What’s happened in markets?

FTSE All Share -0.35 0.82 4.03 15.00 29.86 5.76 5.27
Euro Stoxx 50 0.20 1.13 3.56 20.72 35.41 12.79 9.76
S&P 500 1.66 3.49 4.42 22.38 33.53 20.26 18.41
Japan Topix -1.07 -1.34 5.91 13.01 26.09 8.17 10.39
MSCI Asia Pac. 1.58 2.97 -3.03 -0.01 13.15 13.82 11.25
MSCI Emerg. Mkts. 0.75 2.58 -1.89 2.06 16.42 12.43 10.08
Jo’burg All Shares 0.12 6.22 1.83 17.38 27.54 12.59 8.97
UK Gov’t Bonds -0.33 -3.39 -4.66 -7.73 -6.26 2.80 1.58
US Gov’t Bonds -0.37 -1.94 -1.74 -3.08 -2.87 4.91 2.25
Global Corp. Bonds -0.42 -1.84 -1.57 -1.41 1.18 6.56 4.26
Emerg. Mkt. Local -1.04 -2.47 -2.88 -7.02 -0.89 3.92 2.49

Figures in the respective local currencies as at the end of trading on 22/10/2021.

From an economic standpoint, the week of 18 October brought signs of regained momentum in both the US and UK on the back of encouraging forward-looking flash purchasing managers’ index (PMI) data. The IHS Markit US composite PMI rose to 57.3, up from 55.0 in September, and the IHS Markit/CIPS UK composite PMI rose to a three-month high of 56.8 in October, versus 54.9 for the previous month. These numbers were in contrast to the fall in flash Eurozone composite PMI to 54.3, a six-month low and a continuation of the trend of slowing growth in the region, although activity remains firmly in growth territory.

The flash PMI data comes at a time when the Bank of England has been keen to signal a rise in interest rates to safeguard against inflationary expectations, with markets pricing in a hike at the next meeting on 4 November 2021.

And although not an immediate indicator of inflationary risk, it is worth noting that September’s lower than expected UK consumer price index figure of 3.1% does not include the recent rise in oil prices and the knock-on impact on the country’s highest ever petrol prices – the implications for which are being closely scrutinised.

Despite this economic uncertainty, we’re seeing strong Q3 earnings figures coming through, with around 85% of the companies that have reported beating expectations with above-trend earnings growth.

Finally, as economies continue to edge into recovery mode after the pandemic, there was positive news on vaccine boosters, as a study conducted by two labs found a booster dose of Pfizer’s COVID-19 vaccine was 95.6% effective against symptoms of the disease.

With a strong start to Q3 earnings season underway, we saw a broadly positive period for riskier assets, with developed and emerging markets (+1%) matching the returns of growth and value stocks over the previous 30-day period. Taking an industry focus, cyclical sectors outperformed, with real estate (+3%) leading the way. Oil continues its upward trajectory towards a multi-year high. Fixed income yields are also shifting upwards, due to a mix of the ‘risk on’ tone in markets, the spectre of inflation and central bank rhetoric around rising interest rates.

Latest Consensus Forecast
UK GDP (QoQ) 5.5
UK PMI 56.8
UK CPI (YoY) 3.1
EU GDP (QoQ) 2.1 2.1
EU PMI 54.3
EU CPI (YoY) 3.4
US GDP (QoQ) 6.7 2.8
US PMI 61.9 61.3
US CPI (YoY) 5.4

What’s happened in portfolios?

Looking across our portfolios, we continue to see a supportive environment for equities. However, with some signs of growth moderating, our preference remains for domestic developed markets – specifically pan-Europe – where economies are reopening and valuations are not stretched on a relative basis.

We also continue to see a less conducive environment for fixed income assets, where starting yields are at historically low levels and inflation poses a clear threat to mid to longer-duration positioning. And real assets remain attractive, in our view, as an alternative to fixed income given they offer some protection against inflation – protection which is positively correlated given yields typically rise as interest rates do. Infrastructure is of particular interest, given current valuations and the sector’s recovery potential.

What’s happening this week?

27 Oct • UK Autumn Budget | 28 Oct • EU Consumer Confidence | 28 Oct • US Q3 QoQ GDP (advance estimate)