MARKET COMMENTARY
International stock markets started October with sales amid concerns that high inflation might be permanent.
The general positive mood was created by Fed chairmen's statements that supply woes are putting pressure on them, but that price increases will not continue. Afterwards, Senate minority leader Republican McConnell announced that they plan to submit a proposal to raise the debt ceiling by December, supporting the indexes positively.
Deepening sales, after natural gas prices rose 40% in one day in European indices, slowed down with Putin's statements that they would increase natural gas exports to Europe and that they were ready to help balance the energy market.
Later in the month, stock markets came under the pressure of intensifying debates on whether the rise in energy prices will make inflationary temporary or long-term.
In the US indices trying to find direction, positive closings were seen with the sharing of the minutes of the FOMC meeting. The minutes showed that the authorities had increased inflation concerns and agreed to start reducing asset purchases soon. According to the minutes, if a decision is made to start reducing asset purchases next month, the decision may be implemented in mid-November or December.
Higher-than-expected company earnings relatively quelled concerns about the energy crisis and supply chain disruptions. However, Fed Chairman Powell's pointing out that inflation may remain high for longer than previously predicted pushed the markets down. Jerome Powell said the Fed should start the process of reducing its support for the economy by reducing asset purchases, but should not touch interest rates yet.
The auto industry was under pressure as chip supply problems continued to affect European auto companies. VW has announced that it will halt all production in the Czech Republic for two weeks due to the lack of semiconductors of the Skoda unit.
China's Evergrande Group transferred money to pay off the dollar-denominated bond whose coupon payment expired on September 23. If the payment, which came days before the deadline for the last payment, was not realized, the company would officially go into default.
In the last week of the month, while the rise in oil prices carried the energy sector up, Tesla's over 1 trillion USD market value was at the top of the agenda.
New concerns about the Chinese real estate sector, on the other hand, were the factor limiting gains in Asia. China's announcement that it will impose a pilot property tax in some regions has increased investors' concerns about the Chinese real estate sector.
Stock markets saw a decline, with company balance sheets clearly pointing to disruptions in the supply chain. The balance sheets showed that the largest manufacturing companies in the US, including General Motors, General Electric, 3M and Boeing, face logistical problems and higher costs due to the supply bottleneck that is expected to continue next year.
Investors, worried that inflation will strengthen due to the supply chain problems observed around the world, are watching whether the main central banks will reduce the measures to support the economy, which they put into practice during the epidemic period.
On the economic data side, unemployment data was announced as 4.8%, below the 5.1% expectation on the US side, while non-farm employment was announced as 194 thousand against the expectation of 500 thousand.
Inflation data for September were expected to increase by 0.3% and 0.2% on a monthly basis in the headline and core, respectively, while the data were announced as 0.4% and 0.2%. Consumer prices increased by 5.4% in September compared to the same month of the previous year.
The US third quarter growth data, which is expected to come in at 2.6%, was announced at the level of 2%. Third quarter personal consumption was announced at 1.6%, above the estimates of 0.9%.
In China, the September PPI data recorded the fastest increase in history due to energy restrictions and rising commodity prices, causing the pressure on businesses to increase. Producer prices rose 10.7% in September from last year, the biggest increase since the data were first released in 1996, according to data released by the Chinese statistical agency. According to the data of the institution, China's September CPI data was announced as 0.7%, below the expectations of 0.9% compared to the previous year.
China's third-quarter GDP came in at 4.9% year-on-year, below expectations of 5%. Chinese industrial production, which is expected to be 3.8% on an annual basis for September, was announced as 3.1%.
On the European side, the region's inflation was in line with the expectations of 3.4% annually and 0.5% monthly, and in line with the previous period.
The European Central Bank did not change its interest rate policy. The fact that the ECB chairman took a slight step back in his firm stance against a possible interest rate hike made investors think that interest rate increases may be in the near future.
The Bank of Canada (BoC) is ending its quantitative easing program earlier than expected and signaling that it may raise interest rates by April 2022, sooner than expected. The BoC's move also supported expectations that the Fed could act more quickly on rate hikes.
The monetary policy of the Bank of Japan (BOJ) did not change as expected.
Expectations that the Fed will tighten monetary policy sooner than expected, in addition to the anticipated rise in inflation and concerns that global economic growth will slow down, supported the dollar. On the other hand, the fact that the US industrial production data was below expectations and the increasing risk appetite put pressure on the dollar. The dollar index ended October at 94.123 with a 0.11% depreciation.
Euro/usd, recovered after falling to 1.1523, a 15-month low, and closed at 1.1561 with a loss of 0.17% on a monthly basis.
LME copper, which fell to $8,887 at the beginning of the month, later rose with the impact of Chinese investors returning from a long vacation, supported by the decline in Shanghai stocks and the resurgence of supply concerns in Peru.
The expectation that the Fed will not rush to reduce asset purchases after the below-expected US employment data continued its upward movement with the support of the positive news flow from LME Week and the rise in premiums.
While rising energy prices caused disruption in the production of downstream consumers, causing the smelter to stop production, concerns about refined copper production increased. Backwardation increased due to the tightness in the spot market.
Meanwhile, the news of the supply cut from Peru destabilized the market. LME copper stocks fell to a 23-year low and Shanghai copper stocks fell to a 14-year low, while refined copper supplies in China shrank due to power cuts.
LME copper 3-month futures price rose as high as $10,453 in the month. The gap between cash price and futures price opened to a record above $1,100, indicating that stocks are tight.
In the coming days, as the supply shortage eased and the attention was focused on the threat of slowdown in demand in the top consumer China, LME copper depreciated in value, but the high backwardation in the market continued.
In order to prevent high backwardation, the London Metal Exchange took the transactions under examination and brought temporary measures to the market.
Towards the end of the month, LME copper, which declined due to concerns that the rising dollar as well as the electricity crisis in China and slow economic growth would reduce demand, ended October at $9,544 with a monthly premium of 6.66%.