News: Markets on edge over Covid resurgence


Read on for a morning round-up of what's going on in markets
Newsfeed25 Nov 2021
    Photo credit: AFP Photo


    US

    Stocks climbed as investors shrugged off tapering concerns highlighted in minutes of the Federal Reserve’s last meeting. The dollar gained and the Treasury yield curve flattened as short-end rates rose.

    The S&P 500 rose, after briefly dipping following release of the minutes, with real estate and energy stocks leading gains. The tech-heavy Nasdaq 100 outperformed major benchmarks. Trading volume has been less than average ahead of the US Thanksgiving holiday. A gauge of the dollar jumped to the highest since July 2020. Data earlier today showed a resilient US consumer despite accelerating inflation.

    The 2-3 November meeting minutes noted the committee “would not hesitate to take appropriate actions to address inflation pressures”. Since then, inflation surged to the highest rate since 1990 and Fed officials have said it may be appropriate to discuss quickening the pace of tapering at the December meeting. That has triggered a jump in Treasury yields, with the 2Y rate soaring to the highest since early March 2020 and markets bringing forward bets on rate hikes.

    US personal spending rose in October from a month earlier by more than expected, while a closely watched inflation measure posted the largest annual increase in three decades. In addition, data showed 199,000 people made initial jobless claims in the period ended 20 November, the least since 1969, while orders placed with US factories for business equipment rose in October by more than forecast, highlighting solid momentum for capital investment at the start of the fourth quarter.

    Damping inflation is now centre-stage for policymakers, with ultra-loose, pandemic-era stimulus set to be wound down. At the same time, investors are on the edge over the resurgence in Covid, notably in Europe. – Bloomberg News.

    The S&P 500 Index upped 0.23% to 4,701.46 on Wednesday (24 November), the Dow Jones Industrial Average dipped 0.03% to 35,804.38, and the Nasdaq Composite Index rose 0.44% to 15,845.23.

     

    EUROPE

    The factors stoking inflation in Europe are becoming more structural and simultaneously affecting economic growth, according to European Central Bank (ECB) Vice President Luis de Guindos.

    While supply bottlenecks and higher energy costs are transitory by nature, inflation has not eased as much as the ECB had projected, Guindos said late Tuesday (23 November) in a speech in Madrid. The situation is also leading to greater uncertainty in making economic predictions, he said.

    “The European Central Bank is continuously pointing out that the inflation rebound in recent months is of a transitory nature,” Guindos said. “However, we have also seen how in recent months these supply factors are becoming more structural, more permanent.”

    The remarks chime with recent comments by other ECB officials on the risks from the current bout of elevated consumer-price growth – even as a new wave of Covid sweeps across the continent.

    Guindos said he is confident Europe’s economy will continue its healthy growth path, despite the surge in infections. – Bloomberg News.

    The Stoxx Europe 600 Index inched 0.10% higher to 479.69.

     

    JAPAN

    Japan plans to issue JPY22.1t (USD192b) in bonds to help pay for another extra budget in the pandemic, as Prime Minister Fumio Kishida looks to shore up the recovery before next year’s elections, the Nikkei newspaper reported Wednesday (24 November).

    Some JPY6t carried over from previous stimulus and another roughly JPY6t in unexpected tax revenue were not enough to cover the general expenditures of a JPY36t extra budget put together to finance Kishida’s stimulus plan, the Nikkei said, without identifying where it got the information.

    With the new borrowing plan, Kishida is signalling his willingness to add more to Japan’s growing mountain of debt as he lays the groundwork for what he says will be a new kind of capitalism.

    Some analysts have questioned the need for so much spending now, given that the worst of the pandemic appears over, and the economy was forecast to rebound on its own.

    Kishida, who had been known for being fiscally cautious, surprised investors last week (ended 19 November) by unveiling a record fiscal package of JPY56t, following a report days earlier that the economy shrank last quarter for the fifth time in eight quarters. 

    Still, with vaccination rates now over 75% and restrictions on economic activity largely lifted, the recovery already looked poised to pick up.

    At the same time, the government failed to spend more than JPY30t it budgeted for stimulus last year, suggesting that it may be difficult to inject all of the new money into the economy quickly. Japan’s Cabinet is expected Friday to approve the budget and detail its spending priorities.

    The plan sketched out last week includes cash payments to households with children, handouts for smaller companies, and higher salaries for caregivers on government payrolls.

    New borrowing will add to the developed world’s heaviest government debt burden. Even without the latest stimulus factored in, the International Monetary Fund calculates that Japan’s government debt will reach 257% the size of gross domestic product in 2021.

    Still, the Bank of Japan’s (BOJ) yield curve control programme, which involves purchasing government debt, will likely keep yields within a tight band, despite the new issuance.

    The BOJ’s says the primary purpose of its bond purchases is to help spur price growth, but the programme plays a key role in keeping the government’s borrowing costs down. – Bloomberg News.

    The Nikkei 225 Index climbed 0.71% to 29,510.50 in early Thursday trading. It shed 1.58% to 29.302.66 the previous session.

     

    MAINLAND CHINA & HONG KONG

    Tencent Holdings has been ordered to stop rolling out new apps, as China’s tech industry regulator reviews their compliance with new privacy laws introduced this month, according to people with knowledge of the matter.

    The Ministry of Industry and Information Technology (MIIT) has also ordered a temporary halt to updates of existing apps, though current versions of products can still be downloaded and used, the people said, asking not to be identified as the information has not been made public. Tencent, which owns the WeChat super-app and QQ messaging service, said in a statement that it is working to enhance user protection features within its apps and regularly cooperates with relevant government agencies to ensure compliance.

