The World In A Week - Data, data everywhere, but what should we think?
Written by Shane Balkham.
“A turn in sentiment has seen whip-sawing changes in markets and is creating a volatile environment for the end of the year.”
The Rime of the Ancient Mariner seems rather apt at this particular juncture. While the albatross heralded stormy conditions to sailors, data is signalling similar volatile conditions for the coming weeks.
The US employment for November showed that 210,000 jobs were added last month, significantly fewer than the expected 550,000. However, overall unemployment fell to its lowest level since the pandemic began. This was greeted with a sharp drop in US equities, as investors retreated from large technology companies, as evidenced by the fall in the Nasdaq index.
Employment data is a key indicator for the Federal Reserve, so when Chair Jerome Powell gave testimony to Congress last week, in which he signalled his support for an acceleration in the wind-down of their quantitative easing programme, markets concluded that coupled with the jobs data, faster policy tightening was assured. The narrative should be about an economy getting stronger where extreme emergency policy is no longer needed or appropriate. This suggests an environment where we can expect interest rates to rise and tapering to be complete sooner rather than later.
We have the meetings of both the Federal Reserve and the Bank of England next week, where expectations are high for the rhetoric to confirm this story. The Federal Reserve will also publish their updated ‘dot plots’ giving us an indication of where they expect short-term interest rates to be over the coming months.
Before the meeting of minds across both sides of the Atlantic, we have the US inflation reading on Friday where the top end of forecasts has a reading in excess of 7%. This should provide weight to the Federal’s decision, especially now the word ‘transitory’ has been retired from their lexicon. The twist in the tale though is we have the new variant of COVID-19 to concern us. Data surrounding Omicron’s virility and potency has yet to be confirmed, although the latest news suggests that this variant could be milder than Delta.
The move towards normalisation was always likely to be treacherous and fraught with the risk of policy missteps. Celebrations during Thanksgiving might have been premature as there are stormy seas to navigate before the next holiday. With inflation data for the US due this week, and the heavy weight policy makers meeting next week, it pays to be prudent and have an appropriately diversified portfolio.
Any opinions stated are honestly held but are not guaranteed and should not be relied upon.
The information contained in this document is not to be regarded as an offer to buy or sell, or the solicitation of any offer to buy or sell, any investments or products.
The content of this document is for information only. It is advisable that you discuss your personal financial circumstances with a financial adviser before undertaking any investments.
All the data contained in the communication is believed to be reliable but may be inaccurate or incomplete. Unless otherwise specified all information is produced as of 6th December 2021.
© 2021 YOU Asset Management. All rights reserved.
The World In A Week - The price is right?
Written by Millan Chauhan.
Last week, UK inflation data came out revealing that the cost of living rose by 4.2% in the 12 months to October 2021 which exceeded initial estimates of 3.9%. The figure is just over double the Bank of England’s target rate and is now at a 10-year high. The Bank of England decided earlier in November to maintain interest rates at 0.1% and is set to meet later next month on 16th December to assess the domestic monetary policy situation. The sharp rise in inflation has been attributed to rising gas and fuel prices but only marginal increases for items such as food. Hence, price rises are being experienced at billed expenditure level which is often paid by direct debits or prepayments and is arguably less immediately noticeable to the end consumer. However, the price increase seen at a weekly grocery shop level has been much less high, hence consumers may not directly be seeing inflation in the market, but it certainly exists.
Elsewhere in the US, President Biden’s new infrastructure bill was successfully approved by the House of Representatives and signed into law, which on paper is a $1.75 trillion spending plan that includes spending of $550 billion on the country’s bridges, airports, waterways, and public transit lines. The bill will also devote resources towards funding new climate control and broadband initiatives which includes creating more electric charging point terminals.
Finally, numerous states in the EU are re-entering lockdowns or implementing social restrictions following a spike in the number of COVID-19 cases as we head into the winter season. European countries are operating a different severity of restrictions with the Czech Republic’s Prime Minister, Andrej Babis boldly stating that non-vaccinated people would be banned from attending public events and services. According to the European Centre for Disease Prevention and Control, 66% of individuals in the EU region are now double vaccinated but this includes countries with a much slower uptake of the vaccine which has resulted in a much higher number of reported cases.
The World In A Week – Inflation – we’re bubbling hot, hot, hot!
Written by Richard Warne.
For those of you as old as me, you may well remember Pato Banton releasing a song called “bubbling hot” back in 1992, and this is how inflation is acting right now. On Friday, the US Consumer Price Index (CPI) came out at a whopping 6.8% year-on-year increase, inflation is at a 40-year high, and both outcomes probably put to bed the notion that inflation is merely transitory.
As the end of 2021 fast approaches, there are many varying factors that markets are getting to grips with. It has only been a few weeks since the discovery of Omicron, the new COVID-19 variant, and this has naturally caught investors’ attention. At the same time there has been huge attention on the Fed’s taper/rate hike plans. However, against these concerns, it must not be forgotten that markets are performing strongly, anchored by robust consumer strength and continued upside of earnings revisions going into Q4 and next year.
Equity markets have been volatile over the last few weeks, and last week saw volatility swing to the upside with most regions posting returns of at least +2.0%, the MSCI All Country World Index was +3.0%, while the UK market delivered +2.2%. Last week’s recovery not only reflected these strong fundamentals but further indicated that investors may be growing increasingly comfortable with an accelerated taper/rate hike timeline to contain what has been some “hot” inflation prints.
Though last week’s US CPI print of 6.8% was eye-watering, it was perfectly in-line with expectations. So, did investors give a sigh of relief that the number printed was not way beyond expectations? However, the inflationary environment is a new reality, as is the ever-increasing spread of the Omicron variant of the virus, so could this have further impact on supply chain challenges? This is a topic that has had much airtime over prior months. Costco in the US reported Q3 earnings last week and comfortably beat market expectations. The Company did comment that 79% of its import containers had been delayed by 51 days on average.
Earnings, valuations, inflation, Fed policy responses, and the continuation of the virus are just a few of the topics the market continues to grapple with as we see out the year and will possibly have an impact on how investors think about positioning for next year.
As this is the last ‘World In A Week’ for 2021, may we wish you all a fantastic Christmas and a Happy New Year. We will return on 4th January 2022.
Any opinions stated are honestly held but are not guaranteed and should not be relied upon.
The information contained in this document is not to be regarded as an offer to buy or sell, or the solicitation of any offer to buy or sell, any investments or products.
The content of this document is for information only. It is advisable that you discuss your personal financial circumstances with a financial adviser before undertaking any investments.
All the data contained in the communication is believed to be reliable but may be inaccurate or incomplete. Unless otherwise specified all information is produced as of 13th December 2021.
© 2021 YOU Asset Management. All rights reserved.