Market Commentary - September 29, 2021

The prospect of the world’s leading central banks moving more aggressively to curb inflation rattled financial markets on Tuesday, with stocks on Wall Street suffering their biggest one-day loss in nearly five months. The S&P 500 fell 2.04%, its biggest loss since May, as more than 85% of the stocks in the index declined, while Nasdaq slid 2.8% due to the fact that tech stocks are particularly sensitive to moves in interest rates and inflation. Furthermore, the five-year Treasury yield, hit its highest level in over a year on Tuesday, a clear sign investor were beginning to worry about higher inflation and slower growth.

European stocks sank to their lowest in a week on Tuesday as a surge in government bond yields knocked high-growth technology shares, with fresh signs of a slowdown in China’s economy weighing on investor sentiment. The FTSE 100, CAC 40, and DAX fell 0.5%, 2.17% and 2.09% respectively, as the tech stocks dropped 4.8% after their Wall Street peers continued to sell off.

Elsewhere in Asia, regional shares followed global stocks lower in Wednesday morning, after fears of faster monetary policy tightening by central banks. Japan led the falls in today’s morning session, with the Nikkei 225 index down by 2.4% during morning closure, while Hang Seng index and China’s CSI 300 both shed about 1% in morning trading.

In terms of the commodities, coal, carbon and European gas prices have all hit record highs as crude oil pushed above $80 a barrel to $80.7 on Tuesday peak. The three-year high for oil prices came as Opec forecast that global demand for crude would exceed 2019 levels in 2023 and continue to rise until 2035 before plateauing. On the other hand, the pound sank to its lowest point in eight months on Tuesday as investors worried that the fuel crisis sweeping the UK could lead to a sharp slowdown in growth at the same time as a surge in inflation. Sterling fell by 1.2% to $1.353 against the dollar, the biggest one-day drop this year.

Figure 1 (Source: IS Prime) GBPUSD Daily: Sterling has now lost nearly 5% against the dollar since its peak of just above $1.42 in late May.

Headliner to Review
  • US consumer confidence has fallen again in September. It is now at 109.3 versus 115.2 in August with the present situation and expectations components falling similar amounts, which reinforces the message that the economy has hit a speed bump in the third quarter with the resurgence of Covid having made households more cautious.
  • COVID lockdowns have continued to weigh heavily on Australia’s retailers as sales dropped for a third straight month. The newly released retail turnover fell 1.7% to $29.3 billion in August, following a 2.7% slump in July and a 1.8% slide in June.

Headliner to Watch

  • The Chinese Manufacturing PMI will be announced in tomorrow, expected to be 50 compared to 50.1 in August.
  • US quarterly GDP figure is forecasted to grow by 6.6%, in line with the last quarter of an expansion of 6.6%.

 

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Authors:
Antony Tan
Kerry Man