Chief Investment Office 6 Oct 2021


Stocks rebounded from Monday’s (4 October) rout and Treasuries fell as investors assessed the state of the economy before a key payroll report Friday.

The S&P 500 and Nasdaq 100 gained – led by advances in megacap tech names – while the 10Y yield spiked to 1.53%. Investors are anxiously awaiting the latest labour market data for a signal on the Federal Reserve’s next move. An ISM reading on the US services sector activity came in better-than-expected Tuesday, likely keeping the Fed on track to announce a pullback in bond-buying.


The advances helped ease concerns of a market correction as the S&P 500 rose back above its 100-day moving average. The benchmark fell 1.05% to 4,345.72 on Tuesday. A wall of worry has been building amid elevated inflation, fading recovery indicators, a spreading energy crisis, and US political bickering. The Nasdaq 100’s gain came after a measure of its relative strength fell to the lowest since March.

The S&P 500 Information Technology sector is down about 6% from a high in August as rising inflation and Treasury yields have prompted a rotation out of high-growth companies trading at a premium. Meanwhile, the energy sector is up 17% from a low in September as Europe braces for a winter energy crunch. European natural gas contracts soared on Tuesday to an unprecedented EUR114.00 per megawatt-hour, compared with EUR15.49 in February. Crude oil in New York also gained for a fourth day.


The latest Fed commentary ahead of the US nonfarm payrolls data came on Monday from St Louis Fed President James Bullard who said elevated price pressures may be changing the mentality of businesses and consumers by making them more accustomed to higher inflation. – Bloomberg News.

The Dow Jones Industrial Average rose 0.92% to 34,314.67 and the Nasdaq Composite Index upped 1.25% to 14,433.83.



European stocks rose the most in more than two months on Tuesday (5 October), with technology and banking shares leading the rebound as investors stepped in to buy the dip in risk assets.

The Stoxx Europe 600 Index closed 1.17% higher at 456.03, the biggest jump since 21 July, with Infineon Technologies leading a tech sector recovery after the chipmaker forecast that its revenue will expand next year. A 1.6% gain in the Nasdaq also helped boost the sentiment. Banking stocks, which benefit from higher bond yields, were the top performing industry group and surged the most since March.

The past month has been turbulent for stocks, with European equities slumping to the lowest level since late July on Monday, as the prospect of higher inflation has fuelled concerns about earnings, while rising bond yields triggered a rotation out of more expensive sectors like technology. Since touching a record in August, the Stoxx 600 Index has declined about 4% amid concerns about tapering, Chinese growth, and the energy crunch.


The gauge shrugged off a survey on Tuesday showing that a spike in inflation in the Euro Area has started to weigh on the economy, with growth momentum in the region’s service sector slowing last month.

Investors still see reasons for optimism, with a portfolio manager saying that European equities look attractive from a valuation standpoint. Redha says the region’s stocks are set to benefit from the European Union’s Recovery Fund, as well as economies reopening and progress with vaccinations.

Among the region’s top equity movers on Tuesday, Greggs Plc soared 11% to a record high after the bakery firm gave a trading update, while Electricite de France rallied 5.5% to the highest since January after Morgan Stanley raised its price target on the French utility. GN Store Nord slumped 7% after cutting the full-year outlook for its hearing-aid unit due to delays. – Bloomberg News.



Japanese equities fell, pushing the Nikkei 225 Index to a seventh daily loss and the brink of a technical correction, amid market disappointment with a new government and a host of threats to global economic growth.

The blue-chip measure closed 2.19% lower at 27,822.12 on Tuesday (5 October), capping its worst longest losing streak since May 2019 and extending its loss from a September high to 9.3%. Along with fading of hopes for the administration of Prime Minister Fumio Kishida, investor sentiment was hurt Tuesday by a global selloff in technology shares on the threat of persistently high US inflation and ongoing concern over China Evergrande Group’s debt woes.

Kishida was formally voted in as the nation’s 100th prime minister on Monday, but his policies have yet to excite investors. Japanese stocks soared after unpopular predecessor Yoshihide Suga said he would step down on 3 September, with both the Nikkei and the broader Topix rising to the highest levels since the bubble era of the early 1990s.


But the mood did not last long, as the continuity choice failed to inspire the market as much as reformist rivals in the race for ruling party leader. Kishda has called a general election for 31 October, which may provide the next domestic signal for equities.

The largest contributor to the Nikkei’s loss Tuesday was Fast Retailing, which makes up more than 9% of the blue-chip measure. The fast fashion giant tumbled as much as 6.9%, the most since March 2020, after it reported sales fell 19% at its domestic Uniqlo operations in September on unseasonably warm weather. Electronics makers were the biggest drag on the broader Topix, which fell 1.3%. – Bloomberg News.

The Nikkei 225 Index opened 0.99% higher at 28,098.00 on Wednesday.



The global selloff in technology stocks deepened in Asia on Tuesday (5 October) amid investor fears of higher interest rates, with a benchmark tracking Chinese technology stocks in Hong Kong closing near a record low.

The Hang Seng Tech Index, which officially launched in July last year, fell 0.3% after paring earlier losses of as much as 2.5%. The gauge, which counts Tencent Holdings and Alibaba Group Holding as key members, is headed for a fourth consecutive weekly decline.

Megacap technology stocks that rallied through the pandemic have declined as increased regulatory oversight and a sudden spike in yields triggered investor fears of a bubble. Chinese companies, already caught up in Beijing’s regulation drive, have been hit especially hard.


