It was a mixed week in markets, dominated by news of China’s second-largest property developer Evergrande’s debt problems. At the same time, global economies are facing a slowing in economic growth with inflation rising sharply.
Last week’s performance – major stock markets
| S&P 500 | +0.51% |
| Nikkei 225 | -0.82% |
| CSI 300 | -0.13% |
| Euro Stoxx 50 | +0.67% |
| FTSE 100 | +1.26% |
Commentary
US: The Fed could soon consider tapering financial support
Most major indices overcame a sell-off in the early part of the week to end the week broadly flat. The week started off with fears that a possible default by China’s second-largest property developer—Evergrande, might set off a global financial “contagion” like what followed the collapse of Lehman Brothers in 2008. As widely expected, the Federal Reserve announce that they could soon consider tapering their financial support, following their latest policy meeting.
Japan: Favoured incoming prime minister supportive of stimulus
Japanese stocks posted losses in a volatile, holiday-shortened week. Japan’s stock markets were closed on Monday for Respect for the Aged Day and on Thursday for Autumnal Equinox Day. Polls show that Vaccination Minister Taro Kono is the favoured candidate to replace Prime Minister Suga as party leader and would become the next Japanese Prime Minister. Kono is known for his reform-minded views; his policies suggest that he’d be supportive of additional stimulus into the economy.
China: Evergrande group’s woes impacts markets globally
Chinese stocks ended a shortened week broadly flat after being closed Monday and Tuesday for the Mid-Autumn Festival. The market’s muted performance was noteworthy after stock markets in Hong Kong fell more than 3.0% on Monday amid the mounting debt crisis surrounding China’s Evergrande Group. A series of large cash injections by China’s central bank during the week helped ease worries. However, some of Evergrande’s offshore bondholders did not receive their interest payments. To read what some of Omnis’ investment managers had to say about the situation, click here.
Europe: Optimism continues amid concerns of central bank support withdrawal
Shares in Europe advanced as optimism about a continuing economic expansion offset concerns about a gradual withdrawal of central bank support. However, lingering worries about Chinese property developer Evergrande weighed on markets. Growth in eurozone economic activity slowed noticeably in September, while input prices jumped to a 21-year high. Germany headed into a general election on Sunday and at the time of writing the race was too close to call.
UK: Inflation to remain elevated into 2022
The Bank of England (BoE) kept interest rates unchanged at 0.10%. In a letter to the Chancellor of the Exchequer, the BoE said it now expects “inflation could remain above 4% into the second quarter of 2022.”On the Covid front, cases among schoolchildren aged 5 to 14 in England have surged to a record high, but case rates among young adults aged 16-29 and the above 50 category are either falling or flat. Several service stations reported disruption and several forecourts closed because of a shortage of tanker drivers due Brexit-related staffing problems. This triggered long queues for fuel over the weekend forcing some filling stations to close as supplies were exhausted.