Week ending 24th September 2021.

Weekly Market Summary at a glance pic

Despite the poor start to the week, when at one point on Monday (20th September 2021) the US equity markets were down nearly 3%, as you can see from the accompanying table, most of the major global equity markets ended the week in positive territory.

As we have previously said, history has shown us that global equity markets can deal with any eventuality, but hates periods of uncertainty – and equity markets got some certainty this week.

The week started with the Evergrande uncertainty – and the potential knock-on impact on financial markets if the highly indebted Chinese property developer was to collapse.

However, what really helped markets recover and end the week higher was the fact that the Fed finally provided us with some well-communicated plans on the speed and timing on the tapering of its QE programme.

Although the situation remains fluid, as we speculated, the Chinese authorities appear to have accepted the need to limit any potential contagion.

The Fed Chair, Jay Powell, said that the US central bank is likely to start tapering in November and will be finished by mid next year. While this is much faster than we expected, the Fed did leave their inflation forecasts virtually the same at 2.2% in 2022 (versus 2.1% previously).

In the UK, as expected, the BoE left interest rates unchanged at 0.1%. However, what was a surprise was the fact that two of the 9 policymakers voted for a reduction QE – although in reality, it is irrelevant as the BoE’s QE naturally comes to an end in December!

Additionally, the BoE acknowledged that UK inflation is likely to be higher than its previous 4% forecast thanks to the recent spike in energy prices. Although this will take inflation well above the BoE’s target of 2% inflation, we believe policymakers will recognise that this is unprecedented and increasing interest rates will have negative repercussions on households (and therefore the broader economy), as consumer spending makes up around two-thirds of the UK economy.

Looking ahead to the coming week, we have US durable goods orders; US ISM; Eurozone CPI: Chinese PMI; Japanese retail sales; and Japanese industrial production.

Investment Management Team