The World In A Week – Pricing in the power

Last week was a strong week for equities with the MSCI All Country World Index returning +1.2% in GBP terms, largely driven by a good earnings session in the US.  The S&P 500 returned +1.6% in GBP terms with earnings momentum driving the S&P 500 to new highs. With supply chain constraints and rising raw material prices, that we have seen in the last few months, investors were anticipating how this would impact companies’ bottom lines.  Overall Q3 earnings were reported to have been 33% higher than a year ago, albeit from a much lower base.

Elsewhere, UK inflation marginally fell in September to 3.1% year on year from 3.2% in August.  This was an unexpected fall given that there was an extensive oil supply shortage and consumers continue to face rising energy bills.  Huw Pill (Chief Economist at the Bank of England) stated that inflation could surge beyond 5% in 2022 as the product and labour shortages continue to hamper the UK’s economic recovery.  Policy makers at the Bank of England are set to meet next week, on November 4th, as they will vote whether to raise interest rates from the current 0.1% level.

The giant Chinese property developer, Evergrande, finally repaid its missed interest payment of $83.5 million which had entered its last few days of its 1-month grace period.  A month ago, Evergrande failed to pay back the interest on its debt which sparked a sharp selloff in risk assets as concerns regarding the liquidity of the Chinese real estate sector came to light. MSCI China rallied +3.7% last week but remains -10.8% year-to-date following the Chinese Government’s intervention into the generation of certain companies’ excessive supernormal profits.

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