Posted 5th November 2021
Markets in review:
|Equities||Index Level||YTD Change|
|MSCI – Europe||157||19.2%|
|Shanghai Composite (China)||3,547||2.1%|
|Brent Oil Futures||83.72||61.6%|
* Figures as at 29th October 2021
DPM in review:
- Figures from the Office of National Statistics showed GDP increased by 5.5% in the second quarter of the year, after being revised up from the initial estimate of 4.8%. Economists have warned however that growth may not be sustained during the second quarter as supply chain and fuel shortages begin to take their toll. Inflation fell to 3.1% in the year to September, down from 3.2% in August.
- The UK Prime Minister Boris Johnson announced a 1.25% increase to National Insurance contributions for both employers and employees as well as applying the 1.25% rise to dividend income. The increase will raise £36 billion which will be used to fund the Government’s ‘Social Care Plan.’
- The Office of Budget Responsibility (OBR) revised its outlook for 2021 GDP growth to 6.5% from its previous estimate of 4%. It now also expects GDP to grow at 6% in 2022. The OBR also reduced its estimate of the lasting GDP economic damage caused by the pandemic from 3% down to 2%.
- 20 of the world’s major economies approved a global agreement to tax the profits of large businesses by at least 15% in an effort to stop companies re-routing their profits through low tax jurisdictions. The tax deal is due to be imposed by 2023.
- US inflation edged higher in September to 5.4% from 5.3% in August. The core rate, which strips out the more volatile items such as food and energy remained at 4%, after increasing to 4.3% in June, a 30-year peak. Nonfarm payrolls in the US disappointed to the downside with an increase of just £194,000 jobs in September, the lowest number in nine months.
- Sales of new cars across Europe fell by a quarter in September as the shortages of semiconductors continues to hamper the industry. This led to a 4.1% slump in industrial output in Germany. Consumer price Inflation in the Eurozone increased to 3.4% in September, up from the 3% reading in August. The reading is the highest year on year rise since the Financial Crisis in September 2008. Most of the increase has been attributed to higher energy prices. In October, the initial readings have the headline inflation rate at 4.1% ahead of consensus forecasts for a rise of 3.7%.
- Chinese GDP rose by 4.9% year on year in the third quarter. Issues in the property sector and power shortages curtailed growth. The figure was markedly lower than the 7.9% recorded in the second quarter.
DPM in action:
Stock markets around the globe rallied during October, with the likes of the S&P 500 the Dow Jones and the European Stoxx 600 indexes all hitting record highs. This was despite ongoing headwinds such as rising coronavirus cases, supply chain issues and soaring energy costs leading to rising inflation rates. Company earnings are currently acting as the main driver of the positive sentiment. In the S&P 500 alone, 87% of companies reporting Q3 earnings have met or exceeded expectations in the Stoxx 600 the figure is at 68%. The upward rally in stock markets despite the challenging backdrop is surprising but not unwelcome. We do however remain diligent and acutely aware of the euphoria that seems prevalent and continue to monitor valuations across the board.
As stated above, supply chain issues continue to cause havoc around the globe, with queues of cargo ships forming outside every major port. A lack of HGV drivers continues to compound the issue. The supply chain issues, and ongoing energy crisis is ensuring the inflationary dog is beginning to bite as higher energy and shopping prices filter through to consumers reducing their disposable incomes. The initial transitory nature this bout of inflation was labelled as by many central bankers now seems to be more permanent in nature. The question is now, will the same central bankers begin to raise interest rates in order to try and stifle inflation. The Bank of England will be meeting at the start of November and are expected to raise the base rate of interest by 0.15% to 0.25% with further rises through 2022 until a base rate of 1% is achieved. The Federal reserve has stated they will not raise interest rates until Q3 2022 but economist now predict this could be in Q2 2022. Both the BOE and the FED will be reducing asset purchases which may cause issues for equity markets that have grown addicted to easy monetary policy.
It is not all bad news however, GDP figures in European economies surprised to the upside during October as confidence returned and consumers unleashed some of the pent-up pandemic era savings. In the UK alone, the consumer now has £200bn more in savings than before the pandemic and in a consumer driven economy the continual drawdown of these savings will continue to drive growth.
During October the Investment Committee made the decision to invest in a global listed infrastructure fund. The fund itself invests in listed infrastructure companies, investment trusts and real estate investment trusts. The infrastructure companies include those involved in utilities, energy, transport, health, education, security, communications, and transactions. Naturally, infrastructure assets tend to have contractual cash flows that are linked to inflation so in an inflationary environment the cashflows received should not suffer a derating. In addition, huge infrastructure projects are being touted in the US and the UK to improve roads, railways, bridges, and for the transition to green energy. The fund should be a direct beneficiary of such policy tailwinds. With the reopening of economies infrastructure assets that having been underutilised during the pandemic should now be in higher demand.
It is likely that volatility will increase during the rest of the year throughout all asset classes. However it is in these times that utilising the Laver Wealth Discretionary Portfolio Management service can really pay dividends for investors. By employing strict investment criteria and focusing on good quality businesses with strong balance sheets, we ensure our clients’ portfolios are in the best possible position to navigate any investment related headwinds. We are able to make changes rapidly as and when opportunities arise but to also be proactive when more defensive actions are required. Our clients can be assured that we continually have our hands on the scales, tilted in their favour.