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Daily Wrap Up 18 October 2021

18 Oct 2021 04:13 PM

China data dents stocks

The mood in equity markets is downbeat on account of the disappointing data posted by China overnight, in addition to that, the tick higher in government bond yields is hurting stocks too. It was confirmed the Chinese economy expanded by 4.9% in the third quarter, narrowly missing the 5% that economists were expecting. Keep in mind, the economy grew by 18.3% and 7.9% in the first and second quarters respectively. The country is clearly cooling and that has prompted dealers to trim their exposure to stocks – which enjoyed a bullish run in the latter half of last week. China’s fixed asset investment and industrial production reports for September were 7.3% and 3.1% respectively, both undershot forecasts. Not all the news was gloomy, as the latest retail sales reading was 4.4%, which was a pleasant surprise, as it beat the 3.5% estimate. It bodes well for the Chinese economy that internal demand is improving as that could help cushion the slowdown.

The US 10-year yield traded above 1.60% earlier on, it was the first time in almost one week that it moved above that level. Bund and gilt yields are higher too. The upward move in yields could be viewed that the bond market is preparing for tighter monetary policy form central banks. The FTSE 100 is down 0.6%, while the Dow Jones is 0.25% lower.

The increase in US bond yields hasn’t had a huge impact on the US dollar as the currency is only fractionally higher. EUR/USD is hanging around the 1.1600 mark, and GBP/USD is down 0.15%. Sterling is weaker across the board due to following on from last week’s rally. Lately, there has been a lot of speculation the Bank of England (BoE) will hike rates at the end of the year. Andrew Bailey, the BoE boss, stated the bank will have to act to tackle the high levels of inflation. It sounds like the central banker is very worried about rising prices. Mr Bailey might decide to get the ball rolling with respect to lifting rates, as a hike of 0.25% isn’t likely to cause a major shock to the economy.

Gold endured a reasonably large pullback late last week, after it printed a four week high. Today, the commodity is a touch higher. It seems as if the slide in stocks has encouraged traders to buy into the yellow metal – gold’s safe haven status is setting in apart from the likes of silver and copper.

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