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Time flies like an arrow. It feels like the year just started but we are already in the fourth quarter. The question then should be asked – how 2021 will end? The clue might be in the new earnings season that is about to begin in Europe and the US. Considering recent supply chain bottlenecks, energy crisis and labor/material shortages, most probably some of the companies will be forced to issue profit warnings that could ultimately generate certain tensions in the market.
Looking ahead to this week, on the other hand, markets will be closely watching the OPEC+ meeting. In the midst of a deepening energy crisis, it is possible that oil-exporting countries could decide to increase production above 400 thousand barrels a day in November and December. It is worth mentioning that during the previous meeting OPEC decided to go ahead with the plan set in July to gradually increase joint extractions until September 2022, adding 400,000 barrels per day each month.
Along with that, markets will follow the meetings of the Reserve Bank of Australia (RBA) and the Reserve Bank of New Zealand (RBNZ). In the last meeting, the Reserve Bank of Australia announced that it will continue purchasing government bonds past the September deadline at a weekly pace of A$4 billion, rather than the current A$5 billion. On top of that, the bank retained the April-2024 bond for its three-year yield target of 0.1%. The problem is that, in the context of an increase in coronavirus cases, the risk of a slowdown in the economy increases, as well as an increase in unemployment.
In the case of the US, we will pay close attention to the September employment report as it could give a clue as to when the Federal Reserve begins the gradual reduction of bond purchases. Friday’s report from the Labor Department is expected to show a labor market that continues to improve at an uneven pace. Despite unprecedented vacancies and faster wage growth, coronavirus-related health issues, skill mismatches, and high turnover have kept payrolls below pre-pandemic levels. Other US data to be released next week include figures on September’s service activity and August’s trade deficit.
Speaking of the crisis of the indebted Chinese construction company Evergrande, this Monday its shares were suspended on the Hong Kong Stock Exchange. It is not yet known whether it is due to a possible bankruptcy or information that points to the purchase of part of its shares by another company. According to the Chinese media Cailian Press, a Hong Kong developer, Hopson Development, plans to buy 51% of the real estate division of Evergrande and its shares have also been suspended to carry out the acquisition. The amount of the operation would be around 40,000 million Hong Kong dollars (4,431 million euros). Does this mean that Evergrande will ultimately not go bankrupt? Unfortunately not. Although such a sale would give Evergrande some liquidity to pay its impending loans, it is far from the 300,000 million dollars (255,000 million euros) that it accumulates as debt and threatens its survival. That is why it worries that the suspension of the shares will be the first step of its declaration of its bankruptcy, which would be one of the largest in history.
