Equities by and large fared well last week with the S&P 500 pushing to record highs around the 4470 level as broadly positive earnings and the passage of the infrastructure bill in the Senate was supportive. China and HK managed a weekly gain as well despite the threat of looming regulation. The narrative around the regulation has shifted a little over the last week with more people starting to perceive it as an equalizer for those adversely impacted by big Tech's market power and employment conditions. North Asia (Korea and Taiwan) were in the red despite reports of the chip shortages easing and Samsung's boss granted early release from prison. Europe went from strength to strength with Italy emerging as the highest gainer of the week.
Volatility was lower across equity and FX with the US dollar falling on Friday - it still closed the week marginally higher. The trigger here was the University of Michigan Consumer Sentiment Index in the US - usually not a top-billed release, but it is a leading indicator and the magnitude of the miss (70.2 vs 81.0 Exp) appeared to rattle markets. Consumption has been the US economy's strong suit even before the pandemic and above-trend savings over the last year were expected to keep that going. The US 10Y and 30Y yields dipped about 6-8 bps on the release and the 2s10s flattened 7 bps on the week overall. The equity indices didn't react and we'll keep a close watch this week to see if this was a one-off miss or the rumblings of something deeper.The key geopolitical event of the last week has been the Taliban's offensive in Afghanistan after the US withdrew troops. The final frontier (Kabul) fell into their hands over the weekend and the US-supported President (Ashraf Ghani) had to flee the country. A lot of the western nations are evacuating diplomatic staff from the country (Russia is a notable exception), which the Taliban plans to declare the 'Islamic Emirate of Afghanistan'. Ahead this week, we have Retail Sales in the US, which will help further discern the consumption picture, along with a rate decision from the Reserve Bank of NZ (25 bps hike expected). We also have minutes from the prior decisions of the Fed and RBA which should provide further clarity on their thinking. China's economic data releases kick us off in Asia this morning.Have a great week ahead!
September 13, 2021
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