Chief Investment Office 23 Sep 2021


Stocks closed higher and the Treasury yield curve flattened after Federal Reserve officials signalled they would probably begin tapering their bond-buying programme soon. The dollar strengthened vs its major peers, while oil gained.

The S&P 500 Index had jumped earlier, rising for the for the first time in five trading sessions, as concerns about China Evergrande Group’s debt woes eased. The benchmark index rose 1%, the biggest one-day increase since July. Shorter-maturity Treasury notes fell while longer-maturity debt edged higher, flattening the yield curve, after revisions to Fed’s dot-plot forecasts for fed funds target showed a 2022 median of 0.25%, up from 0.125% prior, while 2023 rate forecasts were also dragged higher.

If progress towards the Fed’s employment and inflation goals “continues broadly as expected, the committee judges that a moderation in the pace of asset purchases may soon be warranted”, the US central bank’s policy-setting Federal Open Market Committee said Wednesday (22 September) in a statement following a two-day meeting.  

Fed Chair Jerome Powell said during a press conference that tapering could end around mid-2022 and that most on the committee favour a gradual pace. That could mean the Fed makes an announcement in November, potentially creating an eight-month taper process.

The Fed’s timeline for tapering stimulus and any shifts in expectations for interest rate increases are key for investors, who have grown used to central bank stimulus supporting asset prices. The revision follows a period of market volatility stoked by Evergrande’s woes. China’s wider property-sector curbs are also feeding into concerns about a slowdown in the economic recovery from the pandemic. – Bloomberg News.

The S&P 500 closed 0.95% higher at 4,395.64 on Wednesday. The Dow Jones Industrial Average climbed 1.00% to 34,258.32 and the Nasdaq Composite Index added 1.02% to 14,896.85.



More than 1.5m households in Britain are being forced to switch energy suppliers after two more retailers collapsed on Wednesday (22 September), bringing the tally of companies going out of business to seven since early August.

The last two victims were Green Supplier Ltd and Avro Energy Inc, which both stopped trading on Wednesday. Avro had 580,000 customers and Green had 255,000, accounting for 2.9% of households in Britain. Another five suppliers, with more than 650,000 customers in total, have also gone under since the start of August as natural gas and power prices surged to record highs.

The announcements follow a prediction made by UK Business Secretary Kwasi Kwarteng on Tuesday that more companies would be in trouble. The secretary is holding daily meetings with energy regulator Ofgem to monitor the energy market and “step into gear processes to protect consumers”, he said in a tweet Wednesday.

“The current market conditions are unprecedented, with record wholesale energy prices pushing the cost of energy above the price cap,” Green said in a statement. “This means that Green, like all other energy suppliers, are selling energy to customers at a loss.”

Speaking to lawmakers earlier, Kwarteng said the country should be prepared for higher longer-term prices. RBC Europe Ltd estimates that bills could jump by as much as GBP400 (USD546) a year because of surging costs.

It is not just the UK. A cold winter could ignite a Europe-wide energy-supply crisis. Prices already at record levels before winter has started has got governments worried. The issue of price volatility and the impact of soaring energy costs on public support for the shift to clean energy was raised unexpectedly at a meeting of European Union (EU) energy ministers in Slovenia on Wednesday, according to a person with knowledge of the talks.

Several EU countries want the energy crunch to be put on the agenda for the summit of the bloc’s leaders on 21-22 October, according to an official of the European Commission who declined to be identified.

So far, the effects of the surge in prices are being felt most acutely in Britain. Food shortages may have been avoided for now after officials on Tuesday agreed to give “limited financial support” to help CF Industries Holdings restart a fertiliser plant halted by high gas prices. – Bloomberg News.

The Stoxx Europe 600 index closed 0.99% higher at 463.20.



Bank of Japan (BOJ) Governor Haruhiko Kuroda reaffirmed the importance of a concerted policy mix that supports the economy, ahead of a key ruling party election that is almost certain to determine the country’s next prime minister.

