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Please see investment bulletin below from Brooks Macdonald received yesterday afternoon – 15/07/2021

What has happened

Yesterday saw another positive day for risk appetite as Fed Chair Powell’s congressional testimony delivered what markets needed. At a headline level both European and US indices hovered just below their all-time highs but COVID-sensitive stocks, such as travel and hospitality, struggled under the weight of the Delta variant.

Powell’s speech

Earlier this year, Fed Chair Powell set the bar of the US economy seeing ‘substantial further progress’ before the central bank would consider tapering asset purchases. Yesterday Powell said that this target was ‘still a ways off’ and stressed that whilst the bank would be discussing tapering at the next meeting that does not mean than actual tapering is imminent. In reference to the large US CPI number on Tuesday, Powell said that this was ‘higher than expected’ but that he still expected the high numbers to be down to transitory factors. Powell mentioned the Lumber price specifically which has had a round trip with rapid price acceleration in recent months and now it trades at its 8-month low. Bond markets took this speech well and as of this morning the benchmark US 10-year Treasury yield is trading at 1.32% after reaching as high as 1.43% on Tuesday. Producer Price Inflation also beat to the upside yesterday, but this was largely shrugged off by investors given the dominance of the transitory narrative.

UK Inflation

Inflation was also a hot topic in the UK on Wednesday as the latest UK CPI release came in at 2.5%, above the Bank of England’s target. These figures were ahead of consensus expectations and represents the third month in a row where there has been a ‘beat’. In terms of monetary response, the bond market is expecting a rate hike by November 2022, this of course is a far cry from the talk of negative interest rates which took place at the start of this year.

What does Brooks Macdonald think

The UK is earlier on the inflation path than the US. Whilst the Bank of England and UK government have provided plenty of pandemic response, their scale pales into insignificance in the face of the US numbers. As a result, you would expect the UK inflation number to rise due to the same base effects and global supply pressures faced in the US but, to have a slower rebound in demand given the depth of the recession last year.

Another quick update from Brooks Macdonald, these regular investment bulletins help us keep up to date with what is happening in the markets.

Please continue to check back for our latest blog posts and updates.

Charlotte Ennis