Please find below, a “Daily Investment Bulletin” received from Brooks Macdonald yesterday afternoon – 10/11/2021.
What has happened
Equities finally broke their winning streak yesterday with the US market down a third of a percent. Tesla dragged discretionary stocks lower as fallout continue from founder Elon Musk’s twitter poll proposing a partial sale of his Tesla stake.
Inflation
Today sees the long-awaited publication of the latest US CPI number. Whilst the headline number will drive the news flow, the true devil will be in the detail with the subcomponents scrutinised for signs of transitory versus persistent forces. Supply shock areas such as used cars and new cars are expected to show inflationary pressure given the ongoing global issues over semiconductor shortages. COVID reopening areas such as travel and hotel accommodation continue to be skewed by base effects from the pandemic last year and as such can be volatile. Finally, housing subcomponents will be a test of whether inflation is broadening. Housing, like all the sub-indices will be distorted by last year’s readings but given its importance in the basket it will be closely watched. Earlier today China’s Producer Price Inflation came in at 13.5%, the highest level in over 25 years which acts as a good indicator that upstream supply side issues are still rife. In better news for the transitory inflation camp, natural gas prices fell by over 8% in both the US and Europe yesterday.
Interest rates
Yesterday saw yields fall in the US and Europe and the yield curve flatten. One of the drivers of this is the expectation that any change at the Federal Reserve would likely favour a more dovish position. Fed Governor Brainard is being considered for the Fed Chair position alongside incumbent Powell, Brainard is considered to be more dovish so this offers the choice to markets of either the status quo or lower for longer. With additional Fed seats now vacant there is also more scope for the White House to propose more dovish candidates for the vacancies.
What does Brooks Macdonald think
Whilst the US market ended its extensive winning streak there was no clear catalyst to the change in mood so this likely reflects some gain fatigue rather than anything more concerning.
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Alex Kitteringham
10th November 2021.