What’s happened in markets?

FTSE All Share 1.93 2.24 4.04 15.39 29.61 5.93 5.37
Euro Stoxx 50 2.69 1.13 3.48 20.48 34.24 12.48 10.10
S&P 500 1.84 -0.12 2.90 20.38 30.24 19.68 18.12
Japan Topix 3.16 -2.78 5.11 14.24 26.52 8.99 10.92
MSCI Asia Pac. 1.93 -0.72 -5.93 -1.57 12.71 13.77 11.12
MSCI Emerg. Mkts. 2.13 -0.17 -4.15 1.30 17.21 12.58 10.26
Jo’burg All Shares 2.84 4.80 1.54 17.23 27.27 12.37 9.15
UK Gov’t Bonds 1.39 -3.65 -2.72 -7.42 -7.44 3.29 1.75
US Gov’t Bonds 0.29 -1.53 -1.08 -2.71 -3.23 4.99 2.40
Global Corp. Bonds 0.45 -1.36 -0.84 -0.99 1.17 6.66 4.44
Emerg. Mkt. Local 0.81 -2.32 -2.01 -6.04 1.22 4.31 2.73

Figures in the respective local currencies as at the end of trading on 15/10/2021.

The most anticipated economic data of the week was released on Wednesday 13 October in the form of the US consumer price index figures for September, which surprised on the upside coming in at 5.4% year-on-year versus the 5.3% forecasted and the August number of 5.3%.

The increase indicates that we are set to still be talking about price increases for some time to come given the number of reasons for the rise, and given the growth of housing-related prices typically prompts more embedded inflation. Meanwhile, food inflation was among the price segments posting higher figures, with the increase the largest since April 2020.

The news led to increased speculation that the Federal Reserve (Fed) would be forced to hike rates earlier than expected. Investors are also pricing in four hikes before the end 2023, which is another hike more than was thought probable earlier in the year. This speculation was reinforced by the release of the September Fed monetary committee minutes, which revealed that the central bank will almost certainly announce tapering at its November meeting and by the release of the US retail sales numbers, which grew 0.7% in September.

In addition to any tightening by the Fed, we could also see the Bank of England make a move, with markets pricing a 0.25% change in the base rate by December and a further increase to 0.5% by March 2022.

Elsewhere, the International Monetary Fund marginally downgraded their global growth forecast for this year to 5.9% from the 6.0% number published in July. The change in view was down in part because of the supply disruptions and, for some low income economies, due to worsening pandemic-related forces at work. The number was partially offset by stronger near-term prospects among some commodity-exporting emerging markets. Maintaining its 2022 economic growth forecast of 4.2%, the supranational body upgraded its inflation forecasts for advanced economies to 2.8% in 2021, and to 2.3% in 2022.

In terms of equity markets, over the past 30 days, sentiment was broadly positive – although more so in developed markets (1.4%) versus emerging markets (0.8%) – given the upbeat start to the Q3 earnings season and falling global COVID-19 cases. As a result, growth stocks (1.7%) outperformed their value (0.8%) counterparts, and small capitalisation stocks (1.8%) beat large capitalisation stocks (1.2%). Sector-wise, materials (3.2%) led the way while communication services (0.0%) lagged.

In fixed income, longer-dated yield curves flattened as the shorter end maturities moved higher due to the prospect of tighter monetary policy and over concerns on longer-term growth. And shorter end yields pushed higher on the expectations of tighter monetary policy

Latest Consensus Forecast
UK GDP (QoQ) 5.5
UK PMI 54.9 54.0
UK CPI (YoY) 3.2 3.2
EU GDP (QoQ) 2.2
EU PMI 56.2 55.2
EU CPI (YoY) 3.4 3.4
US GDP (QoQ) 6.7 2.3
US PMI 61.9
US CPI (YoY) 5.4

What’s happened in portfolios?

While we generally see a favourable environment for equities, some regions (such as pan Europe) and styles (such as value and cyclical) are slightly preferred, as are smaller, more domestically focused stocks which we think will benefit more from the pickup in economic activity.

Valuations in fixed income remain challenging given that higher prices mean lower yields. However, our investment grade holdings have outperformed over the short term and our continued preference for credit risk, rather interest rate risk, continues to work in our favour as yields have moved higher.

In the real asset strategies, we continue to see attractive yields – which are enhanced in some cases by structural tailwinds – such as in our care home investments – and given the inflation proofing provided. There are also other aspects that are helping, such as Target Healthcare raising £125 million in an over-subscribed capital raise.

Meanwhile, at Hipgnosis, its partnership with US private equity firm, Blackstone, was well received by the market, with the deal putting US$1 billion of capital in place. In addition, the team will help the fund managers improve song usage, data science and its use of technology, as well as allow the team to bid for larger song catalogues that were beyond its reach on its own. The news is also a vindication of its strategy given it is quite a young asset class.

What’s happening this week?

20 Oct • UK CPI | 21 Oct • US Initial Jobless Claims | 22 Oct • EU Markut Composite Flash PM