The week in review

What’s happened in markets?

Figures in the respective local currencies as at the end of trading on 9/4/2021.

In a week that saw the International Monetary Fund now forecasting 6% global growth in 2021, versus the 5.5% forecast in January, economic stimulus packages continued to dominate the news flow as the US$2 trillion infrastructure plan was published. Following on from the US$1.9 trillion package agreed in March, it resulted in yet more concerns about a steep uptick in inflation, which the Federal Reserve (Fed) sought to ease.

Here, the Fed reiterated it will continue buying US$120 billion of bonds each month and keep interest rates low until the central bank sees “substantial further progress” towards its employment and inflation targets. The US employment data highlighted how long this might take given there are around 9.5 million fewer Americans with jobs in February 2021 than in February 2020 and it would take over two years to return to pre-pandemic employment levels if jobs continue to (only) be added at the current rate. The news that the ISM non-manufacturing purchasing managers’ index surged to 63.7 in March from 55.3 in February, its fastest rate of expansion on record, has not changed views on this timeline.

To help pay for government support, the US president, Joe Biden, flagged the biggest multinationals should pay tax to the governments of countries in which their sales occur, with a 21% global minimum being proposed by US Treasury Secretary Janet Yellen. This comes amidst the negotiations in Congress to lift the US corporation tax rate to 28%, versus the current 21%, although the end result may be 25%.

Elsewhere, the release of purchasing managers’ index data showed that the services sector is showing much better growth than previously, with the EU number rising to 49.6 in March, up significantly from February’s 45.7 and versus expectations. The UK posted a reading of 56.3, well above February’s final reading of 49.5. China, meanwhile, suffered a knock in confidence on the news that its vaccine is the least effective of those being distributed to date, while concerns about links of the AstraZeneca/Oxford University vaccine to blood clots have also slowed its roll out beyond most of Europe and the UK.

In markets, emerging markets continue to lag developed markets. Style-wise, growth stocks staged a small comeback and have outperformed value since 9 March 2021 (+6% vs +4%). Technology stocks highlighted this style change, posting growth of +8% over the same period, while energy lagged (-5%) as oil prices moved lower. This was on the back of OPEC+ agreeing to gradually increase supplies by two million barrels/day between May and July. This surprised the market, which had expected the previously agreed cuts to remain in place for longer.

What’s happened in portfolios?

The resurgence in the price of growth stocks highlights how important it is for us to remain sufficiently diversified and provide clients with a balanced portfolio across styles. While it would have been easy to tilt portfolios towards value, portfolios can benefit from both sides of the trade.

The news of heightened inflation expectations has continued to affect bonds yields, where the curve is steepening. With people expecting yields to rise in the future, prices fell given existing bonds have contracts providing lower yields than new issuances. As such, our short duration focus means we are less exposed than many to the risks posed by increasing interest rates pushing up yields.

In further good news, our property investments have posted better performance in recent week. In particular, the UK-focused BMO Property Trust expected to see greater certainty around rental collections, even though 85% of rent has already been collected and the team expects more to come through as accounts gets settled on the back of UK non-essential shops opening and tourism returning.

What’s happening this week?

All week • Q1 Earnings Season | 14 Apr • EU Industrial Production | 15 Apr • US Retail Sales