Week ending 29th October 2021.

The majority of markets closed the week out stronger, with predominantly short-term noise causing elements of volatility throughout the period.

With the beginning of the week largely focused on the US and President Biden’s economic agenda, Wednesday saw arguably the most significant event of the week (for markets) begin, the 2 day policy meeting of the European Central Bank (ECB). Following the 2 day meeting, as expected, policy remained largely unchanged with the exception of the expectation of eliminating PEPP (pandemic emergency purchase program) by March 2022. However, it was the narrative from the ECB President, Christine Lagarde, the market dissected. With Largarde reluctant to comment on whether the market was ‘getting ahead of itself’ when pricing in interest rate rises, broader markets saw this as a hawkish sign that resulted in a rally in bonds and an element of nervousness in stock markets. However, we believe her narrative in the press conference was more about what she said, than what she didn’t… as Lagarde was clear that they firmly believe that supply chain bottlenecks will subside seeing inflation trend towards or below the 2% inflation target through 2022. With this message clear, she also pointed the finger at markets misinterpreting the ECB’s guidance, and that she will utilise ‘repetition’ in hope the message of low rates and normalised inflation will sink in! This further echoes our message of ‘transitory inflation’, and again represents a huge opportunity bred by market uncertainty.

In line with our transitory message on inflation, the transitory nature of the current gas supply price pressures are already being borne out. Mid–week, Russian president, Vladimir Putin, ordered the largely state owned energy firm, Gazprom, to start refilling its gas storage facilities in the European bloc. Whilst supply driven price pressures still remain, this move by Putin is already beginning to see Gas prices head lower in Europe, a huge boon for markets heading into 2022.

Turning back to the US, with President Biden delaying his flight to the UN climate change conference in Glasgow, we saw him deliver the framework of his latest economic agenda to congressional Democrats on Thursday. Whilst the plan was half of the originally proposed $3.5 trillion, the $1.75 trillion framework was, by in large, supported by the Democrats. Even though it will likely take weeks before the details are ironed out, and the legislation is put to a vote, the prospect of economic support is likely to stabilise some of the current fiscal and monetary uncertainty present in the US economy.

For the UK the highlight of the week, albeit arguably, was the UK Chancellor’s (Rishi Sunak) autumn budget. However, amidst cuts in beer duty, the taper rate for low earners, and a host of other tax adjustments, there was little by way of policy announcements that had any material impact on global stock markets.

Elsewhere we saw the Bank of Japan’s monthly policy meeting, and whilst we saw no change in interest rates (-0.1%), they lowered their growth and inflation forecast, sighting supply chain issues as the cause. In addition to this, US earnings season continued seeing Apple and Amazon report weaker than expected 3^rd quarter results. However, with a combination of supply chain issues and a higher than usual base (this time last year lockdown drove higher than normal online sales), it could be thought that this data is somewhat distorted.

We now look towards next week when the Bank of England and the US Federal Reserve will have their respective policy meetings.

Jonathan Wiseman