Market Commentary - October 19, 2021

US investors cast off concerns about rising interest rates and a growth slowdown in China on Monday, sending Wall Street stocks higher even as markets in Europe and Asia fell. The S&P 500 recovered from an early dip to close up 0.34%. Tech stocks such as Facebook and Apple were the biggest drivers of the gains, hiking 3.3% and 1.2% respectively, pushing the Nasdaq 0.8%.

Bullishness on Wall Street contrasted with European benchmarks. The STOXX 50 indices closed down 0.5%, while FTSE 100 slipped 0.4% with France, Italy and Spain also declining as investors reduced their holdings of luxury goods businesses that benefited from Chinese demand. Across the channel, governor of Bank of England (BoE) Andrew Bailey, warned over the weekend that the bank would have to act to curb inflation sparked by rising energy prices and pandemic-related supply chain bottlenecks.

Elsewhere in Asia, Hong Kong Stock Exchange’s MSCI China A 50 Connect Index Futures, which track a new index of 50 A-shares, saw 1,395 contracts traded on Monday with a notional value of $93.5M, the highest figure for the first day of any new futures contract traded on the exchange. Such data underscore the demand from investors in China for hedging avenues amid current market volatility. On the other hand, China stocks rose on Tuesday, led by consumer staples and agriculture stocks, while tech giants drove the Hang Seng benchmark to a 5-week high.

Brent crude touched $86 a barrel, about a three-year high, as energy traders shrugged off China’s slowdown to focus on an ongoing gas shortage. USD/TRY entered its third consecutive week of gains on Monday, surpassing 9.3 on the back of extra depreciation in the Turkish lira and moderate recovery in the greenback. Gold trades to $1764 in yesterday close as its pricing continues to be affected by rising yields in US 10-year Treasury notes and bitcoin finds equilibrium above $62,000.

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Figure 1 (Source: IS Prime) IDX.US.500 Daily : Blue chips rebound from lows in October, optimism of corporate earnings season and bottlenecks

Headliner to Review
  • The Chinese GDP grew 4.9% in the third quarter from a year ago, which missed expectations for a 5.2% expansion. While Industrial Production rose by 3.1% in September which is also below the 4.5% expected by markets. The power shortage had a certain impact on normal production as a surge in the price of coal and shortage of electricity prompted local authorities to abruptly cut off power.
  • The New Zealand quarterly CPI jumped 2.2% when compared to the June quarter, which was almost the biggest quarterly jump since 1987. Economists had been expecting inflation to rise from both the supply and the demand side, as higher house prices and relatively full employment are boosting people’s sense of wealth and their appetite for spending.

Headliner to Watch

  • UK CPI data is due to release on Wednesday, with consensus forecasts another 3.2% print as price pressures are set to persist well into next year, jumping close to 4% as the energy price cap is adjusted.
  • The Canadian monthly CPI is expected to rise by 0.1%. However, signs of stronger inflation may put pressure on the Bank of Canada (BoC) to scale back monetary support.

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Authors:
Antony Tan
Kerry Man