Market Commentary

US stocks enjoy best week since July on strong corporate earnings; Asia sees gains too

• The US stock market rose on Friday, as earnings continued to impress and retail sales data beat expectations.

• In addition to better-than-expected earnings from Goldman Sachs on Friday — sending the bank’s stock up 3.8% to be the top gainer on the Dow — positive economic data also boosted stocks.

• Retail sales for September rose 0.7% month-over-month, better than expectations for a 0.2% decline. August retail sales were revised higher to a gain of 0.9%. The year-over-year increase for September was 14%.

• This illustrates the strength of the American consumer as the inflation environment and concerns about supply chains have not put a strong dent in retail sales; analysts believe robust spending and borrowing will continue, and in turn, support the economy.

• The Dow Jones Industrial Average gained 1.1%, while the S&P 500 and Nasdaq Composite advanced 0.8% and 0.5% respectively. The three major indices closed the week higher and are positive on the month.

• Government bonds came under pressure after the US retail sales data, as it accelerated bets that the Federal Reserve would withdraw some of its crisis-era support for economy. The yield on the benchmark 10-year US Treasury note rose to 1.57%.

• On the other hand, Bitcoin crossed the US$60,000 level as investors were optimistic about the US Securities and Exchange Commission approving the first bitcoin futures exchange-traded funds. The cryptocurrency’s jump added to positive market sentiment, suggesting risk-taking could pick up.

• In Asia, Singapore shares rose on Friday to end the week higher, amid the positive sentiment across global markets. The Straits Times Index rose 0.3% to close at 3,173.91. The gains in the local market were mirrored across the region, following Thursday’s rally on Wall Street, when all three major US indices had risen by more than 1.5%.

Pent-up buy-the-dip demand flowed through Asian markets to varying degrees. Major indices in Taiwan, Hong Kong and Japan posted strong gains – rising between 1.5 and 2.4% – while those in Shanghai, Australia and South Korea climbed between 0.4 and 0.9%.

• Shares in China rose on reports suggesting the government has instructed large banks to accelerate approval of home loans to ease pressure on developers. China’s central bank has also broken its silence on the debt crisis at China Evergrande Group, saying risks to the financial system stemming from the developer’s struggles are “controllable” and unlikely to spread.

A series of Chinese key economic data due on Monday which will be closely watched by traders to assess how badly the Chinese economy has been affected in the third quarter due to the Delta variant, problems in the real estate sector and the power crunch.

Research Ideas

Global Industrials & Utilities: Renewable Energy That winter, the wind blows?

• Huge scaling up of offshore wind in the US with recent Biden administration announcement

• Higher baseline wind expectations in recent IEA report, setting the stage for COP26

• We identify names exposed to this theme but highlight near term earnings risk due to higher raw materials and logistics costs for some

Winter is supposed to be the best season for wind power but it also comes with the problem of freezing weather. Whatever the case this winter, one thing is certain – the push for wind energy globally will continue with initiatives being announced to support the industry. On 13 October 2021, the Biden administration announced plans to auction off leases to offshore wind farm developers for up to seven new areas by 2025, representing a huge scaling up of offshore wind in the US. The IEA also just published its World Energy Outlook 2021 where the baseline wind energy expectations under the “stated policy scenario” is higher than last year, which may set the stage ahead of the COP26 meeting to be held in November, when countries are being asked to provide ambitious plans for 2030. The next 18 months is also expected to be a landmark period for offshore wind, where more than 30 GW of capacity is expected to be auctioned (almost equal to total aggregate installs to date).

On our end, we see opportunities for firms under our coverage to benefit from the expected ramp up in wind energy capital expenditure, and have identified companies under our coverage with exposure to this segment. These include BUY-rated names General Electric [GE US; FV: USD131], RWE AG [RWE GY; FV: EUR41] and HOLD-rated names Orsted AS [Orsted DC; FV: DKK920], and Iberdrola SA [IBE SM; FV: EUR10.10] which still have upside from current levels. Other prominent names such as China Longyuan Power [916 HK; FV: HKD10.20] and Vestas Wind [VWS DC; FV: DKK176] seem to be more richly valued currently. In the nearer term, there is increased earnings risk especially for some firms due to higher raw materials and logistics costs. (Research Team)