In this week’s Market Pulse, Chief Investment Officer Bernard Swords focusses on key takeaways from the end of the quarter with the tapering time table, China’s Evergrande debt and a spike in energy prices, including a look at how the markets are developing with a slow in the Delta variant.
- There were three issues on peoples mind coming to the end of the quarter; the main issue being the Fed’s announcement in November about the tapering time table. This has driven bond yields up and 10-year yields to rise between 10 and 20 basis points, putting pressure on equity markets. Both the fixed income and equity markets have been unsettled with China’s Evergrande, would it cause financial contagion? Lastly the spike in energy and power prices has fuelled the inflation pressure around the globe.
- Asset prices are lower, previously there was possibly an element of complacency. Other developments have made us more comfortable. If we travel back to August, we would have worried about the Delta variant disrupting economics, however the releases for September show the Chinese and Asia X China PMI’s back at or above 50, moving back to expansion territory. In the US, a strong Manufacturing ISM and improvement in data such as restaurant bookings and credit card transactions shows the with the economic background looks better than the previous month. The Q3 reporting season should give some support as sentiment is fairly low at present
- Portfolio strategy remains overweight equities as economic expansion in place. News of the Delta variant slowing and news of a possible oral antiviral treatment gives another boost to the reopening. Developments have been positive and support an equity orientation asset allocation.