After a 4.2% correction in September, global equities were up nicely in October with the MSCI World Index (representative of developed market equities) returning an impressive 6.5% for the month. The week was the busiest of the third-quarter earnings reporting season, with several technology and internet-related giants announcing results.
High-profile technology names like Microsoft, Alphabet (Google) Amazon, Apple and Facebook all reported earnings. Growth adoption rates for cloud computing services showed strong earnings growth for both Microsoft and Alphabet, whilst Amazon and Apple disappointed, reporting lower growth forecasts because of labour and input shortages.
Facebook reported mixed results beating earnings estimates but missed revenue expectations. Interestingly, Facebook also announced a corporate name change to Meta, reflecting the company’s growing ambitions beyond social media. It said the name change was part of its bet on a next digital frontier called the “metaverse”, a composite universe unifying online, virtual and augmented worlds.
After filing for bankruptcy in May, rental car Hertz announced that it will buy 100,000 electric vehicles from Tesla, one of the largest purchases of battery-powered cars in history. This sent Tesla’s share price to new all-time highs, with the company joining a small elite “club” including Apple, Microsoft, Saudi Aramco, Amazon and Alphabet with a market cap above $1 trillion.
U.S. economic growth slowed more than expected in the third quarter to the slowest pace of the pandemic recovery. Annualised gross domestic product rose 2.0% quarter-on-quarter in 3Q21, less than market expectations for an advance of 2.7%. In the prior quarter, the annualised GDP had advanced 6.7%.
Whilst U.S. growth disappointed, September inflation data indicated that inflation pressures may be moderating. The Fed’s preferred inflation gauge, core (excluding food and energy) personal consumption expenditures index, rose 3.6% over the annual period, slightly below consensus and unchanged from the prior month but still the fastest pace in 30 years.
President Joe Biden’s administration’s social infrastructure plan continues to edge closer. On Thursday, he delivered a framework for the latest version of his economic agenda to congressional Democrats, drawing widespread praise within the party but leaving many details yet to be filled in. The proposed plan is a scaled back version worth $1.75 trillion compared to the original $3.5 trillion proposal.
The European Union’s statistical arm issued a preliminary estimate, indicating that the eurozone economy grew 2.2% in the third quarter, an uptick from the 2.1% expansion recorded in the second quarter and above the 2.0% consensus estimate reported by FactSet.
China condemned the U.S.’s latest overture toward Taiwan, warning that ties between the two countries faced “huge risks”. “If the U.S. continues to play the Taiwan card, it will surely bring game-changing and huge risks to China-U.S. relations,” Foreign Ministry spokesman Zhao said.
Visa announced that overseas spending on the firm’s cards jumped 38% during the firm’s fiscal fourth quarter, a bigger increase than analysts were anticipating. The company believes however, that cross-border travel is unlikely to reach pre-pandemic levels until the summer of 2023.
Brazil delivered the biggest interest rate hike in nearly two decades and pledged an equally large rise in December, warning that the erosion of public finances risks propelling inflation further above target. The bank lifted the Selic by 150 basis points to 7.75% on Wednesday, as estimated by most economists surveyed by Bloomberg.
It was a strong week for global equities with major indices posting decent weekly gains. In the U.S., the Dow Jones (+0.40%), S&P 500 (+1.33%) and the Nasdaq (+2.71%) all ended the week stronger. Similarly, in Europe, the Euro Stoxx 50 (+1.47%) and FTSE 100 (+0.46%) posted positive returns, along with Japan’s Nikkei 225 Index (+0.30%). China’s Shanghai Composite Index was an outlier, down -0.98% for the week.
Market Moves of the Week
SA’S municipal elections are scheduled for tomorrow, 1 November. More than 26 million people are registered to vote in this year's election, with 325 registered parties contesting the election. According to market-research company Ipsos, 49.3% of voters are likely to cast their ballot for the governing ANC, 17.9% for DA and 14.5% for the EFF.
Rolling blackouts returned this week. The ANC is demanding answers into Eskom’s stage 4 load-shedding, suggesting that the blackout has a political motive this close to local elections. Meanwhile, Minister Gwede Mantashe told reporters on Thursday that South Africa picked 25 wind- and solar-power projects to be built by private developers. The bidders will add 2,583 megawatts of capacity to the grid.
The pressure is building on South Africa’s central bank to tighten policy. Interest-rate swaps (the market’s estimation of future interest rates) increased by the largest margin in 19 months this week, with investors digesting Brazil’s biggest rate hike in nearly two decades. One-year swaps jumped 13 basis points on Thursday to 4.5%.
The JSE All Share Index ended the week up +0.62%, led higher by the industrial (+0.96%) and financial (+0.77%) sectors, whilst resource shares (+0.03%) were unchanged. Commodity-linked emerging market currencies including the rand were under pressure this week, further compounded by SA’s electricity backouts and pending municipal elections. By Friday close, the rand was trading at R15.25 to the U.S. Dollar, depreciating by 2.71% for the week.
Chart of the Week
China’s goods imports from the U.S. have only reached about 53% of the $200 billion worth of additional products and services it promised to buy under the trade deal signed last year, far behind its purchasing target. Beijing imported $11.7 billion worth of manufactured, agricultural and energy goods from the U.S. in September, according to Bloomberg calculations based on data from the country’s customs agency.