Weekly Market Summary 23 August – 27 August 2021

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    Weekly Market Summary 23 August – 27 August 2021
    Weekly Market Summary 23 August – 27 August 2021
    30 August 2021

    Key Points

    • Major US indices rebound to new highs after Fed chair eases rate hike concerns
    • With the annual Fed symposium over, focus will shift back to US labour data
    • Chinese techs will likely continue to feel the squeeze from state regulators

    US indices closed the week (23-27 August) at new highs with the S&P 500 adding 1.5%, the Dow Jones Industrial Average 0.9% and the Nasdaq Composite 2.8%. The indexes may end August higher with the Dow up by 1.4% month-to-date; the S&P 500 by 2.6% and Nasdaq by 3.1%.

    US government bonds had also rallied after Fed chair Jerome Powell stressed that efforts to taper the bond-buying programme would be separate from potential US interest rates hikes. The 10-year Treasury yield ended the week at 1.3% while the 2-year note which is heavily influenced by Fed rate policy fell to 0.22%, a sign of investors paring expectations of a shorter runway for a rate increase.

    The Fed’s asset purchases have helped to buoy stocks since the onset of the Covid-19 pandemic last year and the eventual rollback in liquidity has been at the forefront of equity investors’ minds.

    In his speech following the virtual Jackson Hole symposium, Mr Powell acknowledged that Fed officials expect to wind down the $120 billion-a-month bond purchases this year as a first step toward reversing the US central bank’s accommodative monetary stance. But what was more important to investors was that he had stressed that tapering itself would not automatically mean “tightening” or rate hikes.

    That help to ease fears of a potential taper tantrum which in 2013 led to market selloffs. The view that an announcement on tapering from the Fed will be pushed back closer to the yearend rather than in September meeting – in part due to the uncertainties over the economic fallout of the coronavirus Delta variant which has continued to disrupt the jobs market.

    Mr Powell had also noted that while there has been sufficient progress on inflation, the labour market has yet to show enough improvement to kickstart the taper process. Hence, the Fed’s focus will remain fixated on lifting US employment without sparking off any contractionary effects on the economic cycle when stimulus is pared.

    For now, it seems that the Fed’s monetary policies have worked well for the broad economy while avoiding early concerns – such as the creation of ‘zombies’ (weak companies kept afloat by loose money). Rather, it appears that the impact of fiscal stimulus is uneven, in part due to inconsistencies in federal and local policies over how to contain Covid-19 outbreaks that have delayed economic re-openings and hence consumer spending.

    The spread of US virus infections has worsened due to the Delta variant. Texas alone, for instance, has added 2,500 medical staff as hospitalisation rates soar. Several hospitals in Florida, South Carolina, Texas and Louisiana are struggling with oxygen supplies for Covid-19 patients.

    Meanwhile, the disruption to global supply chains have not improved as evident by shortages of semiconductor chips affecting car production as well as delays in goods shipment which mean that consumers are likely to face higher prices and fewer choices.

    With the Fed’s Jackson Hole symposium in the rearview mirror, the focus this week for US markets will shift towards the August employment reading and jobless claims to determine if the improvement in the jobs market can gather momentum.

    Investor sentiments will likely be cautious after last week’s market gains until labour market conditions are clearer after unemployment benefits run out in September. Other forthcoming data this week include US home sales, construction spending, vehicle sales, consumer confidence as well as manufacturing and services PMIs and factory orders.

    Across the Atlantic, Eurozone preliminary August CPI data (Bloomberg estimate headline inflation to 2.6% y/y from +2.2% in July) will be released. OPEC and non-OPEC ministerial meeting will take place virtually on Wednesday.

    This week’s data out of Asia include China’s August manufacturing PMI (Bloomberg est down to 50.1 from 50.4 in July) and non-manufacturing PMI (Bloomberg est 52.0 from 53.3 in July), as well as the Chinese private sector Caixin manufacturing PMI (Bloomberg est 50.1 from 50.3 in July) and the Caixin services PMI (Bloomberg est 51.5 from 54.9 in July).

    There will also be the Markit manufacturing PMI readings for Vietnam, Malaysia, Indonesia, South Korea, Philippines, Thailand and Taiwan; South Korea’s Aug CPI and the final 2Q GDP (UOB estimate 0.7% q/q SA, 5.9% y/y which is the same as preliminary estimates) and August trade data (Bloomberg est: trade surplus US$1.4b from US$1.77b in July).

    Investors have remained jittery over Chinese stocks after regulators froze some 40 initial public offerings (IPO) on two mainland exchanges amid widening probes and reviews of financial service providers in a national campaign to rein “reckless expansion of capital” arising from practices such as insider access, cartels, creative accounting and other ills that perpetuate “wealth inequality” instead of “common prosperity.”

    One major casualty of Beijing’s clampdown had been BYD Semiconductor which is China’s largest maker of automotive microcontroller chips. It had filed an application to list on Shenzhen with the aim of raising at least $414 million for auto-chip development. Offshore listings have also been largely paused since Beijing rolled out the controls on IPOs in July

     

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