Equity markets were generally flat last week in Sterling terms, with the only real exception being MSCI Japan that sold-off -3.0% in Sterling terms, though a large portion of this was down to Yen weakness, which declined -1.7% versus the pound. The environment continued to be challenging for bond markets, the focus on inflation expectations and the forward-looking interest rate environment drove yields higher. The Barclays Global Aggregate Index and the Barclays Global High Yield Index sold-off -1.4% and -1.3% respectively.
With the third quarter earnings season still a week away, the focus during the week was on the September payroll numbers coming out of the US. The report came as a disappointment, with payrolls rising $194k in September versus expectations of $500k. However, details within the report illustrated bright spots, and likely positive enough to keep the Federal Open Market Committee (FOMC) on track to announce the beginning of tapering at their November meeting. Some of the positive read throughs from the Non-Farm Payrolls (NFP) included an increase in the average work week and average wages, which should ultimately help increase spending. Despite the overall lacklustre report, bond yields reacted in-line with the expectation for the Fed to proceed with tapering, as the US 10-year treasury yield closed above 1.6% for the first time since June.
On the corporate side, we did have a few announcements. PepsiCo, in the US beverages sector, beat expectations as they saw stronger organic sales driven by their international business, which is potentially a positive evaluation for multi-nationals. The Company’s gross margins missed their target due to higher costs/labour, which is not a huge surprise in this extraordinary inflationary environment. Levi’s (US clothing and apparel) also stood out, beating and raising expectations, as they were able to offset cotton price headwinds by pricing power. The moral of the story appears to be that pricing power, and a strong brand, is what is likely needed to win in the current inflationary environment.
Last week was one that founder and CEO of Facebook, Mark Zuckerberg, would probably rather forget. At a U.S Senate hearing, whistle-blower Frances Haugen called out the social media behemoth for allegedly placing profit before child safety, society, and democracy. Amid a storm of criticism, Zuckerberg responded with a “not true”. To compound matters, Facebook services including Instagram and WhatsApp went dark for several hours, making a winner out of Snapchat and helping send Facebook shares down the most since the coronavirus pandemic began.
