4th October 2021 Morning Report

Monday 4th October 2021

Stocks wobbled initially on Friday, as yields on U.S. Treasuries shot to a three-month high, exacerbating concerns in a market already concerned over the fight over the U.S. debt ceiling, the fate of a massive infrastructure spending bill and the meltdown of heavily indebted Chinese property developer China Evergrande Group. Despite this the U.S. stock markets ended Friday in positive territory. The Dow Jones Industrial Average rose 483 points, 1.4%, earning back some of Thursday's losses. The S&P 500 index and Nasdaq Composite closed 1.1% and 0.8%, higher respectively. Although the indices closed in positive territory on Friday, all three posted losses for the week, after the month of September, in which equities notched their steepest losses since the beginning of the Covid-19 pandemic. Investors are now focusing on the direction of interest rates, as the catalyst, that will determine the direction of markets for the rest of the year, after the month of September in which equities notched their steepest losses since the coronavirus pandemic began. Among the indicators investors are using to gauge stocks’ future trajectory is the spread between the yields on two-year and 10-year Treasuries. Some view this as a barometer of whether the economy is slowing or overheating. A spread of between zero and 150 basis points is a “sweet spot” for stocks. Historically, when the spread exceeds 150 basis points, that is when stocks struggle.

European stocks fell to their lowest point in two months on Friday, as companies and factory activity data highlighted the economic headwinds from supply-chain constraints and inflation. The Europe-wide STOXX 600 index fell 0.4%. The FT100 closed -0.84%. In Asia, the Nikkei 225 ended 2.16% lower. The Hang Seng was lower 0.36% and the Shanghai Composite Index ended 0.90% up.

Morning Report 4 October 2021

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