The global landscape remains little changed, as the focus remains on the power crunch and global inflation. Emerging Markets proved, yet again, to be the “comeback kid” as the dollar lost its lustre.
Key themes for the week include:
- Bitcoin exchange traded fund (ETF) makes its debut
- United States (US) Jobless Claims hit a 19-month low
- Coal sheds 3.5% after power crunch rally
- S&P 500 sets it sights on yet another record high
US GETS ITS FIRST BITCOIN ETF
This week, ProShares launched the first US Bitcoin-linked ETF on the New York Stock Exchange, marking a watershed moment for cryptocurrencies which remain a divisive asset class. The demand for crypto ETFs comes as no surprise, given the growing relevance of ETFs in today’s investment space and owing to their ability to offer investors niche exposure across asset classes and sectors. US regulators follow Canada and a few European countries who already allow cryptocurrency ETFs.
An interesting characteristic of the ProShares Bitcoin ETF is that it is based on the Bitcoin futures market, as opposed to being backed by physical bitcoin. The argument is that futures markets are harder to manipulate and by not having to hold physical bitcoin the risk of cyber theft is removed. In the United Kingdom (UK), regulators have so far held firm against crypto ETFs, citing the volatility and integrity of the underlying market.
Bitcoin’s foray into US ETFs sent pricing to all-time highs on Wednesday when it reached close to $67,000 for a single bitcoin before settling around $65,000. Now that regulators have opened the door, we expect to see a series of competing ETFs coming to market. Unsurprisingly, there is no shortage of sceptics with some ETF providers preferring to watch from the sidelines before making any moves. According to TrackInsights, around 50 crypto-linked exchange-traded products are already available globally with combined assets of $14 billion.
DATA IN A NUTSHELL
The number of Americans filing claims for unemployment benefits dropped to a 19-month low last week, falling by 6,000 to 290,000, indicative of a tighter labour market and reflecting a slowdown in lay-offs. Continuing claims were also down from 2.6 million the week before to 2.48 million people actively receiving unemployment benefits. Existing home sales also rose by 7% in September, beating consensus, as housing demand remains strong. Buyers are looking to secure a home before mortgage rates increase.
October saw the UK record its highest number of flights and the highest proportion of workers travelling to the office, since the country’s first COVID-19 lockdown in 2020. According to Eurocontrol data, released on Thursday, the seven-day average number of UK daily flights was 3,625 last week. Although up, this is only 59% of the corresponding week in 2019.
In China, new home prices fell, on a monthly basis, in September for the first time in more than six years as Beijing’s measures to curb housing speculation and to cool the property sector began to bite. Average new home prices in 70 major cities were down 0.08% from the previous month.
Consumer inflation in South Africa has accelerated to 5% in September up from 4.9% in August. This was driven largely by food and fuel prices. The Consumer Price Index (CPI) is still comfortably in the South African Reserve Bank’s 3% to 6% target range. Next month’s Monetary Policy Committee meeting will deliberate on interest rates, which have been close to historic lows at current levels.
S&P CLOSING IN ON RECORD HIGH
The S&P 500 had a relatively strong week, gaining 1.1%. The index was flirting with its 2 September record-high close of 4,536.95 on Thursday. On the corporate earnings front, after strong performance from the banks, technology giant, IBM, fell 6.8% after it missed market estimates for quarterly revenue due to its managed infrastructure business suffering from a decline in orders. The losses in IBM saw other technology stocks come under pressure on Thursday as investors are focusing on the impact of supply chain disruption and labour shortages on corporate profits. Pinterest rallied this week, and was up over 12% at a stage, on the back of news that PayPal Holdings were interested in acquiring the social media company. Both the Nasdaq composite as well as the Dow Jones industrial average were positive for the week, gaining 1.5% and 0.9% respectively.
The Euro and UK markets had a benign week as the Eurostox 600 and the FTSE 100 were both flat at -0.2% and 0.3% respectively. Much like their American banking counterparts, Barclays reported strong results this week, beating market expectations and doubling its third quarter profits, thanks largely to bumper investment banking fees from a surge in advisory mandates and equities trading.
In Asian markets, the Hang Seng surged 3.2% this week while the Japanese Nikkei index increased by 0.6%. Chinese e-commerce giant, Alibaba, clawed back some of its losses from earlier in the year, increasing by 5.5% in the week off the back of its unveiling of a ‘breakthrough’ chip for its servers which will aid in boosting its cloud computing operations.
In South Africa the JSE All Share Index was modestly down 0.2% for the week. The resource index, down 1.8%, continued to lag as concerns over the pace of a global economic rebound dampened investor confidence. The financials and industrial indices were both slightly positive for the week, gaining 0.3% and 0.8% respectively.
CHINA RESPONDS TO ENERGY CRUNCH
Coal lost its shine in this week’s trading, ending Thursday at $231.50, down 3.5% on the week. The coal narrative was dampened by China’s National Development and Reform Commission’s (NDRC) announcement that it may intervene to bring coal prices down. The NDRC also announced supply-side interventions which include the approval of new coal mines, according to Reuters. Natural gas prices in Europe remain elevated as the market digests Russia’s move to first increase its domestic gas reserves before bailing Europe out.
Despite West Texas Intermediate Futures trading at a multi-year high of $84.25 during the week, oil’s bullish momentum slowed, giving way to significant volatility. China’s seemingly aggressive response to coal prices, and higher than expected American Petroleum Institute crude oil inventories may have clipped oil’s wings at these levels. Oil was flat for the week despite the volatility and traded at $82.84 on Thursday. October’s returns sit at a healthy 15%.
Gold traded at around $1,780 per fine ounce on the back of a 0.8% gain during the week, after the previous week’s high of $1,800. Mapping the way forward for Gold is tricky – sticky US inflation is supportive of Gold, but the US 10-year Treasury Bill, at 1.67%, says otherwise. Gold may find some support if the current rally in equities plays a hand in dollar weakness.
GREENBACK ON THE BACKFOOT
The US Dollar Index traded marginally higher on Thursday around 93.6, rebounding from two negative sessions, amid a slight increase in risk-off sentiment, as concerns about the inflationary impact of higher commodity prices mount. At the same time, Evergrande jitters return as the company is likely to fall in formal default on Friday after the grace period on its dollar bonds expire. The dollar dipped to multi-week lows this week, as bets intensified for central banks, other than the US Federal Reserve (Fed), to start hiking interest rates.
The euro recovered to above $1.16, assisted by the broad dollar weakness. The common currency however remained close to its lowest level since July 2020, amid expectations that the Fed will be tapering faster than the European Central Bank (ECB). ECB President, Christine Lagarde, said over the weekend that the ECB will continue to aid the eurozone economy as the fallout from the pandemic lingers and they try to lessen the market’s inflation fear. She noted that she still expects supply shortages or rising energy prices to be transitory.
The British pound traded around $1.38 on Thursday, remaining near a recent one-month high, as a slight decline in UK CPI is seen as temporary and is unlikely to deter the Bank of England (BoE) from raising interest rates in the near term. BoE Governor, Andrew Bailey, emphasised, yet again, on Sunday that policymakers would have to act, as a surge in energy prices would push inflation higher for longer. Elsewhere, concerns over the British economy mounted due to an unprecedented energy crisis and the shortage of workers in the wake of Brexit and the COVID-19 pandemic.
The South African rand was trading around R14.40 against the US dollar by market close on Thursday, the strongest level witnessed since 15 September, assisted by soaring commodity prices and broad-based dollar weakness.
We start the day at R14.63/$ R17.02/€ and R20.18/£.