Market Watch 10.10.2021

Debt ceiling deal has a breakthrough. On Thursday, lawmakers announced a breakthrough to avoid the US government defaulting, kicking the can further down the road. Just 11 days remained until the $28.4 trillion limit the US government can borrow would be reached. The Senate’s top Republican, Mitch McConnell showed support for the makeshift measure. Joe Biden also showed his support and encouraged corporate America to persuade Republican lawmakers to increase the debt ceiling. These include business leaders like, Pat Gelsinger of Intel, Jane Fraser of Citigroup and Brian Moynihan of Bank of America.


With McConnell’s support for the $480bn that the US borrowing limit will be raised by, it should be adequate to support the treasury until early December. Stocks soared from the news, causing the S&P 500 to close 0.8% higher and the Nasdaq gained 1.1%. Recuperating the 5% losses they suffered last month. Furthermore, yields rose as investors ditched the safer assets to pour into equities. In particular, the 10-year Treasury note yield climbed 0.05 percentage points, reaching 1.57%. The senate-passed bill, heads to the House of Representatives to be voted on this Tuesday.




Facebook’s catastrophic week. Facebook fell by 4.9% on Monday, its largest intraday decline since November 2020. It was caused by the whistleblower and ex-product manager, Frances Haugen, who accused Facebook of prioritising “profit over safety” and was not helped when all of Facebook’s apps were plagued by widespread outage for over 6 hours on Monday. It was the worst disruption for Facebook in over two years. Haugen who leaked controversial Facebook documents to The Wall Street Journal and filed “at least eight complaints” with the SEC, testified before a Senate Commerce subcommittee on Tuesday. The senate hearing focused on what Facebook is doing to protect children.


Haugen suggested Facebook viewed younger users as an untapped source of growth and ignored its own evidence on the mental health impact its own apps like Instagram cause. “Facebook’s own research says it is not just (that) Instagram is dangerous for teenagers, that it harms teenagers, it’s that it is distinctly worse than other forms of social media.” As a result, Facebook put a hold to the development of Instagram Kids and disagreed with her display of its own research. Furthermore, Facebook’s ‘civic integrity’ unit, a team committed to removing disinformation was dismantled after Joe Biden was elected.


A fault Haugen believes caused the January Capitol Hill riots and the point where she could no longer “trust that they’re willing to actually invest what needs to be invested to keep Facebook from being dangerous”. Haugen will attend the Lisbon Web Summit and appear before UK politicians to offer solutions over the upcoming weeks. Facebook now faces its worst crisis since the Cambridge Analytica scandal and has a lot of convincing that they put safety over profit.


US jobs growth unexpectedly weak. US nonfarm payrolls rose by 194,000 in September, from data published on Friday. This was a massive miss from the market expectation of 500,000 and was even lower than the lowest estimate on the street. This was the second straight month it missed the expectation and raises the question about whether tapering can take place as early as next month. Although schools reopened there was little change as back to school September employment was less than expected. The Bureau of Labour Statistics (BLS) noted, “pandemic-related staffing fluctuations in public and private education have distorted the normal seasonal hiring and lay-off patterns”.


Sarah House, the senior chief economist at Wells Fargo stated, “We are seeing supply issues remain more ingrained than any of us expected” and believed until people change their thinking about the risks of returning to work, the weak numbers will persist. Dining and food services employment was once again little unchanged. However, there was some positive news as the unemployment rate declined to 4.8%, beating analysts’ estimates of 5.1%. Average hourly earnings beat forecasts by a 0.6% increase instead of the expected 0.4%. Overall, the weak job data is unlikely going to change the course for tapering this November as Powell had set the bar quite low.




Economic Calendar 11th October - 15th October


Main Events


  • UK CLAIMANT COUNT CHANGE

On Tuesday, the UK will release the September employment performance. The claimant count change measures the change in the number of people who are receiving unemployment benefits from the UK government, acting as an indicator of the employment development in the UK. If this figure will be higher than in the previous month, it will highlight a weakness in the labour market. The August reading surpassed the analyst’s estimates, recording a decrease of 586,000, suggesting a positive change for the UK economy. For this reason, any disruption of this trend could have a significant negative effect on the UK’s equity market.


  • US INFLATION & FOMC MINUTES

On Wednesday, the US Department of Labour Statistics will release the most recent US Consumer Price Index figures, measuring the changes in purchasing trends and inflation. With the current inflation well above the 2% target, investors are closely monitoring this economic indicator, as a greater than expected reading will translate to a bullish signal for the US dollar.

In terms of policy making, the Federal Open Market Committee will publish its September meeting minutes, offering detailed insights about the current monetary policy and the future interest rate hikes. Although the FOMC position on inflation remains on a transitory level, a large increase in CPI could spark significant talks about tapering.



Economic Calendar


MONDAY


· Data: Brazil’s Central Bank Focus Market Readout, UK NIESR GDP Estimate

· Events: USA Columbus Day, Canadian Thanksgiving


TUESDAY


· Data: UK Average Earnings Index, UK Claimant Count, UK ILO Unemployment Rate, German ZEW Economic Sentiment, USA JOLTs Job Openings

· Events: USA WASDE Report, Brazil Holiday


WEDNESDAY


· Data: UK GDP (MoM), UK Manufacturing Production, Germany CPI, Harmonised Index of consumer Prices, USA Core CPI, German CPI

· Events: FOMC Minutes, BoE Member Speech


THRUSDAY


· Data: US Initial Jobless Claims, US Crude Oil Inventories, Australia Employment change, US PPI, China CPI, Spanish CPI,

· Events: BoE Credit Conditions Survey Q3, FOMC Member Speech


FRIDAY


· Data: US Core Retail, China Retail Sales, EU Trade Balance, Italy and France CPI

· Events: IMF Meeting, European Council Meeting, FOMC Member Speech



Thank you to Cameron Barker and George Fol for your in-depth analysis!

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