MARKET COMMENTARY
September started with Asian stock markets falling despite Wall Street hitting an all-time high, as concerns about slowing Chinese economic growth and regulatory changes dampened risk appetite.
After the Jackson Hole symposium and the inflation data, the eyes were focused on the non-farm payrolls data, which the FED followed closely for both the timing of tapering and the rate hike. Global markets faced selling pressure after the weak data, while the US non-farm payrolls data also cast a shadow over the global growth and inflation outlook. The US non-farm employment data recorded the lowest increase in the last 7 months, remaining limited to an increase of 235k against the expectation of 733k increase.
However, markets rose on expectations that the FED will likely delay the start of reducing asset purchases after nonfarm payrolls rose more slowly than expected.
European Central Bank (ECB) did not change the policy rate in line with the expectations, it was announced that it would start to reduce its bond purchases in the next quarter. Euro Zone 2 quarter growth data was announced as 2.2%, above the 2% expectation.
The rise in oil prices towards the middle of the month reflected positively on the markets. European markets were also boosted by the reflection of the sharp rise in commodity prices, especially oil and natural gas, on sector shares.
However, China's tightening of controls on technology companies and the growing liquidity crisis of Evergrande, the country's largest construction company, made investors confused.
Concerns that the Chinese real estate company Evergrande, which is heavily indebted, would not be able to pay its debts became a featured agenda item in September. While this situation caused investors to avoid risky assets, it was watched whether the difficult situation of the company would expand to the general Chinese real estate sector. Investors feared that other companies in the Chinese real estate sector could face similar problems at a time when economic growth is fragile if Evergrande goes bankrupt or close-out.
The United Nations warned that the global economy is expected to see its fastest recovery in almost fifty years this year, but that inequality between developed and developing countries is deepening.
In line with the market expectations, the FED did not change the interest rate. It was also stated in the text that the asset purchase program could be reduced in the near future if the inflation and employment targets are approached. When we look at the median forecasts of the members, it was seen that two more members predicted an interest rate hike in 2022 compared to June. In his speech, FED Chairman Powell stated that mid-2022 might be suitable for ending asset purchases and pointed to the November meeting for tapering decision if economic data goes in line with expectations. In order to the Fed's tightening in monetary policy, it is predicted that interest rates will increase to 1% in 2023 and to 1.8% in 2024. These forecasts revealed that there would be an earlier rate hike than the FED's expectations in June.
While the dollar index started September with a flat course with the effect of economic data before the US non-farm employment data, it decreased after the employment data. However, with the depreciation of the euro before the ECB decision, the strong economic data announced in the USA and the expectations in the markets that the FED will start monetary policy tightening, it started to rise and rose to 94.503. On a monthly basis, it closed at 94.230 with a increase of 1.73%.
Against the dollar, the Euro fell 1.91% and the pound by 2.05% on a monthly basis, closing at 1.1581 and 1.3472 levels, respectively.
LME copper started September with a increase as employment data led to a depreciation in the dollar. However, prices have pulled back again as Chinese factory data raised concerns about Chinese demand.
In the coming days, copper prices also came under pressure as Chinese August imports, higher prices and sluggish economic growth hit demand.
LME copper, which rose to the level of $9,756 with the strike concerns and increasing risk appetite in Chile, could not hold on to this level as the strike disappeared and investors remained cautious before the US inflation data. Afterwards, although it turned its direction up for a short time after the data, the news flow about the expected stimulus reduction for the US economy, the uneasiness before the Fed meeting and the stronger dollar suppressed prices.
Copper tested to $8,810 on September 21, its lowest level since August 19, as the Evergrande Group debt crisis led to market sell-offs.
Although LME copper supported from Evergrande's statements that relieved the markets that it would pay its debts; September ended with a loss of 6.16% at $8,948 on the back of the power cuts in China, stronger dollar and the data that came below expectations and created demand concerns.