Chief Investment Office 19 Oct 2021
US stocks extended a rebound on Monday (18 October) as a whipsaw in energy prices relieved some pressure on the market.
The S&P 500 Index added 0.34% to 4,486.46 and the Nasdaq Composite Index jumped 0.84% to 15,021.81 in a continuation of last week’s (ended 15 October) gains when solid corporate earnings and economic reports were enough to outweigh concerns about energy shortages and supply-chain disruptions. The Dow Jones Composite Index slipped 0.10% to 35,258.61.
Earlier on Monday, the Organization of the Petroleum Exporting Countries+ failed to meet output targets and Russia opted against sending more natural gas to Europe, pushing commodity prices higher. However, oil’s decline from a session high eased some fears of inflation and policy tightening. The S&P 500 has now pared back losses from an all-time high to about 1.1%.
“Rising commodity prices – particularly oil prices, which only appear to go in one direction at the moment – are boosting expectations of high inflation becoming more entrenched and a sooner move by the Fed to raise interest rates,” said a market analyst.
Speakers from the Federal Reserve this week are expected to try to calm market jitters about future tightening. Additionally, another week of corporate earnings will offer traders more insight into the health of major corporations. – Bloomberg News.
European stocks retreated after their best weekly gain since March, with luxury goods shares under pressure after China signalled plans for property tax legislation and economic data disappointed.
The Stoxx Europe 600 slid 0.50% to 467.04 by the close in London as luxury stocks like LVMH and Kering echoed their drop in August, which was driven by nervousness over China’s intent to reduce its wealth disparity. The mood was also subdued by data showing economic growth slowed in the country, fuelling fears about further setbacks in the recovery. All European equity sectors traded lower, with automakers and travel falling the most.
European stocks have rebounded over the past two weeks after slumping through September over concerns about slowing global growth and the impact of energy costs on inflation. The benchmark came under pressure on Monday (18 October) after data showed China’s housing slump and electricity shortages weighed on economic growth last quarter, while property curbs remain.
Early earnings reports have, however, bolstered investor confidence that the recovery can continue.
Among individual movers, THG jumped 21% after founder and Chief Executive Officer Matthew Moulding confirmed his intention to cancel his special share rights.
Playtech rose 58%, the most on record, in London after the British gambling software developer agreed to be bought by Australia’s Aristocrat Leisure for USD3.7b. Meanwhile, Umicore fell the most in a month after the company published lower guidance. – Bloomberg News.
Toyota Motor shares rose after the company set targets for November production levels above those seen in recent years, even as it announced ongoing parts shortages.
The world’s No 1 automaker said on Friday (15 October) that it plans to produce around 850,000 to 900,000 units next month.
While that target was cut from its previous plan to make 1m cars due to Covid-related supply chain issues in Southeast Asia, it is up from the 773,551 units in the same period in 2019, and 828,066 units in November 2020.
Toyota’s November outlook is “more or less normal” given past production levels for the month, a market analyst wrote in a note. This is a sign production is on track to normalise, he said.
Toyota shares rose as much as 3.4% in early trading in Tokyo Monday, their biggest increase since 8 October on an intraday basis. The stock is up more than 28% this year.
Toyota appears to be on track to clear its full-year target now, given the November target and supply chain recovery momentum, research analysts wrote in a note. The original 1m vehicle target suggests expectations for output in the next fiscal year could rise, they said. – Bloomberg News.
The Nikkei 225 Index opened 0.67% higher at 29,221.00 on Tuesday, after slipping 0.15% to 29,025.46 the previous session.
MAINLAND CHINA & HONG KONG
China’s regulator expanded the investment scope for foreign investors, adding key commodity and stock market derivatives in the latest move to open its financial markets even as Beijing’s crackdown on a broad section of its private sector has roiled markets.
Qualified foreign investors will be able to trade commodity futures, commodity options, and stock index options, China Securities Regulatory Commission (CSRC) said on its website on Friday (15 October). The changes will take effect 1 November.
China is opening its financial markets to bring in more foreign investments to redirect its export-led economy. The country has also opened to foreign banks taking full ownership of investment banks, asset managers and other ventures. Goldman Sachs Group on Monday announced it had received approval to take full ownership of its securities venture, easing its push to expand in China.
There is increasing interest in products to hedge risks in China’s markets as foreign investors expand their holdings. Beijing is also tightening control of private enterprises ranging from the education to the technology sectors at the same time as political tension is on the rise with the West.
Regulators have relaxed the Qualified Foreign Institutional Investors programme – a key channel for global funds to buy China assets multiple times in recent years. In 2019, it scrapped investment limits on stocks and bonds, meaning global funds no longer need approvals to purchase quotas to buy such assets.
Last year, CSRC said it planned to expand the derivatives market by letting foreigners use financial futures, commodity futures, and options without giving a time frame.
