The US stock market closed in the green zone on Friday. The Dow Jones Industrial Average increased by 0.10% (+0.98% for the week), the S&P 500 added 0.15% (+1.19% for the week) and the Nasdaq Technology Index added 0.11% (+1.96% for the week). Despite all of the major indices rising by the end of the week, US stocks experienced their biggest weekly outflow in more than three years, with traders withdrawing $28.6 billion from US equity funds during the week. With the QE program cuts set to begin in a little over a month, there is no reason to expect further significant growth in the indices.
US House Speaker Nancy Pelosi urged her Democratic colleagues to pass the Biden administration’s $3.5 trillion spending package. The House of Representatives is scheduled to vote on the infrastructure package this Thursday. US President Joe Biden indicated in his speech that the administration was going to make historic tax cuts for the middle class and increase taxes on large corporations and wealthy citizens.
Stock markets in Western Europe ended Friday trading with a decline. British FTSE 100 index decreased by 0.4% (+1.26% for the week), German DAX decreased by 0.7% (+1.78% for the week), French CAC 40 lost 1% (+2.92% for the week), Spanish IBEX 35 decreased by 0.4% (+2.71% for the week). Stocks of sports goods producers fell on Friday. Adidas AG dropped 2.5%, Puma SE dropped 3% and JD Sports decreased by 2.4%. The UK consumer confidence index fell five points in September compared to the previous month. The UK is facing several crises at once: an international gas price hike that is forcing energy companies out of business, which threatens to undermine meat production; a truck driver shortage that brings chaos on the retail trade and leaving not only empty store shelves but also empty gasoline stations. In Germany, the Chancellor held elections, which will succeed Angela Merkel, who served as the head of the German office for 16 years. The first data of exit polls were published in Germany. The German Social Democrats led by Olaf Scholz are leading the Bundestag elections with 26%.
Energy shortages around the world continue. Natural gas prices in Europe are at record highs. The gas crisis in Europe is already bigger than the oil shock of the 1970s in the United States. Oil prices increased for the fifth straight day on Monday, with Brent crude hitting $80 amid concerns about tight supply as some parts of the world see demand rise with pandemic conditions easing. Goldman Sachs raised its year-end forecast for Brent crude oil from $80 to $90 per barrel.
The 10-year Treasury yield jumped from 1.30% to 1.45% last week after the Fed signaled a reduction in its QE program. Rising yields and a rising dollar index are always negative for gold and silver prices, as these instruments are inversely correlated.
Coal prices in China also reached an all-time high. The National Energy Administration of China (NEA) has ordered coal and gas companies to increase production to ensure the country has enough energy to keep homes warm in winter. Car sales in China could rise in 2021, breaking a three-year slump. Vietnam plans to ease coronavirus measures and allow businesses to resume production from next week to support an economy hit by prolonged lockdowns.
Adding to the semiconductor shortages plaguing many industries appears to be a shortage of passive components such as capacitors. Chemi-Con, Nichicon, and Rubycon plants in Malaysia and Indonesia, where most of the well-known aluminum electrolytic capacitors are made, were closed in July and August. Meanwhile, the three listed companies together control about 50% of the market for these products. The current restrictions are expected to reduce capacitor shipments by 30-60%.
Evergrande’s foreign investors have not received an interest payment. Evergrande Payment was to be made on Thursday. The missed payment opens Evergrande’s grace period, which could lead to the largest default. It would also raise questions about the financial solvency of investors and could lead them to start selling their other assets to cover the losses.
Main market quotes:
- S&P 500 (F) 4,455.48 +6.50 (+0.15%)
- Dow Jones 34,798.00 +33.18 (+0.095%)
- DAX 15,531.75 −112.22 (−0.72%)
- FTSE 100 7,051.48 −26.87 (−0.38%)
- USD Index 93.28 −0.19 (−0.20%)
Important events for today:
- Eurozone ECB President Lagarde’s Speech at 14:45 (GMT+3);
- US FOMC Member Evans’s Speech at 15:00 (GMT+3);
- US Core Durable Goods Orders (m/m) at 15:30 (GMT+3);
- US FOMC Member Williams’s Speech at 19:00 (GMT+3);
- US FOMC Member Brainard’s Speech at 19:15 (GMT+3);
- UK BoE Gov Andrew Bailey’s Speech at 21:00 (GMT+3).