The Dow Jones and S&P 500 reached record highs this week as a number of positive third quarter earnings surprises boosted investor sentiment. Third quarter earnings season started off strongly, with the vast majority of banks beating markets expectations. Other industries, which may have been more impacted by supply chain and covid related issues, are set to report in the upcoming week. The strong company earnings data also helped alleviate some inflation concerns, however, investors are still keeping their eyes on higher energy and raw material prices and their potential impact on companies future profits.
The U.S. Federal Reserve banned senior officials, including branch chiefs, governors and senior staff, from trading individual stocks and bonds this past week. Going forward, only diversified investment vehicles such as mutual funds may be used. This announcement comes after an ethics scandal that triggered the departure of two regional presidents. In economic news, the Fed’s Christopher Waller expects inflation to moderate and called for tapering to start as soon as next month, but held the view that interest rate hikes wouldn’t follow soon after.
In geopolitical news, the U.S. President Joe Biden clarified his stance surrounding Taiwan, stating that the United States was wholly committed to defending the island from a Chinese attack. Biden told CNN host Anderson Cooper that “I don’t want a Cold War with China — I just want to make China understand that we are not going to step back, we are not going to change any of our views.”
Growth in China is seeming to slow, as the country’s third-quarter GDP print came in at a disappointing 4.9% (vs 5.2% expected), with the National Bureau of Statistics of China attributing it to industrial activity rising less than expected in September. Another sign of slowing growth was seen in Chinese property as home prices fell for the first time in six years in September. On the topic of property, Chinese Firm Evergrande managed to make a crucial interest payment due September, allowing the company to avoid a widely expected default.
On Wednesday, the Office for National Statistics released the UK’s September inflation data. Inflation came in at an annual rate of 3.1%, down from August’s 3.2% figure. Bank of England’s chief economist Huw Pill told the financial times that he wouldn’t be surprised if UK inflation hit or exceeded 5% in the coming months.
Business activity in the Eurozone slowed this month as supply-chain constraints caused firms to face rising costs. The IHS Markit’s Flash Composite Purchasing Managers’ Index, a measure of overall economic health, dropped to 54.3 in October, a six-month low.
Global stock markets were broadly higher over the week, as investors welcomed positive earnings momentum. The S&P 500 ended the week 1.64% higher, the Dow rose 1.08% and the Nasdaq climbed 1.29% . Stocks in Europe also rose, with the Euro Stoxx 50 managing a 0.14% gain, while the FTSE 100 dipped 0.41%. Asian indexes were mixed, with the Nikkei 225 down 0.91% and Shanghai Composite Index up 0.29%. Brent crude climbed 1.38% and Gold rose 1.43%.
Market Moves of the Week
South African annual consumer price inflation came in at 5% in September, up from 4.9% in August 2021 and in line with expectations. Core inflation also edged higher from 3.1% to 3.2%. Among headline inflation, food inflation registered a general decline from 6.9% to 6.6%, while petrol inflation was flat at 20% year-on-year.
Suspended African National Congress (ANC) secretary general Ace Magashule appeared in the Bloemfontein High Court on Tuesday morning where his corruption case was postponed to November for the pre-trial hearing. He maintains he has never been involved in any corruption.
The South African Health Products Regulatory Authority (Sahpra) has rejected the Russian-developed Sputnik vaccine. The regulator announced in a statement on October 18 it had not approved the Sputnik V COVID-19 vaccine for use in South Africa. It cited health and safety concerns due to the country’s HIV rate as its principal reason.
The JSE all-share index managed a slight gain of 0.03%, with resource stocks having the biggest drag on the market. Industrials bounced back this week with a solid gain of 2.17%. The Rand weakened over the week to close at R14.85 to the USD.
Chart of the Week
Bitcoin rallied to a record, topping $66,000 for the first time as optimism surged for greater mainstream acceptance in the wake of the successful launch of the first bitcoin-linked exchange-traded fund on Tuesday. The ETF, which is offered by ProShares, trades on the NYSE and tracks the bitcoin futures market.