Please see investment bulletin below from Brooks Macdonald received yesterday afternoon – 21/07/2021
What has happened
Markets staged a rebound yesterday with the US index posting its best daily return since March. That said, there remains concerns amongst investors over the delta variant and some of the rally yesterday reflects expectations of Fed ultra-accommodative policy now being here to stay for the medium term.
One of the big inflation stories of 2021 has been the chip shortage and the impact that’s had on supply costs for huge swathes of manufactured products. One of the highest profile areas is auto manufacturers where a shortage of new cars have led to soaring prices in the secondary used car market, driving US CPI higher. Yesterday the White House said that they were seeing signs of these shortages diminishing. US Commerce Secretary Raimondo said that CEOs from Ford and General Motors had said that the chip shortage was getting ‘a little bit better’ after moves to increase transparency over semiconductor production.
Latest on COVID
Yesterday saw further tightening of restrictions with Singapore suspending indoor dining and limiting group gatherings. The UK is seeing new cases off their peaks but week on week, cases are still up 41%. France announced that a ‘heath pass’ showing recent negative test or vaccination may be required for hospitality venues despite last Friday seeing a record 880,000 jabs in the country. Over in the United States, the CDC announced that of the COVID-19 cases sequenced, 83% of them are the delta variant versus only 50% at the start of July, in a further sign of the delta variant quickly becoming the dominant variant globally.
What does Brooks Macdonald think
The sell-off over the last week has been driven by the fears of the delta variant colliding with fears of imminent central bank tightening. Whilst the delta concerns are still there, and indeed may have even risen, investors have been quick to price in lower interest expectations and to push back on any expectations of imminent tapering of asset purchases. Central bank policy expectations were the key release valve for the markets at the height of the pandemic last year and this was playing out in yesterday’s trading session. Of course, with the Fed in its communication blackout window, next week’s meeting will need to deliver on these tweaked expectations.
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