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US inflation at 30-year high

Last Week in the City, provides a round-up of the market movements and the global investing outlook for the week ending 12 Nov 2021.

| 9 min read

US equity indexes remain near all-time highs after a third-quarter earnings season that saw companies preserve profit margins in the face of rising input costs. However, American inflation hit its highest level in 30 years. Treasury Secretary Janet Yellen downplayed concerns that inflation could spike to levels seen during the economic downturn in the 1970s, asserting that the Federal Reserve would act before a surge of that magnitude could occur.

Delegates at the COP26 climate conference in Glasgow remained deep in discussions on Friday as they attempted to agree the text of the statement at the end of the two weeks of discussions. The draft text appears to soften commitments to phasing out fossil fuels.

Wholesale gas prices fell as Russia started pumping more gas to Europe, easing some concerns about tight supplies before winter.

UK third-quarter GDP data disappointed, but there was an uptick in growth in September that was bigger than expected.

The blue-chip FTSE 100 index was 1.2% ahead over the week by mid-session on Friday with the more UK-focused FTSE 250 0.2% lower.

American companies now make up 67% of the World Index of advanced country shares. Can the rising dominance of US businesses in equity markets can continue?

  • 67% US dominates global equities

Are you planning for your financial future?

“The best time to plant a tree was 20 years ago. The second-best time is now.”

Covid-19

Austria is set to place millions of people not fully vaccinated against Covid-19 in lockdown as infections soar to record highs. The country’s worst-affected province of Upper Austria plans to introduce a lockdown for the unvaccinated from Monday next week following recommendations from medical experts.

The Netherlands will impose Western Europe's first partial lockdown since the summer this weekend. Bars, restaurants and non-essential stores will be ordered to close at 7pm for at least three weeks.

Germany’s chancellor-in-waiting Olaf Scholz has pushed ahead with a plan to phase out a state of national emergency by the end of the month, despite the country recording the highest Covid-19 case numbers since the start of the pandemic.

AstraZeneca signed its first for-profit deals for its Covid-19 vaccine, moving away from the completely non-profit model that it used during the pandemic. The Anglo-Swedish drugmaker is now expecting to transition the vaccine to “modest profitability” as new orders are received. The injection, developed with the University of Oxford, will remain non-profit for developing countries.

This week’s trading update from pubs group JD Wetherspoon highlighted a trend in the recovery from the Covid-19 pandemic that could be a headwind for many service businesses. Older customers have been visiting the pubs less frequently as they continued to be cautious amid the continuing spread of the virus. As a result, its pubs are being filled with a younger demographic. This saw sales of cocktails such as mojitos and cosmopolitans jump 45% year-on-year and sales of draught ale fall 30%.

Economics

Britain's economic growth slowed in the third quarter as weak consumer spending and supply chain issues put the brakes on the recovery. Gross domestic product (GDP) expanded by a slightly weaker than expected 1.3%, down from 5.5% in the second quarter. Supply issues were an issue, with car sales held back by chip shortages and builders struggling to find construction materials, according to the Office for National Statistics (ONS). The UK economy is still 2.1% smaller than in the final three months of 2019, before the pandemic hit.

  • 2.1% UK GDP still lower than pre-pandemic

Is a digital pound on the cards? A formal consultation on a UK central bank digital currency (CBDC) will be undertaken by the Bank of England and the Treasury next year. This evaluation of the design and possible benefits of a new kind of digital money is a further step towards its possible creation. The currency, for use by households and businesses, would sit alongside cash and bank deposits, rather than replacing them. The Bank of England explains why it is looking at launching a sterling central bank digital currency.

US inflation is now at its highest level in thirty years, with rises in the cost of living being driven by food and fuel prices. The consumer prices index for October showed gains of 6.2% over the last twelve months, a sharp jump from the 5.4% recorded in September. Read more on the inflation of the Federal Reserve.

Are we about to enter a period of stagflation – where slow economic growth coincides with rising inflation to create a policy dilemma?

COP26/Environmental, Social & Governance (ESG)

A new draft agreement at the COP26 climate summit in Glasgow asked countries to reveal their plans to massively reduce greenhouse gas emissions at a much faster speed than previously. However, it softened commitments to reduce the use of coal and other fossil fuels. It also asks countries to strengthen their support for poorer countries fighting climate change. The text must be agreed by all countries at the meeting and discussions could continue into the weekend.

Four of the world's biggest carmakers did not sign a COP26 summit pledge.

The US and China, the world's two largest emitters of carbon dioxide, announced a bilateral agreement to increase cooperation in tackling climate change. The two countries will work together to cut methane emissions, phase out coal consumption and protect forests. The surprise announcement was made at the COP26 climate summit in Glasgow, with US climate envoy John Kerry and his Chinese counterpart Xie Zhenhua billing the deal as a way to tip the summit towards success. The reaction to the surprise agreement was largely positive, but experts and activists warned that concrete action must now be taken to support promises that had been made.

Four of the world's biggest carmakers did not sign a COP26 summit pledge to only sell zero-emissions cars and vans by 2035. Volkswagen, Toyota, Renault-Nissan and Hyundai-Kia were not among signatories to the climate summit declaration. China and US were also absent from the list of signatories.

Johnson Matthey announced plans to exit the battery materials business because it is too far behind rivals who are already making batteries at gigantic scale. The news sent its shares plunging.

Geopolitics

Joe Biden signed legislation to prevent companies such as Huawei Technologies or ZTE Corp that are deemed security threats from receiving new equipment licenses from US regulators. The Secure Equipment Act was approved unanimously by the Senate in late October.

Transport

Air taxis are about to arrive, slashing transport time in busy cities. South Korea demonstrated a system for controlling urban air mobility vehicles (UAM). The Asian nation hopes to use the system to taxi people between major airports and downtown Seoul as soon as 2025.

The company only started delivering its first electric pick-up trucks to customers in September.

Rivian – which makes electric-powered vans, pick-ups and SUVs – arrived in style on the New York Stock Exchange. Shares in the Amazon and Ford-backed business soared 30% on their first day of trading in the US. The gains made the newcomer the second largest American automaker by market capitalisation, despite the fact the company only started delivering its first electric pick-up trucks to customers in September. Amazon owns a 20% stake and Ford 12%.

Tesla chief executive Elon Musk sold around $5bn of shares in the electric carmaker. The sale was executed days after the co-founder of Tesla, SpaceX, Neuralink and The Boring Company asked his 63 million Twitter followers whether he should sell 10% of his stake in the company, hitting its valuation.

Technology

The UK's Supreme Court rejected a claim that sought billions of pounds in damages from Alphabet’s Google over alleged illegal tracking of millions of iPhones. The judge said the claimant had failed to prove damage had been caused to individuals by the data collection.

Retail

Marks & Spencer raised its full-year profit guidance by more than 40% following a surge in profits from its food division in the first half of the year. This followed the company’s deal with online supermarket Ocado. M&S products account for about 29% of Ocado’s product sales, lifting total food sales by 10.4%. However, sales in its clothing and home products fell 1%. Management warned that it expected "significant" increases in supply-chain costs because of worker shortages. It also expects costs will rise during the rest of the financial year and be "steeper again" in 2022-23.

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US inflation at 30-year high

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