Market Update

After a rocky week's start, most markets surged on news that Evergrande, the beleaguered Chinese real estate firm, managed to clear an interest payment on one of its dollar bonds. By addressing this $83.5 million obligation, Evergrande allayed immediate default fears and signaled a possible prioritization of international over domestic debt. Although this payment is just a drop in the ocean of Evergrande's massive debt, it highlights the market's occasional tendency to overreact to immediate news. We've maintained for a while that market volatility, often in response to short-lived headlines, offers investor opportunities. The measures taken by the Chinese authorities to prevent a ripple effect from Evergrande's situation on the wider economy bolster this perspective. This sentiment is further supported by September's retail sales figures released on Monday, which exceeded expectations at 4.4%. Despite a slight miss on the Chinese GDP growth rate, it's evident that Chinese consumers remain active, and the market is yet to fully rebound post-pandemic.
Earlier, Andrew Bailey, the Bank of England Governor, hinted at potential interest rate hikes in response to inflation concerns. However, we firmly believe that interest rates will stay subdued for an extended period. It's essential to recall that in recent times, both the European Central Bank (ECB) and the US Federal Reserve have indicated their tolerance for temporarily heightened inflation due to current supply-driven pressures. This was reflected in the European inflation data released on Wednesday, which at 3.4% was as anticipated but surpassed the 2% long-term goal. Thus, we've seen more commentary than concrete policy shifts from central banks, suggesting a continued responsive and supportive approach. While short-term market volatility is likely, especially with the current supply disruptions and commodity price fluctuations, we anticipate these issues to mitigate, leading global inflation rates to normalize—a sentiment shared by several central banks.
As we move into the next week, the spotlight will be on the UK's Chancellor of the Exchequer, Rishi Sunak, who is slated to present the autumn budget on Wednesday. Additionally, both the European Central Bank and the Bank of Japan have their policy meetings lined up for Wednesday.