Please see investment bulletin below from Brooks Macdonald received yesterday – 30/09/2021
What has happened
Equities bounced back slightly yesterday as global government bond yields found a new level. Both US and European equities saw muted gains, led by some of the more defensive subsectors such as food & beverages and utilities.
Majority Leader Schumer said overnight that Senators had reached an agreement to introduce, and pass, a stopgap funding measure that would fund the government until the start of December. This bill will be voted on by the Senate today before moving over to the House of Representatives in short order as Congress looks to avert a shutdown at the end of today. The thornier issue remains the debt ceiling and bipartisan agreement there looks unlikely. In a sign of possible movement, House Speaker Pelosi said that the House would vote on the bipartisan physical infrastructure bill today which suggests sufficient cross-party support to pass the bill. This is despite progressive Democrats saying they would hold up the physical infrastructure bill until they could vote on this package alongside the wider social infrastructure bill. Progressive Democrats fear they would lose a key bargaining chip in this situation so should the $550bn package pass, we could see a fairly imminent watering down of the $3.5tn social package.
Focus on the UK
Despite growing expectations that the UK might raise rates at the end of this year or the start of 2022, sterling has been suffering. Yesterday saw sterling back to levels (versus the US dollar) that were last seen in December last year at the height of the Brexit deadline worries, as investors fear further disruptions over energy and fuel supplies. Markets are still trying to weigh up whether inflation expectations should be higher, due to higher energy prices in the short to medium term, or lower as investors price in lower consumer demand from higher prices for essentials and rising interest rates. This uncertainty is creating a fresh reason for international investors to avoid sterling for the short term.
What does Brooks Macdonald think
Arguably, at the start of September the market was overly complacent in the face of the risk of sustained inflation. September’s moves show a pricing in of two risks, one that inflation could be stickier and two that central banks may be more fearful of inflation expectations than tighter policy which could hamper growth. Whilst the signs still point to the current inflationary pressures being transitory, the markets at the end of September more accurately reflect the risks of the investor consensus being wrong.
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