    China on 1 November began implementing a new Personal Information Protection Law that more tightly governs how tech companies handle user data, part of a broader effort by Beijing to rein in its Internet giants and wrest control over the vast reams of data they collect. Tencent has been targeted by the MIIT because nine of its products were found on four previous occasions to violate data protection rules, triggering the freeze, the people said.

    The MIIT has ordered that all new apps and updates from 24 November until the end of the year will need to undergo a review by the regulator before they are made available, state broadcaster CCTV reported without saying where it obtained the information. The reviews are expected to take about seven days, according to the report.    

    Earlier this year, Tencent suspended new user registrations for WeChat, citing unspecified technical upgrades. That suspension lasted roughly a week before the Shenzhen-based tech firm resumed new sign-ups. – Bloomberg News.

    On Wednesday (24 November), the Hang Seng Index added 0.14% to 24,685.50 while the Shanghai Composite Index climbed 0.10% to 3,592.70.

     

    REST OF ASIA

    Singapore expects gross domestic product to expand 3% to 5% next year, a slower pace than this year as its rebound from the worst of the pandemic steadies.

    The first official forecast for 2022 compares with about 7% this year, the Ministry of Trade and Industry said Wednesday (24 November), reflecting the impact from easing pandemic restrictions and a stabilising global economy.

    Manufacturing and trade will remain strong on robust external demand, Gabriel Lim, permanent secretary in the trade ministry, said at a briefing, adding downside risks globally include supply bottlenecks and a resurgence in infections. Travel, consumer, and construction will show recovery, though activity levels may not reach pre-Covid levels next year, he said.

    The growth outlook comes as the city-state seeks to move on from its biggest surge in virus cases, which had complicated its rollback of social curbs. While the island continues to open up its borders amid a fall in infections, the government has signalled a further easing of restrictions within the country is unlikely this year. – Bloomberg News.

    South Korea’s Kospi Index dipped 0.39% to 2,982.12 in early Thursday trading. It closed 0.10% lower at 2,994.29 the previous session.

    Australia’s S&P/ASX 200 Index slipped 0.07% to 7,394.30, adding to its loss of 0.15% to 7,399.40 the previous session.

    The Taiwan Stock Exchange Weighted Index lost 0.13% to 17,642.52.

     

    COMMODITIES

    Oil edged slightly lower a day after US stockpiles rose and the day after the announcement of a coordinated release crude from strategic reserves.

    Futures in New York closed down 0.1%. A government report showed US stockpiles increased 1.02m barrels last week (ended 19 November). The White House announced on Tuesday a release of 50m barrels from its reserves in coordination with the US, China, Japan, India, the UK, and South Korea.

    The release of reserves was already priced into the oil markets for weeks, with oil having fallen USD10 from its multiyear highs in October. The focus now turns to the Organization of Petroleum Exporting Countries + (OPEC+) and how the group will respond to the move by some of its biggest customers. Prior to the announcement, the alliance said a release is unjustified by current market conditions and it may have to reconsider plans to add more supply at a monthly meeting next week.

    The US also confirmed Tuesday that its barrels – which make up the bulk of the release – will be mostly sour, or high in sulfur. That does little to solve an underlying problem of a shortage of sweet crudes, which are low in sulfur content. As a result, a key time spread that measures the health of those markets has surged markedly.

    West Texas Intermediate January delivery fell 0.14% to settle at USD78.39 a barrel in New York. Brent for January settlement slipped 0.07% to settle at USD82.25 a barrel.

    Of the 50m barrels released by the US, 32m will be issued from the Strategic Petroleum Reserve as an exchange over the next several months, and the remaining 18m will come from an accelerated release of previously authorised sales, the White House said in a statement Tuesday. A senior administration official said barrels could start moving as soon as mid-December.

    The report from the US Energy Information Administration also showed inventories at the nation’s biggest storage hub at Cushing, Oklahoma, rose 787,000 barrels and gasoline stockpiles fell by 603,000 barrels. – Bloomberg News.

     

    CURRENCIES

    The dollar surged to its strongest level in more than a year, driven by a climb in Treasury yields this week following US President Joe Biden’s decision to renominate Jerome Powell as head of the Federal Reserve.

    The Bloomberg Dollar Spot Index was up as much as 0.5% after a swath of US economic data was released Wednesday (24 November), including figures that showed jobless claims at the lowest level in decades. The move pushed the greenback index to a level last seen in July 2020.

    The gauge has added more than 2% this month as concerns about rising inflation have spurred bets on tighter Fed policy. The dollar has strengthened against all but two of 16 major currencies tracked by Bloomberg, as threats ranging from Covid to soaring inflation loom around the world.

    Traders are watching progress in the labour market for clues on the Fed’s policy path, as Powell has emphasised such progress is a key condition for tightening monetary conditions in the world’s largest economy.

    The greenback gained about 1.1% against the New Zealand dollar, the day’s biggest loser among G-10 currencies, after the New Zealand central bank raised its benchmark rate by a quarter point as forecast but disappointed some hawks by saying it would take a cautious approach to further tightening. – Bloomberg News.

    On Wednesday, the US Dollar Index rose 0.40% to 96.875, the euro fell 0.44% to USD1.1199, the pound lost 0.37% to USD1.3328, and the yen finished 0.25% weaker at 115.43 per dollar.


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