Global markets were up all week with a massive post-thanksgiving crash following the emergence of a new covid-19 variant in South Africa.
The United States.
Stocks declined for the holiday-shortened week after Friday’s news about the emergence of a new, potentially more contagious, coronavirus variant in South Africa triggered a sharp sell-off in riskier assets such as equities. Before the Thanksgiving holiday, information technology stocks suffered as rising Treasury yields which give directions to global yields, made expected corporate profits far in the future less valuable in today’s terms. Yields decreased on Friday amid the flight to assets viewed as safe-havens. Value stocks held up better than growth companies despite Friday’s selling pressure on stocks related to leisure and travel.
On Monday morning, President Joe Biden said that he plans to renominate Jerome Powell as Federal Reserve chair. Powell was widely viewed as somewhat less dovish than Lael Brainard, a Fed governor who was the other leading candidate for the position. Biden nominated Brainard to be the vice-chair of the Fed’s Board of Governors.
On Friday, stocks across global markets led by the U.S fell sharply after scientists in South Africa said that they have found a new variant of the coronavirus that appears to spread more quickly than the delta variant that caused a global wave of cases earlier in 2021. Although it is unclear if the new variant is more effective at evading the immune defences triggered by current vaccines, the news prompted a sell-off in riskier asset classes and a rally in safe-havens, such as Treasuries. The price of West Texas Intermediate crude oil, the U.S. benchmark for the commodity, plummeted more than 10% on Friday on fears that the new variant will damage demand for oil.
| Index | Friday’s Close | Week’s Change | % Change YTD |
| DJIA | 34,899.34 | -702.64 | 14.03% |
| S&P 500 | 4,594.62 | -103.34 | 22.33% |
| Nasdaq Composite | 15,491.66 | -565.78 | 20.20% |
| S&P MidCap 400 | 2,779.41 | -91.31 | 20.50% |
| Russell 2000 | 2,245.94 | -97.22 | 13.73% |
Europe
Shares in Europe fell sharply on fears that the economic recovery might be derailed by the imposition of tight coronavirus restrictions and the spread of a new variant of the virus. In local currency terms, the pan-European STOXX Europe 600 Index ended the week more than 4% lower. The main indexes of Germany, France, Italy, the Netherlands, and Spain also tumbled following the drop across global markets. The decline of the UK’s FTSE 100 Index was less pronounced, as the pound depreciated against the U.S. dollar. A weaker pound tends to support the index because many of its companies are multinationals with overseas revenues.
The UK was the first major global power to ban travel from South Africa and its neighbours to contain the new strain of coronavirus, and the European Union (EU) planned similar moves. Earlier in the week, large-scale protests broke out in the Netherlands, Belgium, Austria, and Italy after they imposed stricter controls due to the spike in infections. However, apart from the Netherlands and Austria, most countries stopped short of imposing lockdowns, and some made booster injections that enhance vaccine effectiveness available to all adults.
Social Democrat leader Olaf Scholz will succeed Angela Merkel as chancellor of Germany after clinching a deal with the Greens and the liberal Free Democrats (FDP) to form a coalition government. FDP Chairman Christian Lindner, a fiscal conservative, will be the finance minister. The alliance said its main aims are to upgrade infrastructure to modernize the economy, accelerate measures to combat climate change and increase the minimum wage and social housing.
Asia.
China
Chinese markets weakened and followed other global markets, with the CSI index easing 0.6% and the Shanghai Composite Index ending flat amid U.S.-China tensions and rising economic pressures that raised expectations for supportive government measures. Yields on China’s 10-year government bonds fell to 2.881% from the prior week’s 2.946% as investors sought safe-haven assets. The yuan gained marginally to 6.3917 per U.S. dollar from last week’s 6.4009 per dollar.
Relations with the U.S. remained tense over the status of Taiwan and trade issues. The U.S. Commerce Department issued a trade blacklist naming a dozen Chinese companies that it said supported the military modernization of the People’s Liberation Army. In response, a Chinese official said the U.S. should not expect China’s military to compromise regarding Taiwan.
On the economic front for Asia’s largest global market, Premier Li Keqiang said that China should step up efforts to stabilize employment, financing, and other key areas and that the government was studying policies on tax and fee cuts, along with some reforms, to support businesses. Last week, China kept its loan prime rate unchanged for the 19th straight month. However, monetary policy easing has been taking place through other channels, including looser mortgage lending, deposit rate reforms, and reductions to domestic banks’ reserve required ratio.
The property sector in China remained under duress and causing a global concern across investors. Kaisa Group, the latest high-profile developer trying to avert default, announced a bond exchange program for its creditors. Kaisa has unpaid coupons totalling over USD 59 million that were due to global investors on November 11 and 12, with 30-day grace periods for both. If the offer to bondholders fails, “we may not be able to repay the Existing Notes upon maturity on December 7, 2021, and we may consider alternative debt restructuring exercise,” the developer said in a stock exchange filing. Kaisa made headlines in 2015 when it became the first Chinese builder to default on its dollar bonds. The company has the most offshore debt in China’s property sector coming due over the next year after embattling China Evergrande Group.
Japan
Japanese equities battled on gamely for much of the shortened week, only to succumb late in the week as worries about the pace of economic recovery ultimately undermined sentiment. The Nikkei 225 fell below 29,000 points, in line with major global markets, shedding 3.3% on the way to closing at 28,752. The Topix fared only marginally better, easing 2.91% and falling through the 2,000-point barrier to finish at 1,985.
Japanese equity markets began the shortened week in a cautious fashion, as renewed coronavirus concerns in Europe, as well as rising cases in the U.S., sparked worries about the pace of the global economic recovery. Against this backdrop, areas like airlines and autos saw selling pressure. However, as markets closed ahead of the Thanksgiving Day holiday, early losses had been broadly pared back. The Japanese government’s record USD 490 billion stimulus package announcement in the previous week was likely a supportive factor.
On the local front, flash data showed the Japan Composite PMI rose to 52.5 in November—a 37-month high—from 50.7 in October, buoyed by loosening coronavirus restrictions and soaring vaccination rates. Similarly, the Japan Services PMI hit a 26-month high of 52.1 in November, up from 50.7 the previous month. And, rounding out the triumvirate of upbeat releases, Japan’s Manufacturing PMI rose to 54.2 in November, up from 53.2 in October. This was the 10th straight month of expansion in factory activity and the strongest pace since January 2018.
Other Key Global Markets.
Turkey
Turkish stocks, as measured by the BIST-100 Index, returned about 2.25% across global markets. While equities added to recent gains, the lira plunged in value on Tuesday and bonds weakened following comments from President Recep Tayyip Erdogan. The president, who holds the unconventional belief that high-interest rates cause elevated inflation—which was recently measured at about 20% year over year—defended the central bank’s recent interest rate reductions as part of an “economic war.” The lira rebounded partially on Wednesday, possibly in response to a central bank statement in which policymakers indicated that they have “no commitment to any exchange rate level” and that the central bank would only intervene in response to “excessive volatility” in the currency market.
Chile
Chilean stocks, as measured by the S&P IPSA Index, returned about 5.1% in line with major global markets. Chilean assets performed well in a relief rally on Monday—although they gave back some gains later in the week—following the results of the elections held on Sunday, November 21. In the first round of the presidential election being watched from all corners of global markets, far-right candidate José Antonio Kast did slightly better than far-left candidate Gabriel Boric. These two candidates were generally expected to fare best in the first round, though neither received more than 30% of the ballots cast. As a result, there will be a second-round runoff between them on December 19.
