production fell 1.5% month on month in July, following a 6.5% rise in June, as coronavirus-related supply chain disruptions weighed on car production. Car production in the global market is likely to continue posing a drag on overall output in the coming months: Toyota Motor announced in August that it would cut production for September by 40% from its previous plan, due to its inability to secure a number of parts.

Other Key Global Markets.
  • Chile – Stocks in Chile, as measured by the S&P IPSA Index, returned about -0.4%. On Wednesday, the Chilean central bank surprised investors with a 75-basis-point increase in its key lending rate, from 0.75% to 1.50%. The decision among policymakers was unanimous, and the rate increase was larger than market expectations of 50 basis points.

On Thursday, the central bank; watched across various global markets, issued its quarterly monetary policy report. On the back of higher growth and inflation forecasts, policymakers increased the amount and brought forward the timing for additional monetary tightening. Rather than pausing rate increases at a below-neutral stance at the end of 2022, as laid out in the previous report, the central bank now expects its key rate to reach a neutral level—neither stimulative nor restrictive—in the first half of next year. Central bank officials also expect to increase the key rate to a range of about 4.00% to 4.25% in its base case scenario before pausing.

  • Peru – Peruvian assets, which had stabilized; from the global markets emerging analysts; somewhat in August following several months of losses, were under pressure again during the week. The government reported that inflation in August was measured at a 1.0% month-over-month rate and a 5.0% year-over-year rate. Also during the week, global markets analyst firm, Moody’s Inc, downgraded Peru’s global credit rating by one notch to Baa1 from A3, while revising its outlook to stable from negative. While Moody’s believes that the outlook could remain stable as long as the government sticks to its new fiscal path—which envisions a 1% of gross domestic product reduction in the fiscal deficit per year starting in 2022—some are skeptical that the government will meaningfully tighten its fiscal accounts considering that newly elected President Pedro Castillo ran on a platform of sizable fiscal outlays.

This is where investors get first hand information, Securities real time feed & updates from Emerging & Frontier Markets worldwide with main focus on the Nairobi Securities Exchange.

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