Market Commentary - September 20, 2021

US stocks fell on Friday to their lowest level in almost a month, as investors grappled with signs of slowing global economic growth and the implications for monetary policy, as the Fed committee will meet on Tuesday to shed light on the fate of the bond-buying program, with market consensus believe they will begin to phase out the stimulus as early as November. The S&P 500 index dropped by 0.91% on Friday, its lowest point in four weeks, while Nasdaq also dipped by 0.9% on the day, with both indices falling for the second consecutive week. On the other hand, The US Congress plan to consider legislation in this week to extend the debit limit as failure to do so might plunge the economy into a recession and lead the country to default on its payment obligations.

In Europe, the STOXX 600 index fell 0.9% on last Friday, finishing the week down 1% to reflect the cautious mood on Wall Street. Both the FTSE 100 and DAX dropped 0.91% and 1.03% respectively. However, the European travel shares rallied on Friday as UK media reports suggested the government would ease restrictions and quarantine rules in time for the school half-term break. Shares in the British Airway owner IAG were nearly 5% higher at the market close in London.

The performance of the Asian market is mixed, with both the Nikkei 225 and KOSPI indices up by 0.58% and 0.33% respectively, during the morning close. While the Hang Seng index fell by more than 3.8% at the morning closure, led by the share of Evergrande, which plunged over 15%, extending losses as investors take a dim view of its business prospects with a fast-approaching deadline for payment obligations this week.

The EURUSD falls another 35 pips to settle at 1.1725 following leaked data last Thursday from the ECB which illustrated unpublished inflation forecasts depicting the central bank’s intention to initiate interest rate raises within two years. Meanwhile a 14bn short-term funds injections by the PBOC on Friday saw the USDCNH rally to above the 6.47 level. A slowdown in retail sales due a recent resurgence and the looming debt crisis from Evergrande have regulators worried.

Crude retreated to $72 after capping two consecutive weeks of advances fueled by supply restrictions as Hurricane Ida stifled America’s oil refinery sector alongside contagion from natural gas prices spurring prospects of fuel switching. Nevertheless, as OPEC intends to bolster supply increase in the coming months, Iraq have communicated the likelihood of prices being around $70 in Q1 of next year.

Elsewhere, gold fluctuated but still steadied itself around $1,754 by sessions end after Thursday tumultuous tumble. Bitcoin drifts lower to below $46,000 despite announcements by Wall Street’s biggest trading companies like Jump Trading, GTS and Jane Street in stepping up their crypto divisions.

USDCNH-Sep-20-2021-08-35-35-29-AM

Figure 1 (Source: IS Prime) USDCNH : Set to record their 3rd consecutive day of advance, PBOC's liquidity injections deters investor demand for the renminbi.

Headliner to Review
  • The UoM Consumer Sentiment Index edged slightly higher in early September, with the newly released figure rose to 71 from 70.3 in August. This reading came in slightly weaker than the market forecast of 71.9. Such small gain still meant that consumers expected the least favorable economic prospects in more than a decade.
  • UK retail sales volume fell by 0.9% in August, following a 2.8% fall in July. Food store sales volume fell by 1.2% in August with evidence suggest that the further easing of hospitality restrictions had an impact on sales, as people increased their social spending such as eating and drinking at restaurants and bars.

Headliner to Watch

  • The monetary policy meeting minutes of the Reserve Bank of Australia (RBA) is due to release on Tuesday.
  • The US current account is expected to be -187B, compared to -196B from last month.

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Authors:
Antony Tan
Kerry Man