In a volatile week major U.S. indices overcame an early sell-off on Monday to end the week modestly higher. The Dow ended the week 0.6% higher, the S&P 500 ended 0.5% higher while the tech-heavy Nasdaq only managed to eke out a 0.02% gain for the week.
Markets kicked off the week in a nervous mood with fears that a possible default by Evergrande, China’s second-largest property developer, might set off a global financial “contagion”. However, a series of large cash injections by China’s central bank during the week helped ease worries about a disorderly debt resolution for the indebted developer.
The other big event for the week was the conclusion of Federal Reserve’s (the Fed) September two day policy meeting. At the Wednesday briefing, Federal Reserve Chairman Jerome Powell signalled no imminent removal of the current ultra-easy monetary policy, but he did indicate that a taper of its bond-buying program “may soon be warranted” and that the U.S. central bank could conclude its tapering process around the middle of next year, as long as the recovery remains on track.
There was also a more hawkish tilt on interest rates with half of the Federal Reserve’s 18 members now seeing a first interest rate hike in 2022, according to the central bank’s so-called “dot plot” of projections. That’s up from seven in June’s Fed projections, meaning that some members have grown more concerned on the risks of higher inflation since the last dots were published in June.
Norway became the first big western central bank to tighten its monetary policy this week, with the central bank raising its key short-term lending rate by a quarter point to 0.25% from 0.00%.
The race to succeed Angela Merkel as German chancellor remains open as Europe’s most populous country goes to the polls today. Latest opinion polls give the centre left a narrow lead over the outgoing chancellor’s conservatives.
In China, Evergrande was due to pay $83 million of interest on Thursday for a $2 billion dollar-denominated bond that is set to mature in March 2022. Various sources indicated that these interest payments were not received so the company now enters a 30-day grace period before it technically defaults.
Remaining in China, the Chinese central bank declared all cryptocurrency-related activities illegal on Friday, the ban includes all overseas crypto exchanges providing services in mainland China. Bitcoin prices tumbled on news of the ban.
Shares in Europe advanced for the week as concerns of a disorderly default of Evergrande were offset by improved investor sentiment on a continued European recovery. In local currency terms, the European STOXX 50 Index ended 0.67% higher while the UK’s FTSE 100 Index climbed 1.26%.
Japanese stocks ended the week lower in a holiday-shortened trading week with Nikkei 225 Stock Average ending down -0.82%.
Market Moves of the Week
South Africa's headline consumer price inflation quickened to 4.9% year on year in August from 4.6% in July, data from Statistics South Africa showed on Wednesday. Core inflation, which excludes prices of food, non-alcoholic beverages, fuel and energy, edged up slightly to 3.1% year on year in August, from 3.0% previously. This was in line with consensus expectation.
The South African Reserve Bank (“SARB”) kept its policy rate unchanged at 3.50%, governor Lesetja Kganyago announced on Thursday. This was in line with consensus and consistent with market pricing that implied only a small probability of a rate hike. Kganyago said it was a unanimous decision to keep the repo rate on hold. “The July events and the pandemic are likely to have lasting effects on investor confidence and job creation, impeding recovery in labour-intensive sectors hardest hit by the lockdowns. GDP is expected to grow by 1.7% in 2022 [down from 2.3%] and by 1.8% in 2023 [down from 2.4%],” he added.
The JSE all share index gained 1.89% this week after slumping 2.24% on Monday to its lowest level since January. The bourse was led higher by all the major sectors. By Friday close, the rand was trading at R14.95 to the U.S. Dollar, weakening against all the major developed market currencies this week.
Chart of the Week
At the Federal Open Market Committee (FOMC) meeting held this week (21-22 September), meeting participants submitted their interest rate projections according to the central bank’s so-called -dot plot. Wednesday’s forecast showed nine of the 18 FOMC members expecting a rate hike in 2022. That’s up from seven in June’s Fed projections. Additionally, all but one member is expecting at least one rate hike by the end of 2023 with thirteen members forecasting two rate hikes through 2023.