Please see investment bulletin below from Brooks Macdonald received yesterday – 15/09/2021
What has happened
Despite a decline in bond yields, triggered by the US CPI release, equities failed to make ground with the US index falling driven by value sectors such as banks. Those sectors which are more sensitive to the pricing of longer-term rates, such as technology, outperformed.
US CPI
Whilst it may feel like every US CPI release this year has been a surprise to markets, yesterday’s release was the first downside surprise since November last year. The month on month headline number came in at 0.3% vs expectations of 0.4%, with some of the key transitory sub-components retreating. Used cars and trucks saw their first decline in 6 months after driving much of the month on month increase earlier in the year. Not every component slowed however and energy picked up, driven by gas prices. The US core CPI number that excludes this energy element (as well as food) rose just 0.1% month on month compared to the 0.3% expected. Whilst there are signs of a deceleration of inflationary pace, energy and commodities more generally are likely to cloud the near term numbers even if they ultimately prove transitory. Over in the UK, the CPI release this morning showed inflation of 3.2% year on year, against market expectations of just 2.9%, a sign that the deceleration may not be a global phenomenon yet.
The Winter Plan
England’s Chief Medical Officer announced that ‘winter is coming’ as the UK government unveiled its toolkit for fighting COVID during the colder months in the Northern Hemisphere. Plan A is to effectively stick to the current guidance and use the vaccination driver (first/second doses and boosters) to increase population level immunity. Plan B would see a reversal to the status quo earlier in the summer with masks and work from home advice amongst the options. The UK Prime Minister was keen to stress that lockdowns remained available to the government but this looks increasingly unpalatable politically which may mean the government leans into Plan B earlier to avoid needing to make that decision.
What does Brooks Macdonald think
The US CPI number is the most hotly anticipated of the inflation releases, partially because the US is the world’s largest economy but also as it is being used to predict the path of inflation in other developed nations. Yesterday’s deceleration points to an easing of some of the transitory factors that have muddied the data over the summer but with commodities hitting decade highs, it is unlikely to entirely reverse short term.
Another quick update from Brooks Macdonald, these regular investment bulletins help us keep up to date with what is happening in the markets.
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Charlotte Clarke
16/09/2021