Notes from the Kitchen

Markets regain their footing

  • Sep 27, 2021
  • Craig Farley

Global equity markets regained some composure and moved higher, halting a run of three straight weeks of declines, led by gains in the US and Europe.

Evergrande, the world’s most heavily indebted property developer, moved closer to a default after it missed a Thursday night deadline to make a USD 83.5 million interest payment but fears of widespread contagion have eased – comparisons to the systemic crisis triggered by the 2008 Lehman collapse are far-fetched. China’s central bank, the PBoC, injected more than USD 70 billion of cash into its banking system and the exposure owned by international creditors is not de-stabilising.

In a busy week for central banks, the US Federal Reserve put markets on notice that it will start to reign in its monthly bond purchases before the end of the year and interest rate rises will likely follow in 2022. Whilst the economic recovery faces some headwinds from the spreading Delta variant of Covid-19, higher inflation expectations are forcing the hands of monetary officials to act.

The message from the Bank of England the following day was broadly similar and its first rate hike may come sooner with UK inflation expected to climb above 4 per cent this winter. It provided a boost to Sterling which ended the week 0.2% and 0.6% higher versus the Dollar and Euro respectively.

The prospect of less accommodative monetary policy caused some angst in bond markets. 10-yr Gilt yields rose to 1.00%, the highest level since May 2019, and 10-yr US Treasuries spiked to 1.54%. Investment grade corporate bonds moved in the same direction.

Long queues outside of petrol stations is headline news. Recovering post-pandemic demand and disrupted supply has led energy prices to soar as inventories run down ahead of winter. Brent crude surged past USD 80-a-barrel for the first time in nearly three years.

The rally in Bitcoin came to an abrupt halt on Friday when Chinese judicial and monetary policies declared all activities connected to crypto currencies are “illegal”. It ended the week 2.6% lower.

TEAM Asset Management is a trading name of Theta Enhanced Asset Management Limited which is regulated by the Jersey Financial Services Commission.