The week in review

What’s happened in markets?

Figures in the respective local currencies as at the end of trading on 10/9/2021.

The week of 6 September was an interesting week on the economic front on both sides of the Atlantic and elsewhere in Europe.

In the US, job openings rose by a record 10.9 million, further highlighting the supply constraints we’re seeing in the US market and raising the question of what the definition of full employment actually is.  The unrelenting COVID-19 pandemic continues to exert pressure on supply chains elsewhere too. The US product price index (PPI), which measures the average changes in selling prices over time, also surprised to the upside, accelerating 8.3% on a year-on-year basis. This reflects the ongoing rebalancing of the global economy and the challenges we are seeing in interpreting some of the data coming through.

The Biden administration announced plans that would require companies with 100 workers or more to force their employees to either be vaccinated or submit a COVID-19 test at least once a week before coming to work. Meanwhile, a recent report from Deutsche Bank suggests that as many as one in three US workers has not returned to the office since March 2020, compared to a figure of around 20% among UK workers.

In Europe, the European Central Bank (ECB) announced it would be slowing the pace of bond buying under its pandemic emergency purchasing programme to “a moderately lower pace” than in the previous two quarters. This was comforting news for markets as it suggests we will see a more managed approach to tapering. Meanwhile, Christine Lagarde, president of the ECB, confirmed the rebound phase in the recovery of the Eurozone economy is increasingly advanced.

In other news, El Salvador became the first country in the world to allow Bitcoin to become legal tender. It’s worth noting that the country has a heritage of a progressive approach to currencies, given its previous decision to stop circulating the Colón and only recognise US Dollars for transactions in 2004.

In terms of equity markets more generally, August was a relatively strong month, although we have seen some weakness creep in during the first days of September. The general capitulation seen in markets has been broadly driven by concerns over the extended impact of the Delta variant of COVID-19. As a result, performance in virtually all sectors was down from the previous week of 6 September. Developed market equities (+1%) lost some ground ending on a par with emerging markets equities (+1%), which were unchanged. With regard to style, there was a preference for growth stocks (+2%) over value stocks (-1%), but there was nothing to differentiate small capitalisation stocks and large capitalisation stocks, which both came in with 1% growth over the last 30 days. Information technology (+3%) and communication services (+2%) were the best performing sectors, while materials (-2%), financials (-1%) and energy (-1%) all slipped into negative territory. The standout performer over the last 30 days was Japanese equites, which recovered impressively to a 30-year high amid optimism of increased economic stimulus following the announcement that its prime minister, Yoshihide Suga, would be stepping down.

In fixed income, government bonds were down slightly, with the raised US PPI figures offsetting the remarks from the ECB on Thursday 9 September that market support would be very gradually tapered so as to avoid a market backlash.

In commodities, gold has been somewhat supported by recent US Dollar weakness, which tends to be good for commodity prices generally. However, oil prices have been fairly volatile after China announced it was releasing some strategic oil reserves to put a cap on prices.

What’s happened in portfolios?

In the past 30 days, our equity holdings outperformed, benefiting from their exposure to more growth-orientated companies in the underlying portfolios.

In fixed income, a preference for credit risk has been rewarded over the short term, which supported our high yield holdings. We have also seen yields at the longer end increase slightly over the week of 6 September, as they have exposure to credit risk and a short treasury bias, both of which have helped relative performance.

On property, we were able to act on our desire to trim back our holdings in the Target Healthcare REIT, taking advantage of some extended premiums in the space. Further to that action, we took part in a capital raise at 115p, which was a lower price than we sold at. The capital raised is being invested in some impressive new care homes, which we believe will be a good addition to the company’s existing care provisions, and enhance diversification and the revenue streams coming through. In our other property investments, BMO announced the sale of its second largest holding, an office space in the St James area of London, at an 11% mark up. This follows talk of structural headwinds in the office space, given the global pandemic and what that might mean for people returning to work. The view is to redeploy that capital by investing into areas that may have more structural tailwinds going forward.

In other areas, we have seen a slight softness in our renewables holdings related to the TRIG capital raise, but we see this as a short-term price movement and not an area of concern.

What’s happening this week?

14 Sep • US CPI  |  15 Sep • UK CPI  |  17 Sep • EU CPI