Written by Richard Warne.
For those of you as old as me, you may well remember Pato Banton releasing a song called “bubbling hot” back in 1992, and this is how inflation is acting right now. On Friday, the US Consumer Price Index (CPI) came out at a whopping 6.8% year-on-year increase, inflation is at a 40-year high, and both outcomes probably put to bed the notion that inflation is merely transitory.
As the end of 2021 fast approaches, there are many varying factors that markets are getting to grips with. It has only been a few weeks since the discovery of Omicron, the new COVID-19 variant, and this has naturally caught investors’ attention. At the same time there has been huge attention on the Fed’s taper/rate hike plans. However, against these concerns, it must not be forgotten that markets are performing strongly, anchored by robust consumer strength and continued upside of earnings revisions going into Q4 and next year.
Equity markets have been volatile over the last few weeks, and last week saw volatility swing to the upside with most regions posting returns of at least +2.0%, the MSCI All Country World Index was +3.0%, while the UK market delivered +2.2%. Last week’s recovery not only reflected these strong fundamentals but further indicated that investors may be growing increasingly comfortable with an accelerated taper/rate hike timeline to contain what has been some “hot” inflation prints.
Though last week’s US CPI print of 6.8% was eye-watering, it was perfectly in-line with expectations. So, did investors give a sigh of relief that the number printed was not way beyond expectations? However, the inflationary environment is a new reality, as is the ever-increasing spread of the Omicron variant of the virus, so could this have further impact on supply chain challenges? This is a topic that has had much airtime over prior months. Costco in the US reported Q3 earnings last week and comfortably beat market expectations. The Company did comment that 79% of its import containers had been delayed by 51 days on average.
Earnings, valuations, inflation, Fed policy responses, and the continuation of the virus are just a few of the topics the market continues to grapple with as we see out the year and will possibly have an impact on how investors think about positioning for next year.
As this is the last ‘The World In A Week’ for 2021, may we wish you all a fantastic Christmas and a Happy New Year. We will return on 4th January 2022.
