Last Week in the City: The Fed takes back the narrative

Garry White, Chief Investment Commentator, provides a round-up of the market movements and the global investing outlook for the week ending 11 June 2021.

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  1. Garry White

The US Federal Reserve (Fed) appeared to be back in control of the inflation narrative, as equities rallied despite news that US inflation had risen to its highest level since August 2008. Prices are likely to rise further as pent-up demand is released and supply-chain bottlenecks reduce the supply of some items. This has prompted some in the market to worry that the rise in inflation may not be temporary, forcing the central bank to act. This worry has been the main driver of market volatility over the last two months

The FTSE 100 rose 0.7% over the week and the FTSE 250 fell 0.6% by mid-session on Friday.

Educating your children about money: Having financially astute children will improve the quality of their lives – but these skills are so rarely taught in a formal setting. Emma Hammond looks at ways to engage kids in their own financial future as part of your everyday routine here.

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Charles Stanley Radio

The Technological Revolution: What is it and why does it matter? In this podcast, two of our Investment Managers discuss the current technological revolution and what benefits it has offered. Listen here.

Listen to previous podcasts from Charles Stanley Radio here.

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Covid-19

British Airways put thousands of its staff back on furlough because of delays to the restart of international travel. The IAG-owned group had begun to bring people back ahead of the easing of restrictions on foreign holidays on 17 May. However, only a small number of countries have been put on the government's green list, meaning travellers do not have to quarantine on their return.

Britons are opting for staycations as the date travel is permitted to major holiday destinations remains unclear. However, it may be wise to stock up on camping gear sooner rather than later after customs clearance platform KlearNow warned that supply train disruptions due to the pandemic would result in a summer products shortage of many goods. "A combination of Covid-19 restrictions, the backlog from the Suez Canal blockage, increasing global demand for shipping containers, disruption to shipping caused by India's public health crisis and a shortage of packaging materials means UK businesses are already struggling to meet summer demand," KlearNow's chief executive Sam Tyagi said.

Less than a quarter of UK pubs are confident they will survive the next three months, according to the Office for National Statistics (ONS). Just 24% have a high level of faith they will still be in business at the end of the summer, compared with 44% for all types of company. However, this represents a significant improvement on previous surveys. In October 2020, the ONS found just 6% of pubs were highly confident of survival, by February that had fallen to just 1%. Despite reopening to outdoor drinkers on 12 April, and indoors from 17 May, the ONS said many establishments still reported "significant profit losses" last month.

ONS figures also showed a third of staff worked from home in 2020, up by four times compared with before the pandemic. Tech behemoth Facebook said it will let all employees who can work away from the office to do so after the pandemic is over. The social-media company told employees "anyone whose role can be done remotely can request remote work". Facebook chief executive Mark Zuckerberg plans to spend up to half of 2022 working remotely, he said.

This follows the recent reversal of pandemic working practices at Apple and Alphabet-owned Google, which recently instructed staff to return to the office over the next few months. The statement from Apple chief executive Tim Cook resulted in a staff backlash at the iPhone maker. Its staff are now demanding more flexibility in their allowed working practices, according to reports. We look at current uncertainty in the commercial property market after the pandemic threw future demand projections into a state of flux here.

Finance Ministers from the world’s seven most powerful nations and central bank governors want to support a fast recovery from Covid-19. We look at how do they plan to do this here.

Economics

The UK economy grew 2.3% in April, its fastest monthly growth since July last year. Shoppers spent more on the High Street as non-essential shops reopened. Purchases of cars and caravan also increased. 

US inflation jumped to the highest growth rate since August 2008 as the world’s largest economy rebounds strongly from the Covid-19 crisis. The consumer prices index rose at an annual rate of 5% in May, higher than expectations and up from 4.2% in April. However, US equities rallied following the news, with the S&P 500 touching a new record high, showing investors are now much more comfortable with the Fed’s interest-rate narrative. Inflation has steadily climbed since January, when it was 1.4%, prompting concerns the Federal Reserve may be forced to up interest rates before the recovery is properly underway.

The European Central Bank raised its growth and inflation guidance but said it would maintain a steady flow of stimulus over the summer. The central bank appeared to be concerned this would accelerate a concerning rise in borrowing costs and choke off the recovery.

Geopolitics

At the start of US President Joe Biden’s first official overseas trip he warned Russia that it faced "robust and meaningful" consequences if it engaged in "harmful activities". Finance ministers from the G7 group of nations agreed to act against tax avoidance, requiring making big companies pay more tax in the countries where they do business rather than shifting profits to lower-tax jurisdictions at their meeting in London. The changes are likely to impact global technology giants more than any other sector, but they welcomed the news for the clarity it will bring. However, the G7’s decision was criticised in some quarters as not going far enough. Charity Oxfam said an agreed 15% global minimum corporate tax rate is "far too low" to make a difference. The Biden administration which has spearheaded the moves towards a standard rate initially wanted a 21% minimum but revised the target lower at the start of June. Washington now says the tax rate should be “at least” 15%. Media briefings suggested that the White House regards this as a “floor” and wants discussions to continue that could push the rate higher.

The UK and the US agreed to deepen ties in science and technology innovation, as the West looks to head off growing competition from China. As part of the revised Atlantic Charter agreed by Prime Minister Boris Johnson and Mr Biden, the two sides vowed to form a new partnership to create jobs and protect the security of their citizens. The partnership will include several areas of collaboration, including research, innovation, defence, security, law enforcement and intelligence. Officials will also work together to strengthen resilience and security of critical supply chains, battery technologies and new areas such as AI. We look at how the US under Joe Biden is strengthening alliances and challenging China here.

Environment, Social and Governance (ESG)

The Bank of England will test Britain's banks and insurers to see how well-prepared they are to cope with climate-change emergencies. The Bank of England will examine the risks rising temperatures and sea levels could pose for the UK's big banks and insurers. The testing will put 19 companies through stress tests involving three climate scenarios projected over the next 30 years.

Cryptocurrency

Former US President Donald Trump said he regards Bitcoin as a "scam" affecting the value of the US dollar as he wanted the dollar to be the currency of the world. “Bitcoin, it just seems like a scam. I don't like it because it's another currency competing against the dollar,” Mr Trump said.

Mining and commodities

Mind the energy gap: Nations are building a new green-energy infrastructure to boost economic activity following the Covid-19 pandemic. We examine what will the oil majors may do as the race to net-zero accelerates here.

Technology

Altice, France's second-biggest telecoms company has acquired a 12% stake in BT Group. This is larger than what can be regarded as a “passive” investment in the group, but reports suggested a full bid for the group was unlikely.

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