The U.S. managed to avoid a partial government shutdown this week, after the Senate and the House of Representatives passed a short-term spending bill. This bill will fund the government’s operations through to early December. However, the U.S. still hasn’t resolved its debt ceiling problem, with the Secretary of the Treasury Janet Yellen stating that it will be reached around 18 October and that the limit needed to be suspended or raised in order for the Treasury to meet its obligations.
A more cautious market sentiment took hold this week, with inflation fears, slowing growth and rising rates keeping investors on edge. U.S. stocks retreated over the week, after managing a slight rally on Friday, as the large-cap benchmarks and tech heavy Nasdaq Composite recorded their largest weekly decline since February, while finishing off the worst monthly drop since the beginning of the pandemic.
More than half of China’s mainland provinces were limiting electricity use this week due to government mandated electricity consumption limits. A lack of coal also forced power shortages across the country. This electricity crunch was reflected in China’s September manufacturing purchasing managers’ index (released Thursday), as it contracted for the first time since the pandemic began, declining from 50.1 in August to 49.6. This declining factory activity added to China’s woes, as the world’s second largest economy has been showing various signs of slowing.
In the space of one week, Chinese property firm Evergrande missed two deadlines to pay $180 million worth of interest to foreign investors, again raising concerns over the company’s solvency and its ability to manage its $305b debt pile (2% of China’s GDP). In the stock market, Chinese tech stocks dipped again on Thursday as state media increased calls for intensifying regulation around online tutoring firms.
In Japan, the government finally lifted the country’s virus state of emergency on Thursday as Covid-19 cases continue to decline, while roughly 59% of Japanese people have been vaccinated. The state of emergency was declared back in April and pushed on to be one of the longest in the world.
The U.K. is still battling a nationwide fuel shortage, with over a quarter of the country’s petrol stations having no fuel. Motorists were told they would have to wait weeks for fuel supply to revert to normal levels. Consumer behaviour has been contributing to the shortage, with policing Minister Kit Malthouse stating that “If we can return to a normal pattern of consumption we can return to a normal pattern of supply”.
Eurozone inflation shot up to a 13 year high of 3.4% year over year in September, driven by soaring energy prices. Christine Lagarde, the European Central Bank President, said that the ECB will look through the most recent inflation print as it is being driven mainly by supply bottlenecks.
Global equity markets ended the week weaker, as caution clouded markets. The S&P 500 ended down 2.21%, the Dow fell 1.36% and the technology laden Nasdaq ended 3.20% lower. Stocks in Europe also declined, with the Euro Stoxx 50 ending 2.96% weaker, while the FTSE 100 dipped a modest 0.35%. Asian indexes followed suit, with the Nikkei 225 down 4.89% and Shanghai Composite Index down 1.24%. Brent crude gained 1.38%, continuing its year to date bull run while Gold held up, managing a slight gain of 0.62% over the week.
Market Moves of the Week
In South Africa, the latest quarterly employment statistics were released this week. They showed that formal non-agricultural employment in government and large businesses declined by 86 000 in 2Q21 compared to an increase of 1000 jobs in 1Q21 (-0.09% q/q). The total employment figure was only a marginal improvement since the hard lockdown in 2Q20. In other economic news, South Africa’s trade surplus widened to R42bn in August from R37bn in July, with exports (up 9.7% MoM) outpacing imports (up 8% MoM).
Reserve Bank Governor Letsetja Kganyago said in an interview this week that South Africa’s inflation target range of 3%-6% is too wide relative to peer economies. He called for a target closer to 3% while highlighting the fact that inflation in SA, excluding government set electricity and water, averages around 3.5%.
Vaccination rates across the country have slowed to their lowest level in over a month, threatening the government’s plan to have three quarters of the population vaccinated by year end. The inoculation slowdown has the potential to threaten SA’s economic recovery, as a more fierce fourth wave becomes an increasing possibility.
The JSE all-share index ended the week down -0.61%, holding up against other major markets, with the industrial (-2.13%) and listed property (-1.87%) sectors taking the biggest knocks. The Rand managed a slight gain over the week to close at R14.86 to the USD.
Chart of the Week
Given the news surrounding China’s Evergrande recently, the Chinese property sector has come under the spotlight. This week, Goldman Sachs valued the Chinese property market at a striking $62tn and stated that it is likely the largest asset class in the world.