{"id":5406,"date":"2021-10-20T16:31:37","date_gmt":"2021-10-20T15:31:37","guid":{"rendered":"https:\/\/sarasinandpartners.com\/za\/think\/the-week-in-markets-20-october-2021\/"},"modified":"2021-10-20T17:04:45","modified_gmt":"2021-10-20T16:04:45","slug":"the-week-in-markets-20-october-2021","status":"publish","type":"post","link":"https:\/\/sarasinandpartners.com\/za\/think\/the-week-in-markets-20-october-2021\/","title":{"rendered":"The week in markets – 20 October 2021"},"content":{"rendered":"

Welcome to your weekly macroeconomic round-up, where we spotlight a few of the most significant events in the last week.<\/h3>\n

US inflation data suggests price rises may prove persistent<\/strong><\/h3>\n

The US consumer price index grew by 5.4% in the 12 months to September, up from 5.3% a month earlier. Expectations were for a flat reading and some moderate easing of inflationary pressures. Stripping out volatile elements of the index, such as energy and food prices, core inflation rose at 4.0%, in line with expectations.<\/p>\n

The critical takeaway, however, comes from the data underlying inflation. Much of the discussion on US inflation this year has focussed on its persistence, as higher persistent inflation requires central bank tightening whereas transitory inflation can be looked through as prices will eventually normalise. The latest report indicated that the rising cost of rents is replacing transitory factors, such as used car prices, in becoming the major driver of higher consumer prices. Moreover, the shortage of labour in the US could be seen as putting bargaining power into the hands of employees who will in turn demand higher wages leading to a higher cost of labour and, subsequently, inflation.<\/p>\n

China\u2019s growth slowed significantly in the third quarter following power outages and Covid-19 outbreaks<\/strong><\/h3>\n

China\u2019s economy grew by just 0.2% in the third quarter of 2021, compared with a quarter earlier. Growth of the last 12 months has slowed from 7.9% at the end of June to 4.9% as at the then end of September suggesting that the recovery has weakened. The slowdown in growth stems from a combination of global developments and Chinese government policies.<\/p>\n

Firstly, rising energy prices coupled with newly implemented carbon emission targets led to blackouts for some homes and factories. Meanwhile, the Chinese property sector has faced increasing pressure to rein in debt causing a series of defaults for the most indebted companies, such as Evergrande. The Chinese property sector is estimated to contribute roughly 30% of total GDP, meaning a slowdown in construction activity has wider implications for growth than for other economies. Finally, regional outbreaks of Covid-19 cases have led to the complete shut down of economic activity as the government continues to pursue a \u2018Zero-Covid\u2019 strategy.<\/p>\n

Bank of England Governor Andrew Bailey commits to curbing higher inflation expectations<\/strong><\/h3>\n

Andrew Bailey sent a fresh signal to UK investors on the path of monetary policy when he commented that the central bank \u201cwill have to act\u201d to suppress inflation if there is a risk that medium term inflation expectations begin to rise, potentially leading to a self-fulfilling cycle of higher prices and expectations. However, he did note that monetary policy cannot solve supply-side problems, such as the current surge in energy prices. At the moment markets are expecting the BoE to raise interest rates twice by the end of the year, bringing the main policy rate to 0.5% from 0.1% at present. This would make it the first major global central bank to increase interest rates.<\/p>\n

Markets <\/strong><\/h3>\n

Global equity markets (as measured by the MSCI ACWI Index) rose by 2.4% last week as markets continued to recover from their short-term nadir at the start of October. Regionally, there was relatively little dispersion, while growth stocks generally outperformed value stocks reversing the overall trend from the past month. Higher inflation and interest rates tend to lead to a preference for value stocks as investors focus on cash flow generation today rather than prospective cash flows.<\/p>\n

The Copper price hit a record high on Friday as surging power prices has threatened supply at a time when stockpiles are already depleted. The rising price of gas and coal is increasing costs for miners and refiners globally, leading to fears that supply might drop over the winter months. The price of Zinc has been similarly affected. Nyrstar, one of the world\u2019s largest producers of Zinc, communicated that it would be cutting production by 50% at its three European smelters.<\/p>\n

Look out for next week\u2019s update, where we\u2019ll be focusing on PMI survey data, UK and European inflation data. <\/strong><\/p>\n

\n

All details in this article are provided for information purposes only and should not be misinterpreted as investment advice or taxation advice.<\/p>\n

Where the data in this article comes partially from third party sources the accuracy, completeness or correctness of the information contained in this publication is not guaranteed, and third-party data is provided without any warranties of any kind.\u00a0 Sarasin & Partners LLP shall have no liability in connection with third party data.<\/p>\n

\u00a9 2021 Sarasin & Partners LLP \u2013 all rights reserved.\u00a0 This article can only be distributed or reproduced with permission from Sarasin & Partners LLP. Please contact marketing@sarasin.co.uk.<\/p>\n","protected":false},"excerpt":{"rendered":"

Welcome to your weekly macroeconomic round-up, where we spotlight a few of the most significant events in the last week. US inflation data suggests price rises may prove persistent The US consumer price index grew by 5.4% in the 12 months to September, up from 5.3% a month earlier. Expectations were for a flat reading...<\/p>\n","protected":false},"author":62,"featured_media":0,"comment_status":"closed","ping_status":"closed","sticky":false,"template":"","format":"standard","meta":{"footnotes":""},"categories":[28],"tags":[],"coauthors":[182],"class_list":["post-5406","post","type-post","status-publish","format-standard","hentry","category-markets"],"yoast_head":"\nThe week in markets - 20 October 2021 - Sarasin & Partners South Africa<\/title>\n<meta name=\"description\" content=\"China\u2019s growth slowed significantly in the third quarter following power outages and Covid-19 outbreaks.\" \/>\n<meta name=\"robots\" content=\"index, follow, max-snippet:-1, max-image-preview:large, max-video-preview:-1\" \/>\n<link rel=\"canonical\" href=\"https:\/\/sarasinandpartners.com\/za\/think\/the-week-in-markets-20-october-2021\/\" \/>\n<meta property=\"og:locale\" content=\"en_GB\" \/>\n<meta property=\"og:type\" content=\"article\" \/>\n<meta property=\"og:title\" content=\"The week in markets - 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