Speaking after the BOJ left its policy unchanged and fleshed out more details of its green lending program, Kuroda emphasised the need to keep supporting the economy amid ongoing risks from the pandemic, including supply-side constraints.

Wednesday’s (22 September) stand-pat decision comes a week before a ruling party election to pick Prime Minister Yoshihide Suga’s successor. The new leader of the Liberal Democratic Party is expected to put together a stimulus package to help the economy get back on a firmer recovery track.

In a busy week for central banks, the Federal Reserve concludes its own meeting just hours after the BOJ gathering and is likely to offer clues about its tapering plans that could keep downward pressure on the yen or lead to a short-term lift depending on how sanguine Jerome Powell is on the economy.

For now, the BOJ looks highly unlikely to join any early moves to scale back stimulus, whoever replaces Suga, especially with Japan’s inflation still below zero. – Bloomberg News.

Japan markets are closed 23 September for the Autumnal Equinox Day. The Nikkei 225 Index lost 0.67% to 26,639.40 on Wednesday.  



China’s central bank boosted its gross injection of short-term cash into the financial system after concern over a debt crisis at China Evergrande Group roiled global markets.

The People’s Bank of China (PBOC) pumped CNY120b (USD18.6b) into the banking system through reverse repurchase agreements, resulting in a net injection of CNY90b. That matches the amount seen on Friday (17 September), and was just below that of Saturday. Sentiment was also boosted after Evergrande’s onshore property unit said it plans to repay interest due Thursday on its local bonds.

“The PBOC’s net injection is probably aimed at soothing nerves as the market worries about Evergrande,” said Eugene Leow, a senior rates strategist at DBS Bank in Singapore. “While the aim may be to instil discipline, there is also a need to prevent contagion into the real economy or to other sectors.”

The need to calm market jitters is pressing amid losses in China-related equities worldwide over recent days amid concern over Evergrande’s debt woes. The benchmark CSI 300 Index fell as much as 1.9% Wednesday after the Hang Seng China Enterprises Index – a gauge of Chinese shares traded in Hong Kong – slid the most in two months on Monday. Losses came even as Wall Street analysts sought to reassure investors that Evergrande would not lead to a Lehman moment.


China’s cash operations have been aimed at striking a balance between spurring growth hurt by fresh virus outbreaks and tighter regulations, while preventing asset bubbles. Authorities tend to loosen their grip on liquidity towards quarter-end due to increased demand for cash from banks for regulatory checks. Lenders also need to hoard more funds ahead of the one-week holiday at the start of October.

Evergrande’s onshore property unit said it negotiated a plan with bondholders to repay interest due 23 September on local yuan bonds, according to a vaguely worded exchange filing on Wednesday. The company said it will make the interest payment for its 5.8% 2025 security. The amount due for the coupon was CNY232m, according to data compiled by Bloomberg.

That came after Evergrande missed interest payments due Monday to at least two of its largest bank creditors, people familiar with the matter said, asking not to be identified discussing private information.

Uncertainty over how financial troubles at China’s largest property developer – with CNY300b of liabilities – would be resolved has swelled as the authorities have refrained from providing any public assurances on a state-led resolution. China’s slowing economy has compounded investor angst. Still, many analysts say the Evergrande crisis is not likely to become a Chinese version of the Lehman collapse. – Bloomberg News.

On Wednesday, the Shanghai Composite Index gained 0.40% to 3,628.49. Hong Kong markets were closed for National Day.



India’s biggest electric scooter maker has called for the nation to end sales of gasoline-powered two wheelers by 2027 to speed up a switch to clean vehicles that has fallen behind other countries like China.

“2027 would be a good time for new sales to be 100% electric,” Naveen Munjal, managing director of Hero Electric Vehicles, said in an interview. “If we leave it to market forces then things come along at their own pace and the transition will be much slower than what it could be.”

India’s shift to electric vehicles (EV) has been hampered by high prices and a lack of charging infrastructure. Whereas China accounts for 97% of the world’s e-scooter fleet, they make up less than 1% of total sales in India, according to BloombergNEF. Replacing gasoline two-wheelers is key to tackling some of the world’s most toxic air because they are more polluting than cars, yet comprise 75% of the 296m vehicles on the nation’s roads as of 2019.

