Written by Cormac Nevin.
There was a sense of fearlessness in markets last week as we entered the Halloween weekend, with the MSCI All Country World Index returning +0.9% in GBP.
The continuation of the rally we have seen throughout September was largely driven by US equity markets. This is in spite of rather disappointing Q3 results from tech giants Apple and Amazon that were announced last week. The former referenced the global semiconductor shortage, which they anticipate will continue into the festive period, as a reason they missed revenue estimates, while the latter blamed labour shortages and general inflationary pressure for missing earnings’ estimates. Against this backdrop, Facebook rebranded its corporate holding company as “Meta”, while excited promotional videos featuring Mark Zuckerberg and our very own Nick Clegg added a no doubt welcome distraction from the ongoing criticism the Company is receiving on multiple fronts.
While the fundamentals of some large cap US tech names are arguably deteriorating, markets were assisted by the drop in long-term interest rates witnessed last week. However, while long-term rates dropped, short-term rates rose in the UK and US – and in certain markets like Canada and Australia they rose incredibly sharply. This “flattening” of the yield curve is indicative of market participant’s bets that global central banks will start lifting interest rates sooner than they are currently maintaining in the face of persistent inflationary pressures.
Whether central banks are spooked by the ghoulish apparitions appearing in bond market expectations, it is likely to be one of the closest watched developments for the rest of this year.
