13th September 2021

Most global share markets fell last week on concerns about the growth outlook, the delta variant and central banks reducing stimulus. Japanese and Chinese shares were the key exception here, with the former rallying up over 12.5% since mid-August on hopes of more fiscal stimulus from the incoming Prime Minister (announced later this month). This week there’s some fairly big inflation numbers due out which will likely prove a focus for markets in a month which has historically been tough going for advances.

Last Week

  • Most global stock markets sold off with the exception of Japan and China.
  • Economic data was thin on the ground last week and generally underwhelming, consistent with the theme of slightly weaker growth and slightly higher inflation.
  • The European Central Bank announced a “moderately lower pace” of bond purchases.
  • The UK government scheduled increases to National Insurance Contributions and Dividend tax rates.

This Week

  • The most watched data point this week is likely to be the US inflation number tomorrow, with the previous reading being at 5.4%. Alongside this, we have retail sales numbers on Thursday which will give a steer on how bullish the US consumer is.
  • Inflation is on the agenda too in the UK, with CPI numbers due out on Wednesday (previous reading was 2%) as well as retail sales out on Friday.
  • There’s also a slew of Chinese data this week, with Wednesday serving up retail sales, industrial production and fixed asset investment; these numbers will likely take greater prominence given the recent crackdown on certain areas of the economy by the authorities.

Last Week’s Highlights​

Global stock markets sold off last week with the exception of Japanese and Chinese markets which rallied strongly. A weekly rise of 4.3% helped the Japanese market post month-to-date gains of over 8% as it continues to react positively to news of Prime Minister Suga’s resignation and the dawn of a new Prime Minister following the upcoming election on the 29th September.

The global market dropped by 1.2% last week – falling from its all-time-highs as concerns about inflation and the delta variant held back momentum. Added to this, the fact that September has been the worst month for US stocks in the last 20 years held back sentiment. Apart from Japan, most of the developed markets fell by a similar order of magnitude, with Emerging markets bucking the trend and posting gains of 0.2%; helped largely by a 3.7% gain from the Chinese market which continues to bounce following its 16% drop through July and August.

Within the UK market, there wasn’t a whole lot of differentiation across the various indices, with the FTSE 250 giving up some of its recent good gains and slightly under-performing the large cap FTSE 100. Within the 100, B&M Value Retail was the best performing stock (up by 6.98% on the week), followed by DS Smith (up 3.3%) and Rightmove (up by 3.1%). At the other end of the scale was IAG (down 6.7% amidst heightened concerns over the variant and weighed down by the knock-on news of an impending rights issue from Easyjet), Coca Cola and Melrose; down by 6.7% and 6.3% respectively.

Economic data was generally underwhelming last week and consistent with the theme of weaker growth and slightly higher inflation. In the UK, the July growth number came in at a meagre 0.1% which was considerably less than the 0.5% expected. In the US, Producer Price data came in hotter than was expected.

The higher price data in the US helped push bond yields higher which resulted in losses for these assets over the week. UK government bonds fell by 0.1% on the week, with the yield on the UK 10 year bond closing out the week at 0.76%. Credit markets fared a little better as healthy demand for new issues in the investment grade market made for modest gains for both US investment grade debt and high yield debt, whilst UK corporate debt sold off by 0.1% in sympathy with the rising bond yields. Inflation linked bonds were the bright spot within bond markets last week and remain one of the strongest performing areas within the asset class for the year-to-date.

In what was a pretty quiet week for news and data, perhaps the biggest event was the European Central Bank meeting where they discussed their Pandemic Emergency Purchase Program. President Christine Lagarde channelled her inner Margaret Thatcher in saying “the Lady isn’t tapering” but she did say that the bank would move to a “moderately lower pace” of bond purchases; which certainly looks like tapering!

Closer to home, we had the announcement from PM Johnson that from next tax year (6th April 2022) both National Insurance Contributions (Class 1 and 4) and the income tax rate on dividends would increase by 1.25%.

Asset Returns

Equities & Oil: returns are all in base currency, save for Global and Emerging which are in GBP. Bond returns are all shown in GBP. Gold in GBP. Source Bloomberg.

Japanese stocks continued to post good gains last week (up 12.5% since mid-August) as other global share markets waned.

Source: Psigma / Bloomberg

Rory McPherson
Head of Investment Strategy