Market Update – 24th November 2021.

Global equity markets have had a volatile start to the week thanks to speculation that the Fed will speed up the pace of its QE tapering, coupled with concerns that the resurgence in coronavirus cases across Europe will slow the global economic recovery.

Whilst higher inflation readings have led to a number of Fed policymakers starting to openly talk about a faster tapering pace, this doesn’t necessarily mean US interest rates will increase any time soon.

Although we can see the reasoning behind a faster taper (as the current QE program was introduced to support the US economy at the height of the coronavirus uncertainty and as the peak of the crisis is clearly behind us), we believe this reasoning is different from that which will prompt policymakers to increase US interest rates – in other words, we don’t believe a quicker taper changes the US interest rate outlook and as such policymakers will continue to patiently sit on their hands while the current distortions and supply chain disruptions pass through the year-on-year inflation calculations. And as we have stated recently, commodity price pressures; shipping cost and bottlenecks; and semiconductor shortages, all appear to be easing, which supports our view that the current levels of inflation are transitory.

Hopefully tonight’s release of the minutes from the last Fed monetary policy meeting will shed some light on policymakers thoughts.

Elsewhere this week, Joe Biden finally decided to nominate Jay Powell as the Fed Chair for a second term. This announcement, while expected, removes one uncertainty for equity markets and means status quo is maintained.

Investment Management Team

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