Market review – November 2021

The news from the market feels like a broken record, as the main focus this month continues to be inflationary pressures around the global economies. For the last few months, talk from the central banks has focused on the high inflationary figures are temporary, and how they will decrease as we enter 2022.

However, there seems to have been a shift from suggesting these are transitory problems to the potential that inflation will be higher for longer.

 

Inflation could last longer than planned

On this note, the International Monetary Fund (IMF) advised that the global economies are facing inflationary pressures that will be “higher and longer than expected”.

The US Federal Reserve Chair Jerome Powell warned: “We now see higher inflation and the bottlenecks lasting well into next year”.

 

Interest rates are set to rise

Here in the UK, it is now widely anticipated that interest rates are set to rise sooner rather than later. The Bank of England’s (BoE) Monetary Policy Committee (MPC), currently have interest rates set at 0.1%; the lowest level in the history of BoE. However, they are tipped to rise by 15 basis points, if not by Christmas, certainly in the early part of 2022. For context, the UK’s annualised rate of consumer price inflation (CPI) actually fell from 3.2% to 3.1% in September but this remains well above the BoE’s target of 2%. There is now an expectation in some quarters that the CPI index could go as high as 5% during 2022.

The Chancellor of the Exchequer, Rishi Sunak, delivered his Autumn Budget on 27 October. I won’t go into too much detail in regards to this, as my colleague Robert Young has written a separate article on this for our monthly newsletter.

In short, he announced upgraded economic forecasts, along with some increased spending on public services. To help the hospitality, leisure and retail sectors, he unveiled a new 50% business rates discount to aid these companies. To add to the discussion on interest rates, he advised that the UK’s public finances are now twice more sensitive to changes in the rate than they were before the pandemic. By the end of the month, the FTSE 100 index had risen by 2.1%.

 

Across the Atlantic

In keeping with the inflationary news, the US economy only grew by 2% in the third quarter (down from 6.7% in the second quarter). This was largely blamed on the inflationary pressures, the impact of the Delta variant of Covid-19 and supply chain problems (we aren’t alone in this!). Throughout the month, the rate of unemployment in the US fell to 4.8% from 5.2%. However, this is still some way ahead of the 3.5% which was seen in February 2020, prior to the pandemic. Despite all this news, the Dow Jones Industrial Average Index increased by 5.8% over the course of October.

 

Rise in inflation in 'eurozone'

As you would expect, Europe is no different to the rest of the world, and the European Central Bank (ECB) have also seen inflationary pressures dominate the recent narrative. So much so that, ECB President Christine Lagarde observed after a recent meeting: “We talked about inflation, inflation, inflation”. In October, the eurozone’s inflation rose sharply from 3.4% to 4.1%. As with other central banks, the ECB expects these pressures to be a short term issue and to fall back during 2022. Although, they are acknowledging this will take longer than they had originally forecast - which seems to be a familiar theme for this review!

 

Japan provides a change of scenery

Japan is taking a different approach to the other major central banks. The Bank of Japan has kept its interest rate at -0.1% and is looking to maintain its policy easing. This is a far different approach, where most of the central banks are at the very least considering a tightening of their monetary policies in the near future.

 

As always, I hope that you have found this review a useful read. If you have any questions in regards to this, or any other financial matter please do not hesitate to contact one of us at Hanover.

Richard Brazier

 

Richard Brazier

Director

E RichardBrazier@hanoverfm.co.uk

Who should you contact for more information?

Director Richard Brazier

Financial Adviser Amanda Beacon

Senior Consultant Graham Smithson