“It’s quite the perfect storm of headwinds at the moment,” said Bloomberg Intelligence’s analyst. “The confluence of factors including continued regulatory headwinds, rising interest rates, and China property contagion fears will probably keep weighing on China’s tech sector in the near term.”

Online entertainment platform Bilibili dropped 2.6% in Hong Kong, among the worst laggards on the gauge, while Alibaba Group slipped 1.2%. Both stocks are trading at record lows. Industry bellwether Tencent was down 1.5%.

The selloff extended to other parts of Asia. Z Holdings, the SoftBank Group-backed search engine operator, ended down 5.6%, the most in five months, while Naver, monikered by some as the Google of South Korea, closed 3% lower.


Investors are worried how inflation and regulations coming out of China will impact the sector, said an investment manager. “People are adopting a bit more of risk-off attitude here and that’s probably likely to persist” until authorities ease some of those pressures, she added.

China’s tech sector has been buffeted as authorities tightened controls on private enterprise to meet President Xi Jinping’s vision of “common prosperity”. Concerns of global contagion from the potential collapse of indebted property developer China Evergrande Group have added to the rout.

The worries unseated Hong Kong as Asia’s No 2 market behind Japan in late July and pushed the financial centre’s benchmark Hang Seng Index into a bear market in August. The Hang Seng China Enterprises Index is this year’s worst performing major stock gauge globally. – Bloomberg News.

On Tuesday, the Hang Seng Index added 0.28% to 24,104.15.



Asian stocks slipped, led by Japan and South Korea, as surging commodity prices fuelled concerns about global inflation.

The MSCI Asia Pacific Index lost as much as 1.7% Tuesday (5 October) in its third day of declines, with technology stocks contributing most to the weakness. South Korea’s Kospi Index entered a technical correction, while Japan’s Nikkei 225 extended losses from its recent peak to almost 10%.

Concerns about inflation have intensified the rout in Asian equities, with the regional benchmark down more than 2% this month. It plunged 5.2% in the three months through September, snapping a five-quarter winning streak. A gauge of commodities soared to an all-time high as a resurgence in demand for raw materials collides with supply constraints.


A gauge of global stocks has dropped more than 5% from a record in early September as Treasury yields rose ahead of a looming reduction in Federal Reserve stimulus. Concerns over China’s corporate crackdown and a slowdown in its economy also sapped sentiment. – Bloomberg News.

South Korea’s Kospi Index opened 0.72% higher at 2,983.53 on Wednesday. It tumbled 1.89% to 2,962.17 on Tuesday.

Australia’s S&P/ASX 200 Index rebounded 0.17% to 7,260.40 at the open on Wednesday, after falling 0.41% to 7,248.40 on Tuesday.

The Taiwan Stock Exchange Weighted Index rose 0.32% to 16,460.75.



Oil extended its rally from a seven-year high a day after the Organization of the Petroleum Exporting Countries+ (OPEC+) decision to keep its supply agreement in place as energy prices spike stoking concerns that more petroleum products will be used in power generation.

US crude futures advanced 1.7% Tuesday (5 October), heading closer to the key, psychological level of USD80.00 a barrel. At an OPEC+ meeting on Monday, Saudi Arabia and its partners opted for only a modest output increase of 400,000 barrels a day for November. US natural gas futures jumped to a 12-year high as global as global shortages of that fuel fanned fears of a shortage in the US ahead of winter in the northern hemisphere.


Meanwhile, the industry-funded American Petroleum Institute reported US crude stockpiles rose 951,000 barrels last week, according to people familiar with the data.

Both the US and global crude benchmarks have surged this month with rising energy prices stoking fear of inflation forcing consumers to pay more for everything from gasoline to heating, food, and plastics.

West Texas Intermediate gained 1.31% and settled at USD78.93 a barrel in New York. Brent climbed 1.60% to settle at USD82.56 a barrel on the ICE Futures Europe exchange.

Meanwhile, in the US, analysts surveyed by Bloomberg estimate a crude stockpile rise of 700,000 barrels last week. The industry-funded American Petroleum Institute will release inventory data later Tuesday, while the US government will release its weekly tally on Wednesday.  – Bloomberg News.



The dollar is entering the crypto age, and the US government is poised to give its clearest signal yet on how that will happen.

The guidance will come through a trio of pending reports related to public and private efforts to digitise the world’s global reserve currency.

First, the Federal Reserve Board will release a paper as soon as this month on the US payments system that is expected to provide direction on whether the country should issue a so-called central bank digital currency (CBDC). Soon after, the Fed Bank of Boston will publish long-awaited research and open-source computer code on technology that could underpin a digital dollar. Finally, the President’s Working Group on Financial Markets is set to issue policy recommendations on how to regulate stablecoins, which are in effect digital dollars created by private companies.


When put together, the three reports will provide a road map for the broader financial community on how the Fed and Biden administration see the dollar’s crypto future playing out, the extent to which they embrace adoption of a digital currency, and the guardrails they may see as necessary to protect individuals and investors in what is now a largely unregulated corner of the market.

What was once seen as a distant project has taken on an increased sense of urgency as the value of digital assets has exploded to about USD2t and other countries, such as China, move forward rapidly with plans for their own sovereign digital currencies.


The ultimate issuance of a CBDC would take years and the Fed would prefer Congress to pass legislation authorising its issuance, Fed Chair Jerome Powell has said. – Bloomberg News.

On Tuesday (5 October), the US Dollar Index rose 0.21% to 93.975, the euro fell 0.20% to USD1.1598, the pound added 0.14% to USD1.3629, and the yen weakened 0.48% to 111.46 per dollar.