US stocks had the biggest monthly decline in a year in September, while the energy sector rose alone. The Nasdaq and S & P hit more than two-month lows, the Dow exceeded March lows, and S & P fell more than 4% in September, while the energy sector rose more than 9% in September.
Upcoming week (4-10 Oct 2021), investors are eyeing on China’s September Caixin service industry PMI; the US jobless claims; the September US unemployment rate; and the non-farm payrolls after the September quarterly adjustment are about to be announced this week. These figures are the major marketing indication on FED’s move on tapering in the next FOMC meeting in Nov.
On Monday 4th Oct, market is focused on the meeting of the OPEC and the Russian-led partner (OPEC+). In addition to the existing agreement to increase production by 400,000 b/d in November and December, oil-producing countries are expected to discuss other options. Four OPEC+ sources said it was possible to further increase oil production, but no one gave a specific amount or month. Another OPEC+ source said it could increase by 800,000 b / d in the coming month and not increase production in the following month.
Secretary-General OPEC believes that unless there is increased investment in new oil and gas development projects, consumers will have to accept more energy shortages. This is seen as the first time that OPEC has responded to calls to limit rising spending in the oil and gas sector.
So far this year, the market has been concerned about the continued rise in inflation. But with international oil prices above $80 a barrel, global food prices rising more than 20 per cent year-on-year, and other commodity prices at 10-year highs, a longer-than-expected surge in inflation could coincide with slowing economic growth. A longer-than-expected surge in inflation and a slowdown in economic growth could happen at the same time. Investors are starting to worry that the economic stagflation caused by the oil crisis of the 1970s may be repeated.
Central banks are increasingly inclined to raise interest rates to curb rising inflation. But as energy prices soar, many worry that economic growth will stagnate. Affected by supply chain disruptions, the global economic recovery has shown signs of stagnation. Business surveys from the US, UK and eurozone showed that manufacturing activity slowed as delivery times and backlogs increased. Andrew Bailey, governor of the Bank of England, admitted this week, supply bottlenecks and labour shortages are worsening and are likely to dampen economic growth and fuel inflation in the coming months. Raising interest rates will slightly reduce demand and let the currency appreciate. But it will not have an impact on the supply chain.
If the economy slips into stagflation, central banks around the world will be in trouble as they would face a dilemma between “stagflation” and “inflation”, which would pose a serious threat to equities.
With the growing risk aversion in the market, high-growth technology stocks have become one of the first varieties abandoned by investors. ARK Innovation ETF (ARKK), recorded its largest quarterly outflow since its inception, with outflows of about US$1.97 billion in the third quarter.
Last Friday, Merck & Co Inc announced COVID-19 oral medication: hospitalization, mortality reduced by 50%, seek authorization for emergency use of FDA in the coming weeks. The new development definitely offers a “Window of Hope”.
Going into the 4Q, will see investors going into traditional valued recovery stocks on back of the Merck’s new innovative Covid-19 pills, pulling out capital from stay-home stock and high valuation growing tech stocks on rising interest rate concern. Also, might see capital hiding in store value assets such as gold, properties, bitcoins.
As countries vow to reach net-zero carbon emissions in the next few decades, “cap and trade” programs are getting more traction. These programs limit, or cap, how much carbon dioxide each company can emit. Those that exceed the threshold will have to purchase extra permits from those that pollute less. The caps are expected to drop over years, which will reduce the supply of carbon permits and drive up prices. As it becomes more expensive to emit greenhouse gases, polluting companies should be motivated to cut emissions by transforming their business or developing new technologies.
Carbon cap-and-trade programs have been around for more than a decade but have languished due to low demand, whipsaw volatility, and poor liquidity. All that has improved recently, and will continue as these programs become more established.
Currently weighted carbon price of $37 per ton of carbon dioxide.
The run-up was largely due to the passage of European Green Deal. It goes far beyond just some long-term goals. it’s now a very concrete set of proposals that would make the caps a lot harder to meet. Still, current prices are far below the level needed to accelerate a low-carbon transition fast enough. The Organization for Economic Cooperation and Development (OECD) estimates that $147 per ton is needed by 2030 if the world hopes to reach net-zero carbon emissions by 2050. The Biden Administration has a forecasted carbon price of USD125/ton. That means more-aggressive policies are likely coming. These markets are designed to increase over time. Policy tailwinds won’t eliminate volatility, though. Economic cycles, the weather, and fluctuating prices in other energy commodities could all affect the carbon market’s short-term price movements. Wider adoption of carbon-reducing technology could also drive down demand significantly, but that likely won’t happen until prices reach a much higher level.
Institutional investors and hedge funds have used carbon futures as a diversifier due to their low correlation with traditional asset classes like stocks and bonds. Carbon futures can also be an efficient hedge against energy transition risk.
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