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Multi-Manager People’s Perspectives

17 September 2021
September 2021

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Risk disclaimer

Please note that this is a marketing communication and does not constitute investment advice or a recommendation to buy or sell investments nor should it be regarded as investment research. It has not been prepared in accordance with legal requirements designed to promote the independence of investment research and is not subject to any prohibition on dealing ahead of its dissemination. Views are held at the time of preparation.
Past performance is not a guide to future performance. Stock market and currency movements mean the value of investments and the income from them can go down as well as up and you may not get back the original amount invested.

This week has seen equity markets lacking direction somewhat – Asian equities have struggled relatively, UK and European equities have been range bound while US equities have halted the five consecutive days of decline we saw last week but not moved significantly higher. That said, the S&P index remains just over 1% short of its all-time high; this period where equity momentum may have stalled is still some way from what, history would suggest, is an overdue period of correction. One asset class that is pushing higher is commodities – the Bloomberg Commodity Spot Index hit new 10-year highs on several occasions this week. This comes as a result of rising oil prices – likely driven by short-term supply/demand imbalances but a longer-term driver will continue to be the lack of capital expenditure in the oil industry meaning that demand may well outstrip supply in the future even as energy usage moves towards more sustainable sources. We’ve also seen huge increases in natural gas prices – European natural gas futures are up almost 65% in the past six weeks and up over 500% compared to last September. This comes well before the usual seasonal peak in gas prices, and we have already seen governments in Spain and Italy consider windfall taxes for energy firms and subsidies for domestic energy bills. We are also seeing spikes in electricity prices in the UK, not helped by the failure of the highest capacity ‘interconnector’ between the UK and France. The UK next day electricity price hit an all time high of £354 per MWh earlier this week – that’s 700% higher than the average price of £45 seen over the past decade. It could be an expensive winter of heating and electric bills for UK consumers and that won’t do the inflation data any good.

 

We have seen a lot of economic data at home and further afield, with the overall picture being one of a global economy where the momentum in growth is easing. The data from China was notably weak, with retail sales seeing a huge miss against expectations and industrial production and fixed asset investment also falling short of what was expected. Chinese retail sales were up 2.5% year-on-year, against expectations of a 7.0% increase. It appears that tighter Covid-19 related restrictions have had a bigger than anticipated impact on consumers during the Chinese summer break. Closer to home, unemployment in the UK fell back to 4.6% with payrolls having increased by 241,000 in August, taking the number of employees back above February 2020 levels. The true picture of UK employment will emerge soon; the furlough scheme is soon to be wound down and there were still 1.6 million employees on this scheme at the end of July. UK inflation saw a sharp jump in August, with CPI at 3.2% year-on-year, up from 2% in July. This was the biggest change since 1997 and was driven by food and restaurant prices. The Office for National Statistics urged some caution in interpreting the figures given the base effects from last August, when the VAT cut and ‘eat out to help out’ scheme suppressed pricing. The Bank of England, much like other central banks still sees this inflation as temporary though it is clear that many of the supply chain issues will extend into 2022 and rising commodity prices will also push inflation higher as it feeds into domestic energy bills. While central banks will likely ease back on asset purchases in the coming months, the bar for actually raising interest rate hikes remains very high. In the US, industrial production was impacted by Hurricane Ida and was weaker than expected but retail sales remained robust and were ahead of expectations.

 

The news in the world of politics remains relatively quiet – at least in terms of politics impacting financial markets. In the US, with the prospect of the debt ceiling being breached on the horizon, it seems likely we will see a vote on the Infrastructure Bill and the Budget before the end of the month, potentially with a few concessions to keep more fiscally hawkish Democrats on side. We’ve seen North Korea once again conducting missile tests, which can’t be helping sentiment in Asian markets though the bigger issue remains the slowing economic momentum in China. In Germany, with the election next weekend, the opinion polls remain very close, albeit with the SPD party of Vice Chancellor Olaf Scholz slightly ahead of the CDU/CSU party of Angela Merkel’s successor Armin Laschet. The Green party is close behind and it seems likely that after the election, much like last time, it could take several months for a new coalition to be formed. Investors appear sanguine regarding the outcome though it will be interesting to see if the Green Party forms part of the resulting coalition and how much policy changes as a result.

 

On Covid-19, the trend in the case data globally continues to be favourable as vaccine rollouts continue. The UK government published their winter plan for ‘living with’ the pandemic – Plan A involves vaccines, isolation where needed and guidance, while Plan B to be put in place should NHS capacity become stretched, would involve more use of vaccine passports, face covering mandates and a return to work from home guidance. The UK is set to start vaccine boosters for the over 50’s in the near future, plus rolling out a single dose of the Pfizer vaccine to 12 to 15 year-olds in the coming weeks. Data from Israel showed that a booster shot reduced infection rates by 11 times, and in those infected, severe illness was 20 times lower.

 

You won’t be surprised to learn our broad views remain unchanged – we do see market momentum stalling somewhat but there is plenty of liquidity around from the central banks, even if the prospect of a reduction in asset purchases may well be weighing on some investors thoughts. We’ll discuss this in more detail in our webinar next week. 

Risk disclaimer

Please note that this is a marketing communication and does not constitute investment advice or a recommendation to buy or sell investments nor should it be regarded as investment research. It has not been prepared in accordance with legal requirements designed to promote the independence of investment research and is not subject to any prohibition on dealing ahead of its dissemination. Views are held at the time of preparation.
Past performance is not a guide to future performance. Stock market and currency movements mean the value of investments and the income from them can go down as well as up and you may not get back the original amount invested.
Use our handy glossary to look up any technical terms you are unfamiliar with.
Use our handy glossary to look up any technical terms you are unfamiliar with.

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