Please see below market update received from Brooks Macdonald yesterday afternoon. The commentary provides investment analysis linked to global news.
What has happened
Whilst there was a cyclical tilt to yesterday’s equity moves, it was a far calmer backdrop with sub 1% moves for most headline US and European markets. Technology pulled back a little, however this is within the context of Tuesday’s exuberance. The US market is within a hair’s breadth of hitting an all time high which is quite remarkable given the amount of ink that has been expended talking about market volatility.
US Auction and Inflation update
The auction of $38 billion of US 10 year bond yields followed in the footsteps of the 3 year and was well received by the market. Bond yields fell again as bond investors had a sigh of relief albeit a more modest sigh after imminent fears of an auction inspired spike had subsided earlier in the week. The core (ex Energy and Food) US CPI figures came in modestly below market expectations at 1.3% year on year gain. Of course, as we have said on multiple data points, this data is arguably less useful as we haven’t yet seen the recovery or impact of the latest round of stimulus and equally the comparable a year earlier was muddied by the beginning of COVID restrictions. That said, investors were comforted that inflation remains under control for the time being.
US/China
In 2018 and 2019 one of the largest geopolitical risks was the ongoing trade war between the US and China. Whilst the Biden administration is expected to take a less antagonistic stance with China, it is not expected to entirely retreat from the battle. Yesterday the White House announced a summit with Chinese officials in Alaska in a weeks’ time. The agenda for this hasn’t been announced but Secretary of State Blinken said topics would include areas ‘where we have deep disagreements’, so the meeting isn’t merely to exchange pleasantries. This latest development is a reminder to markets that a change in the US Presidency has not removed the risk of a ‘tough on China’ stance that has bipartisan support from Congress.
What does Brooks Macdonald think
With yesterday’s inflation data and auction results giving investors little to worry about there was a sense of calm in markets. It is far too early for us to conclude that inflation will remain under control as the key data points will arrive when the recovery kicks into gear.
Please check in again with us soon for further updates.
Stay safe.
Chloe
12/03/2021