Global Markets Update – Monday 4 October 2021

Global stocks fall

Global stocks suffered their worst weekly sell-off since the start of 2021 as investors took flight following central bank signals that higher interest rates are drawing closer.

Heads of central banks in the US, Japan, the eurozone and the UK warned supply bottlenecks are likely to last longer than expected and they are watching carefully to prevent a self-fulfilling cycle of higher expected inflation and wage increases.


The FTSE 100 slid 0.3% over the week.

The UK economy grew by 5.5% in the second quarter, compared to an initial estimate of 4.8%. The stronger growth was due to a stronger performance from health services and the arts and supports the Bank of England’s case for an increase in interest rates.

The fuel delivery crisis abated in much of the UK, but London and the South East remain critically short of fuel, with the army due to start deliveries today.

Shares in Oxford Nanopore surged more than 40% after its London IPO.


The S&P 500 fell 2.7% over the week, while the tech-heavy Nasdaq declined 3.6%. The sell-off meant US stocks lost almost 5% in September, marking their worst monthly returns since the pandemic-induced plunge in March 2020.

Moderate and progressive lawmakers remain at odds over two key pillars of Biden’s legislative agenda: the $1.2tn bipartisan infrastructure bill and a $3.5tn investment in America’s social safety net.

The risk of a US federal shutdown, and potential default, was delayed when Congress agreed to temporarily lift the debt ceiling until early December.

Fed chair Jay Powell said supply-side constraints that have kept headline US inflation above 5% for three consecutive months were “larger and longer lasting than anticipated”.

The core personal consumption expenditure index, the Fed’s preferred measure of inflation, rose 3.6% in August compared with a year ago. According to the measure, inflation has now held steady for three months, while matching the highest level since the 1991.

US consumer spending rose 0.8% in August, following a 0.1% decrease in July.

Merck said its antiviral pill halves the risk of hospitalisation or death from COVID-19.


The FTSEurofirst 300 lost 2.0% over the week.

Christine Lagarde distanced the European Central Bank from the move towards tighter monetary policy by many other central banks, promising not to “overreact to transitory supply shocks” driving inflation higher.

The SPD narrowly pulled ahead of the CDU/CSU in the German election. The country now needs to agree on a working coalition government, with the Greens and liberal Free Democrats likely to be ‘kingmakers’. The election result means that Germany’s longstanding commitment to “schuldenbremse” may soon be weakened, with German reticence to spending big likely to be nipped in the bud in the name of the energy transition.

German inflation hit 4.1% in September, its highest level for 29 years, causing some workers to strike for higher wages.


The Nikkei 225 fell 4.9% over the week.

Fumio Kishida will be the next prime minister of Japan after winning a leadership battle in which the ruling Liberal Democratic party staked its future on stability instead of gambling on a new generation of leaders. The former foreign minister was defeated by Yoshihide Suga in last year’s LDP leadership tussle.

The Japanese government lifted a state of emergency across all areas of the country for the first time since April. Over the last month, vaccination rates have risen and new Covid cases have declined.

Pacific Basin ex Japan

China’s central bank appeared to respond to the unfolding debt crisis at Evergrande, which missed an interest payment on bonds held by foreign investors last week, with a pledge to “safeguard the legitimate rights and interests of housing consumers”.

Evergrande raised Rmb10bn ($1.5bn) by selling a 20% stake in Shengjing Bank, based in the northern city of Shenyang, to Shenyang Shengjing Finance Investment Group, which is owned by local authorities.

China’s official manufacturing purchasing managers’ index fell to 49.6 in September, dropping below the 50-point threshold that separates monthly contraction from expansion for the first time since February 2020. The PMI figures are one of the clearest signals yet of weaknesses across China’s economy as it grapples with severe power shortages, a slowdown across its vast property sector and sporadic outbreaks of the highly infectious Delta variant of Covid-19.


The yield on the 10-year US Treasury touched a three-month high of 1.55%. German Bunds fell in parallel with Treasuries, with the yield on the 10-year German Bund touching -0.17%, its highest level since June.

The UK 10-year bond yield briefly rose above 1%, a level it has not hit since March 2020 and more than double the level seen in March 2021.


The British pound sank to its lowest point in eight months as investors worried that the fuel delivery crisis sweeping the UK could lead to a sharp slowdown in growth at the same time as a surge in inflation.

The US dollar traded at its strongest level in a year against major currencies as traders banked on persistent inflation driving the Federal Reserve closer to its first pandemic-era interest rate rise.


Brent crude, the international oil benchmark, rose above $80 a barrel, a level not reached since October 2018. A shortfall in global gas production, along with a concerted drive in China to cut down on pollution from heavy industry, is expected to push crude higher as industries shift to using oil to generate power.

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Image by Peggy und Marco Lachmann-Anke from Pixabay