A temporary deal to raise the debt ceiling until December boosted investor optimism, but volatility remained elevated amid a surge in energy prices and supply-chain disruptions.

Worries that the U.S. debt ceiling would be reached were alleviated on Thursday, following reports that Senate Republicans had agreed to take up a bill to raise the Treasury’s borrowing limit by $480 billion, which lifts the debt limit to $28.9 trillion. The breakthrough came less than two weeks before the U.S. was set to be unable to borrow money or pay off loans for the first time ever. The bill now must be approved by the House of Representatives and will then be sent to President Joe Biden to be signed into law.

Meanwhile, global energy prices continued to surge this week, reaching record levels. Brent Crude oil increased to its highest price since 2014, following OPEC’s decision to maintain a gradual supply. Wholesale natural gas prices also surged to record levels in Europe amid global fuel shortages.

U.S. employment grew in September, albeit at the slowest rate so far this year and below estimates. Unemployment fell to 4.8%, from 5.2% in August. However, nonfarm payrolls only grew by 194,000 in September, compared to expectations of around 500,000.

China, which has been struggling with electricity outages due to shortages of coal, ordered an immediate increase in coal output to fight the nationwide power crunch this week. Encouragingly, data released on Friday, showed that China’s Services Purchasing Managers’ Index (PMI) rebounded to 53.4 from 46.7 in August, which was the lowest level seen since the height of the 2020 pandemic (the 50-point mark separates growth from contraction).

Another Chinese developer failed to repay a maturing bond, following industry giant China Evergrande Group’s debt woes. Fantasia Holdings Group Co. didn’t repay a $205.7 million bond that was due Monday. Reports of defaults come as Chinese property sales slow. The top 100 companies reported a decline in sales of 36% in September compared to a year ago.

Merck announced this week that its experimental antiviral Covid-19 oral drug molnupiravir, halves the risk of hospitalisation and death from Covid. Late-stage trial results were so encouraging that the company is seeking “emergency use” authorization from the FDA. The findings could eventually yield a simple way to treat many virus patients before they ever reach the hospital. Meanwhile, Pfizer and BioNTech applied for approval of their vaccine for children aged 5 to 11.

Global equities were modestly stronger this week. In the U.S., the Dow Jones (+1.22%), S&P 500 (+0.79%) and Nasdaq (+0.09%) were all stronger. Similarly, the Euro Stoxx 50 (+0.94%), FTSE 100 (+0.97%) and Shanghai Composite Index (+0.67%) were all positive. The exception was the Nikkei (-2.51%), ending the week in negative territory.

Market Moves of the Week:

South Africa has been removed from the United Kingdom's red list, effective 11 October. This comes as part of the latest updates to the United Kingdom's controversial traffic light system which regulates travel according to country-specific Covid-19 risk factors. Fully vaccinated travellers from South Africa will be allowed to enter the United Kingdom without needing to quarantine.

Moody’s vice president and senior credit officer stated in a note this week that South African credit risks “have been elevated by the fragility of the economic recovery, given low vaccination levels, together with governance shortcomings and high levels of interconnectedness between sectors”. This comment comes despite Moody’s forecast that economy will grow 3% this year.

After a tough September month, SA resource shares rebounded strongly, ending the week up +7.45%. The move drove the overall market higher with the All Share Index (+2.48%) strong together with the industrial sector (+1.79%). In contrast, financial shares (-3.73%) lost some ground. By Friday close, the rand was trading at R14.93 to the U.S. Dollar.

Chart of the week:

What the chart is telling us:

The U.S. Senate voted to temporarily raise the nation's debt limit, avoiding a historic default. Senators agreed to increase the limit by $480bn, which will cover the U.S. until early December. In 1939, Congress established an aggregate limit or "ceiling" on how much debt the government could accumulate. The ceiling has been lifted on more than 100 occasions to allow the government to borrow more.