A stricter mandate for electrification will force local automakers to make the switch faster. Hero MotoCorp, the world’s largest maker of motorcycles, will launch its first e-scooter by March 2022. Bajaj Auto plans to start deliveries of its Chetak electric scooter by the second quarter of next year and will set up a unit to make electric and hybrid models. TVS Motor sells just one electric model, named iQube, in New Delhi and Bangalore, and plans to expand to 20 more Indian cities.

Founded in 2007, Hero Electric is competing with startup Ola Electric Mobility and Hero MotoCorp. Ola Electric, backed by SoftBank Group and Tiger Global, is building the world’s largest two-wheeler factory, and last week sold about INR6b (USD82m) of e-scooters on the first day orders opened.

Hero Electric is planning to invest INR7b to expand its capacity fivefold to 500,000 units annually. The New Delhi-based company is installing charging stations across India to improve the EV ecosystem and plans to expand its international presence by exporting to Europe and Latin America, Munjal said. – Bloomberg News.

Australia’s S&P/ASX 200 Index upped 0.81% to 7,355.70 on Wednesday (23 September) morning, adding to its previous gain of 0.32% to 7,296.90.

South Korea’s Kospi Index fell 0.55% to 3,123.26 in early-Wednesday trading.

The Taiwan Stock Exchange Weighted Index tumbled 2.03% to 16,925.82.



Commodities rebounded as easing concerns over cash strapped real estate giant China Evergrande Group and a surprise draw in US crude inventories helped fuel a buying spree.

The Bloomberg Commodity Index, which tracks 23 raw materials, rose 1.4% on Wednesday (22 September), snapping a four-day streak of declines. Oil and gasoline futures gained the most in a week, while copper surged with most other base metals and agricultural markets from corn to sugar saw widespread gains.

Oil advanced after US crude inventories slid to the lowest since October 2018 amid a global energy crunch expected to increase demand. Domestic US crude stockpiles fell for a seventh straight week to about 414m barrels, according to an Energy Information Administration (EIA) report.

Crude prices have increased this month after extreme weather disrupted US supplies, and as a rally in natural gas spurred expectations consumers may switch to oil for power generation. Crude may surge to USD90.00 a barrel if the approaching winter in the northern hemisphere proves colder than normal, according to a financial firm.

In physical markets, Mars crude slid for the second day as supplies of the medium sour grade are set to improve with the return of a critical pipeline in the Gulf of Mexico. Discounts for Heavy Louisiana Sweet also fell to the widest in more than a year as offshore production was restored by refineries in Louisiana remained offline due to storm-related damage.

West Texas Intermediate crude for November delivery climbed 2.37% to settle at USD72.23 a barrel in New York. Brent for the same month rose 2.46% to USD76.19 a barrel, the highest since 30 July.

The EIA data also showed US gasoline inventories unexpectedly rose by 3.47m barrels last week (ended 17 September) as US Gulf Coast refineries ramped up operations after recent storms, but gasoline future managed to rise. – Bloomberg News.



Turkey’s government will likely extend a tax incentive offered on lira deposit accounts to support the currency, according to people with direct knowledge of the matter.

The Treasury and Finance Ministry last year reduced the so-called withholding tax to encourage savings in the local currency. But consumer inflation has gradually climbed above Turkey’s benchmark interest rate, pushing depositor returns below zero once adjusted for price increases.

The proposal, currently being considered by the finance ministry, would extend the tax advantages until the end of 2021, the people said, asking not to be identified discussing policy plans.

The ministry said no decision had yet been made on whether the tax breaks would remain until the end of the year. – Bloomberg News.On Wednesday (22 September), the US Dollar Index rose 0.28% to 93.462, the euro fell 0.33% to USD1.1687, the pound lost 0.27% to USD1.3622, and the yen weakened 0.50% to 109.78.