What’s happened in markets?

FTSE All Share 1.18 3.40 3.11 16.95 29.74 6.01 6.57
Euro Stoxx 50 2.67 7.48 5.27 25.83 39.11 14.02 11.57
S&P 500 2.03 8.20 6.43 26.54 35.77 21.85 19.82
Japan Topix 2.01 4.81 6.72 15.36 26.35 10.11 11.14
MSCI Asia Pac. -0.44 2.66 -2.75 -2.56 7.03 12.87 11.32
MSCI Emerg. Mkts. -0.04 2.31 -2.19 -0.18 10.93 11.24 10.35
Jo’burg All Shares 0.53 5.29 1.55 18.74 28.00 11.13 10.06
UK Gov’t Bonds 1.75 4.73 -1.40 -3.75 -2.86 4.16 2.57
US Gov’t Bonds 0.67 0.67 -0.76 -1.91 -2.31 5.32 2.52
Global Corp. Bonds 0.87 0.88 -0.50 -0.05 1.53 7.12 4.66
Emerg. Mkt. Local 0.30 -0.53 -3.68 -7.07 -1.94 3.79 2.64

Figures in the respective local currencies as at the end of trading on 5/11/2021.

Positive employment data from the US jobs market in the week of 1 November offered more evidence that economic activity is continuing to gain momentum in the fourth quarter. According to data from the Bureau of Labor Statistics on 5 November, the US unemployment rate fell to 4.6%1 in October. The bureau also recorded larger-than-forecast and broader-based payroll gains over the same period.

Elsewhere in the US, the Federal Reserve’s policy-setting committee announced on 3 November that it would begin tapering asset purchases by US$15 billion2 each month as it begins pulling back on pandemic aid. The central bank had been buying US$120 billion a month worth of bonds and mortgage-backed securities to shore up the US economy.

Meanwhile in the UK, the Bank of England surprised markets by keeping interest rates on hold at 0.1%3. The announcement on 4 November defied expectations of a rate increase following a hawkish tone from Governor Andrew Bailey that it would act against inflation and raise rates.

In the corporate world, this year’s third-quarter earnings season continues to be stronger than anticipated. Even though domestic or cross-border travel hasn’t returned to pre-pandemic levels, online accommodation platform Airbnb became the latest company to record outsized Q3 earnings last week, almost quadrupling profits compared with the same period last year. The company reported its highest-ever revenue and net income, and said it expects vaccination progress and the recovery of international travel to continue to lead growth in 2022.

The global economy may be thirsty for fuel, but OPEC+ – the global alliance of 24 oil-producing nations – decided last week to keep with their measured oil production plan, defying intense international and US pressure to increase output to help control the spiralling cost of oil. Prices are close to seven-year highs, despite economic activity not yet fully recovering to pre-pandemic levels and higher energy costs stoking further concerns about inflation.

Looking across the markets, we continue to see a supportive environment for riskier assets and a strong period for equities. 30-day returns show generally positive outcomes across all stocks, with large capitalisation (+6.9%) closely matching small capitalisation stocks (+7.1%) and growth (+8.9%) outperforming value stocks (+4.6%), supported predominantly by an exceptionally strong Q3 earnings season.

The Bank of England’s decision to hold interest rates at 0.1% was also supportive for sovereign bonds and longer duration fixed income more generally, with the US dollar also appreciating over the same period, partly due to the Federal Reserve’s decision to tighten its tapering policy.

Latest Consensus Forecast
UK GDP (QoQ) 5.5 1.5
UK PMI 57.8
UK CPI (YoY) 3.1
EU GDP (QoQ) 2.2
EU PMI 54.2
EU CPI (YoY) 4.1
US GDP (QoQ) 2.0
US PMI 66.7
US CPI (YoY) 5.4

What’s happened in portfolios?

Across our portfolios, our preferences for riskier assets has played out well for investment outcomes. Our focus has been around equities, real assets and alternative strategies as a means of building in inflation protection, strong earnings and diversification.

In our US positions, the strong performance of its stock markets has held back performance slightly versus the MSCI All Country World Index benchmark, but this has been partially offset by our overweight in small capitalisation stocks, which have done well on the back of the better economic backdrop.

In the real assets sector for our alternative investment allocations, Greencoat UK announced that it is planning to purchase a 15% stake in an offshore UK windfarm, which will be funded through a mixture of cash, debt and equity. This equity will be sought though a capital raise over the coming weeks. We see this as a positive move as it allows Greencoat to diversify its own portfolio further and since this increases the size of the fund, meaning it is more likely to allow for better liquidity for investors. The news comes on the back of Greencoat Renewables diversifying its portfolio with the announcement of the Swedish wind farm, its fourth renewable project outside of Ireland, on 22 October, as it seeks to diversify its footprint of renewable energy infrastructure.

What’s happening this week?

10 Nov • US Consumer Price Index | 11 Nov • UK Gross Domestic Product | 12 Nov • EU Industrial Production