CSRC said the move will attract more foreign capital and pledged to open more financial instruments to foreign investors in deepening market reform. Outside investors will be allowed to use index options only to hedge their positions, the CSRC said.
The announcement came as the bourse in Hong Kong on Monday started offering trading of A share index futures contracts, allowing for better hedging of key Chinese mainland stocks that can be traded via a link to markets in Shanghai and Shenzhen. – Bloomberg News.
On Monday, the Hang Seng Index rose 0.31% to 25,409.75 while the Shanghai Composite Index slipped 0.12% to 3,568.14.
REST OF ASIA
Thailand is seeking to speed up criminal proceedings to crack down on insider trading, securities fraud, and other illegal financial transactions, according to the nation’s top regulator.
The country’s Securities & Exchange Commission (SEC) plans to have more authority to investigate criminal dealings in equities, bonds, and digital assets, according to secretary general Ruenvadee Suwanmongkol. The proposal would speed up charges as the current process, mostly done through the police, takes a long time, she said.
“We have better trained staff to deal with those sophisticated misconducts in the capital markets,” Ruenvadee said in an interview Friday (15 October). “Faster charges would send a strong signal to those individuals who view that the prolonged legal processes are worth taking a risk for cheating and fraud.”
Thailand has already taken steps to tighten its supervision to crack down on illegal transactions in the capital markets. Prasert Prasarttong-Osoth, founder of the nation’s biggest private hospital chain, and Pete Bodharamik, who controls a telecommunication company, were among tycoons fined for financial wrongdoings since the regulator implemented the civil penalty in 2014. In July, the commission filed a criminal complaint against Binance Holdings Ltd with a division of the Royal Thai Police for operating a digital asset business in the country without a license.
Still, the current punishments are insufficient to stem the increase in illegal transactions in the market, Ruenvadee said.
The SEC plans to have more power to conduct criminal investigations for the possible violation of securities laws similar to countries such as the US, said Ruenvadee. Expanded authority includes the subpoena of witnesses, records, documents, and information, she said.
The increased authority and enforcement are the key amendment of existing Securities & Exchange Act that has been forwarded to the finance ministry for consideration, Ruenvadee said. The ministry will discuss with other law enforcement agencies such as the Royal Thai Police and Attorney General Office before being forwarded to the Cabinet and parliament for ratification, she said. – Bloomberg News.
Australia’s S&P/ASX 200 Index rose 0.28% to 7,401.70 on Tuesday morning, adding to Monday’s 0.26% rise to 7,381.10.
South Korea’s Kospi Index climbed 0.84% to 3,031.90 at the open on Tuesday, rebounding from Monday’s 0.28% fall to 3,006.68.
The Taiwan Stock Exchange Weighted Index lost 0.45% to 16,705.46.
Oil eased off of multiyear highs with US industrial data showing signs of weakness while traders assessed an ongoing natural gas crisis.
Futures in New York closed 0.2% higher on Monday (18 October). US September industrial production fell 1.3%, below estimates. Still, a shortage of natural gas is creating extra demand for oil products like fuel oil and diesel from the power generation sector, keeping oil prices propped up. Plus, the Organization of the Petroleum Exporting Countries+ (OPEC+) alliance is still only adding incremental monthly supplies, and some members are not expected to meet current output targets.
Both the US and global benchmark crudes are trading above USD80.00 a barrel as shortages of natural gas and coal have driven rising demand for alternative power generation and heating fuels in Asia and Europe ahead of the winter. Brent futures earlier hit the highest intraday level since 2018, while West Texas Intermediate (WTI) crude neared a seven-year high.
Meanwhile, OPEC and its allies once again failed to pump enough oil to meet their output targets, exacerbating the supply deficit as the world recovers from the pandemic. The group cut its production 15% deeper than planned in September, compared with 16% in August and 9% in July. This reflects the inability of some members – including Angola, Nigeria, and Azerbaijan – to raise output to agreed volumes due to a lack of investment, exploration, and other issues.
WTI crude for November delivery rose 0.19% to settle at USD82.44 a barrel in New York after earlier hitting USD83.87 a barrel, the highest intraday level since October 2014. Brent for December settlement dropped 0.62% to end the session at USD84.33 a barrel.
Gazprom PSJC, Europe’s biggest natural gas supplier, does not plan to send more gas via key transit routes through Ukraine next month, according to the results of several auctions on Monday. This comes after Russian President Vladamir Putin said that the country was ready to deliver all the natural gas Europe needed, using the energy crisis to capitalise on the country’s position as a natural gas supplier.
Elsewhere, Iran said that talks about a nuclear deal could last for several more rounds. The OPEC member could increase production by 1.3m barrels a day if US sanctions were lifted, the International Energy Agency said last week. – Bloomberg News.