Market Update – 17th November 2021.

Although we have had a busy start to the week in terms of economic data, equity markets have been relatively subdued.

In the US, Monday’s retail sales data completely contradicted last Friday’s disappointing University of Michigan Consumer Sentiment Index, by rising strongly!

Interestingly – and potentially squaring the circle – was yesterday’s results announcement from the US retailer, Walmart. Despite beating analyst expectations in terms of revenue, its profit margins disappointed due to pressures from rising inflation – suggesting that they didn’t, or were unable to, pass their increased costs on to the consumer.

In the UK, yesterday’s strong employment data (which saw the unemployment rate fall to 4.3%), has been followed this morning with a CPI inflation reading of 4.2%.

Whilst this plays into the hands of those who want to increase UK interest rates, we still need to remember that much of this inflation has been caused by supply chain disruptions and semiconductor shortages, which are currently starting to show signs of easing; and higher oil and energy prices – and these act like a tax increase on consumers. As such, we believe substantially higher interest rates could slow, or stop, the economic recovery. As an aside, Japanese GDP data this week clearly highlights the need for continued loose monetary policies as their economy contracted at an annualised rate of 3% during the third quarter.

The Investment Management Team