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Last Week in the City: Gas price rises dominate

Garry White, Chief Investment Commentator, provides a round-up of the market movements and the global investing outlook for the week ending 24 September 2021.

| 7 min read

More UK energy providers went bust, hit by the soaring cost of gas which looks set to make winter heating an expensive business for all. The government struck a deal with an American company that makes fertiliser at two UK plants, which also produces 60% of the UK’s commercial carbon dioxide as a by-product of its process after it halted production due to soaring gas prices.

Meanwhile, at the United Nations, US President Joe Biden and China’s leader Xi Jinping issued soothing words about international cooperation after criticism of their aggressive stance.

The FTSE 100 was +1.7% over the week by mid-session on Friday with the more UK-focused FTSE 250 increasing by +0.1%.

Market worries persist: There are plenty of stories for the bears to promote, emphasising the need to be cautious about new commitments and about running too much risk.

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Covid-19

Covid-19 infection rates around the world eased during September, according to the World Health Organisation (WHO), which it noted was the first substantial decline for more than two months. The WHO reported falling Covid-19 cases in every world region.

The US is easing its pandemic-related travel restrictions, reopening to passengers from the UK, EU and other nations. From November, foreign travellers will be allowed to fly into the US if they are fully vaccinated and undergo testing and contact tracing. The US has had tough restrictions on travel in place since early last year.

UK food industry bodies have warned of panic-buying this Christmas unless action is taken to address labour shortages. The National Farmers' Union (NFU) called for an emergency visa to allow companies to recruit from outside the UK. UK farmers, hauliers and shops have been struggling with staff shortages that have been made worse by the Covid-19 pandemic and Brexit. The government said that the UK has a "highly resilient food supply chain".

Sandwich group Pret a Manger said workers were coming back to the office in busy city centres. As a result, the group announced plans to hire 3,000 staff by the end of 2022 after cutting an equivalent number of jobs last year.

Economics

The Federal Reserve indicated that it doesn’t see an imminent rollback of the monetary stimulus that has been supporting the economy throughout the pandemic. However, it noted that support would be tapered sooner rather than later. “If progress continues broadly as expected the Committee judges that a moderation in the pace of asset purchases may soon be warranted,” the Fed’s post-meeting statement said. The central bank has been buying $120 billion a month of Treasury bills and mortgage-backed securities since the start of the Covid-19 crisis. Interest rates remained unchanged, with the latest “dot plot” of projections showing nine of the 18 members of the policymaking Open Markets Committee expecting a rate increase in 2022, up from seven in June’s Fed projections.

The Bank of England on Thursday kept monetary policy unchanged and downgraded economic growth projections for the third quarter of this year. The case for policy tightening appeared to gain some momentum, as Deputy Governor Dave Ramsden joined Michael Saunders in voting for an early end to the central bank’s programme of government bond purchases. It revised down expectations for third-quarter GDP growth to 2.1% from 2.9% at the time of the August report. This downgrade was said to reflect, in part, “the emergence of some supply constraints on output.”

UK government borrowing was higher than some economists expected in August as debt interest payments rose due to higher inflation. Borrowing was £20.5bn, £5.5bn lower than in August last year. However, it was still the second-highest figure for August since records began. Economists had expected UK government borrowing to be about £15bn.

Geopolitics

At the United Nations General Assembly, US President Joe Biden said he didn’t have any intention of starting a “new Cold War” with China. Mr Biden insisted that the US remains a reliable international partner following four years of President Donald Trump’s “America First” foreign policy. “We’re opening a new era of relentless diplomacy,” the president said.

China’s President Xi Jinping responded with more soothing comments. He reiterated China’s policy of multilateralism, telling world leaders that disputes among countries “need to be handled through dialogue and cooperation”.

Taiwan has applied to join a key Asia-Pacific trade pact just days after China submitted its application. Taiwan's chief trade negotiator John Deng told reporters that if China joined the Comprehensive and Progressive Agreement for Trans-Pacific Partnership (CPTPP) first, "Taiwan's case to become a member will be at risk”. He said that this was “fairly obvious". Taiwan considers itself as an independent nation, but China regards it as a breakaway province.

Russia's ruling United Russia party, which supports President Vladimir Putin, retained its parliamentary majority after an election and a crackdown on its critics. Opponents alleged widespread fraud.

Lithuania’s Defence Ministry has urged people to throw away their Chinese phones due to security and censorship concerns. The Defence Deputy Minister, Margiris Abukevicius, said: “Our recommendation is to not buy new Chinese phones, and to get rid of those already purchased as fast as reasonably possible.” A report published by Lithuania’s National Cyber Security Centre found that phones by Chinese manufacturers such as the Xiaomi Mi 1OT 5G had built-in censorship tools.

Commodities

The government has said it has to "prepare for the worst" as the UK's energy companies continue to come under pressure from soaring gas prices. Nearly 1.5 million customers have been hit in just two weeks by energy firms collapsing under soaring gas prices. Among them are Avro Energy and Green, which ceased trading on Wednesday. Their 830,000 combined customers face being switched to a new, potentially more expensive, provider.

The UK food industry will be forced to pay five times more for carbon dioxide as part of a government deal with a US company to restart production in the UK. Environment Secretary George Eustice said carbon dioxide prices would rise from £200 per tonne to £1,000. This followed an agreement to pay out tens of millions of pounds to US group CF Industries to reopen a plant in the UK. The fertilizer maker, which produces 60% of the UK’s commercial carbon dioxide as a by-product of its process, halted production at two UK plants last week due to soaring gas prices.

The price of gas and electricity has shot up in recent weeks. We argue that energy disruptions show we still need fossil fuels. Garry White argues that the US oil industry will keep on drilling.

IPOs

Eurowag, a pan-European payments platform, has announced that it will float on the London Stock Exchange with a targeted valuation of about £1.7bn. The company, which focuses on the commercial road transportation sector, hopes to raise €200m (£171m) to fund its expansion plans.

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Last Week in the City: Gas price rises dominate

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