Global Markets Update – Monday 27 September 2021

Fuel Pumps

Global bonds sold off as traders priced in the prospect of higher rates.

It was a volatile week for global equities as markets were rocked by events at China’s Evergrande. The world’s most indebted developer missed a $84m interest payment on a US bond, raising fears the Chinese homebuilder’s problems would spiral into China’s vast real estate and banking sectors and beyond. Earlier in the week, Evergrande said it had “resolved” payment on an onshore bond.


The FTSE 100 rallied 1.3% over the week.

The Bank of England kept interest rates at a record low but warned that consumer price inflation was expected to rise to “slightly above 4%” in the fourth quarter of the year and could remain at around this level next year because of high energy prices. Investors now expect UK interest rates to rise by February next year, with some even viewing a 2021 increase as an outside possibility.

Several smaller UK power companies collapsed due to the sudden spike in European natural gas prices.

Queues appeared at petrol stations as deliveries were curtailed due to a lack of HGV drivers, adding to pressures that retailers were already reporting in supply chains. Amid a growing backlash, the UK government has been forced to issue temporary visas for 5,000 fuel tanker and food lorry drivers to work in the UK in the run-up to Christmas.


The S&P 500 rose 0.4% over the week.

Fed chair Jay Powell signalled the US central bank could start withdrawing its enormous stimulus programme as early as November. The central bank also said that half of its Federal Open Market Committee officials now expected the first post-pandemic rate rise to take place next year, a larger proportion than when it last published their projections in June.

Prime Minister Justin Trudeau won the Canadian election but fell short of securing an outright majority.

The IHS Markit US manufacturing purchasing managers’ index fell to 60.5 in September from 61.1 in August and the slowest growth in factory activity in 5 months. The services purchasing managers’ index fell to 54.4 in September compared to 55.1 in August and the slowest growth in services activity since July 2020.


The FTSEurofirst 300 gained 0.4% over the week.

Germany went to the poles on Sunday, with the outcome too close to call. A late surge by the Social Democrats in the polls has left investors anticipating a left-leaning governing alliance. This could usher in a more free-spending era in Berlin that breaks with the emphasis on debt reduction that characterised Angela Merkel’s 16 years in power. However, the make-up of any coalition with the SPD will be crucial.

The flash IHS eurozone manufacturing purchasing managers’ index fell to an 8-month low of 55.6 in September, down from 59 in August. The services index for the eurozone slid to a four-month low of 56.3, as the rebound that followed this summer’s reopening of the hospitality sector slowed. The surveys showed input costs for manufacturers and services were accelerating at their sharpest rate since 2000, with input price inflation in manufacturing close to all-time highs.

Norway’s Norges Bank became the first major western central bank to increase interest rates after the pandemic and said more interest rate rises would come soon. The bank lifted rates by 0.25 percentage points from their record low of zero, citing economic activity that was above its pre-pandemic level and the need to counter a build-up of financial imbalances. It indicated another rise was likely in December and that rates would reach about 1.7% by the end of 2024.


The Nikkei 225 slid 0.8% over the week.

Pacific Basin ex Japan

Evergrande said a Rmb232m ($35.9m) interest payment due on Thursday on an onshore bond had been “resolved through off-exchange negotiations”. However, Evergrande missed a $84m interest payment on a five-year US dollar bond, which was due to pay a coupon on the same day. Evergrande will have a 30-day grace period before an official default.

Emerging Markets

Turkey’s central bank unexpectedly cut its benchmark interest rate by 100 basis points to 18%, despite inflation hitting 19.25% in August. The lira tumbled to an all-time low against the US dollar following the move. The central bank said it judged the increase in inflation was “due to transitory factors” while monetary policy had also “started to have a higher than envisaged contractionary effect on commercial loans”. As such, it judged that “a revision in monetary policy stance is needed and the policy rate was decided to be reduced”.

Brazil’s central bank increased rates by 100 basis points to 6.25%. It was the fifth interest rate hike in 2021 and policymakers indicated they see another interest rate increase by the same margin at the next meeting.


The yield on the 10-year US Treasury bond closed the week up 7 basis points at 1.45% and its highest level since early July. The yield increase followed news that Federal Reserve officials had predicted an increase in 2022.

The yield on the 10-year German Bund closed the week up 5 basis points at -0.23%. In the UK, the 10-year Gilt yield rose as high as 0.91% after the Bank of England said the case had “strengthened” for “modest tightening of monetary policy” in the next few years.


Iron-ore prices dropped below $100 a tonne for the first time in more than a year.

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Image by IADE-Michoko from Pixabay