What has happened
Monday saw markets initially start the week on the back foot. Whether it was softer Chinese retail sales and industrial production from Monday, the fall-out from weaker US Michigan consumer sentiment data from Friday, geopolitical risk fall-out from Afghanistan over the weekend, or concerns around the COVID delta variant in recent weeks … each of these were variously put forward as reasons for the cautious tone in equity markets first thing on Monday. However, sentiment appeared to turn later in the day, largely around the time that European markets were closing for the day, and US equities managed to end the day in positive territory, and in the process set another record close. Meanwhile, in government bond markets, the US benchmark 10-year bond yield continued to ease on Monday, dropping 3bps to 1.26%. Overnight in Asia, equity indices have taken another leg lower, as concerns around the delta variant is continuing to dampen sentiment.
Looking to the Fed for some direction
Markets will be looking to the Fed for some monetary-policy direction over the next couple of weeks: Fed Chair Powell is due to speak at a scheduled virtual Town Hall meeting later on Tuesday with educators and students from around the US; then Fed July meeting minutes are due to be published on Wednesday; and then next week, we have the 3-day Kansas City Fed’s Jackson Hole Economic Symposium between 26-28 August. In each of these, there is a chance we might hear more about what the Fed’s plans might be for laying out the possible timing and contours of its expected move to taper its current $120bn a month asset buying program across Treasuries ($80bn a month) and Mortgage-Backed Securities ($40bn a month). Before all that, on Monday, Boston Fed President Eric Rosengren added to the commentary around tapering as he said that the Fed has met its objectives on the inflation side and that the labour market was likely to meet their goal by the Fed’s next meeting in September.
US COVID cases and vaccines picture differs state by state.
In the US, at a headline level, case growth has been picking up, and from ourworldindata.org, daily new confirmed cases (rolling 7-day average) is now back up to early February highs. But digging into a state-by-state picture shows both differing vaccination rates and case growth rates. According to US CDC data (US Centres for Disease Control and Prevention, data to 16th August), for the US overall, 59.8% of the population has received at least one dose, and the number of COVID cases for every 100,000 people over the last 7 days (the 7 day COVID case rate per 100,000 of the population) for the US overall is 228.7. However, the picture varies significantly state by state. In relatively higher vaccinated states, such as Pennsylvania (67.5% have had at least one dose), the 7-day case rate per 100,000 people is at 108.1, whereas in relatively lower vaccinated states such as Louisiana (46.9% have had at least one dose), the same case rate here is currently running at 642, around 6x higher.
What does Brooks Macdonald think
The rollout of vaccines provides both a positive and negative for markets. It’s a positive for those populations with relatively high vaccination rates, encouraging a recovery towards more normal economic activity levels. But the flipside is that in those US states and elsewhere globally where there are areas of relatively low vaccination rates (especially amongst relatively poorer populations in emerging countries), this presents what the IMF earlier this year referred to as a ‘ricochet impact’ risk for advanced economies, and this continues to be a risk against hopes for a synchronised economic recovery globally.
| Index | 1 Day | 1 Week | 1 Month | YTD | |
| TR | TR | TR | TR | ||
| MSCI AC World GBP | 0.0% | 0.6% | 1.8% | 13.4% | |
| MSCI UK All Cap GBP | -0.6% | 0.8% | 3.1% | 15.0% | |
| MSCI USA GBP | 0.3% | 0.9% | 3.1% | 17.9% | |
| MSCI EMU GBP | -0.7% | 0.9% | 3.7% | 14.4% | |
| MSCI AC Asia ex Japan GBP | -0.5% | -2.1% | -6.3% | -3.4% | |
| MSCI Japan GBP | -0.8% | 0.8% | 0.1% | 0.7% | |
| MSCI Emerging Markets GBP | -0.5% | -1.6% | -5.3% | -1.4% | |
| MSCI AC World IT GBP | 0.3% | -0.3% | 2.3% | 15.3% | |
| MSCI AC World Healthcare GBP | 0.9% | 1.2% | 3.5% | 14.1% | |
| Barclays Sterling Gilts GBP | 0.1% | 0.0% | 1.8% | -2.8% | |
| Barclays Sterling Corps GBP | 0.1% | 0.1% | 1.0% | -0.9% | |
| WTI Oil GBP | -1.5% | 1.2% | -6.8% | 36.7% | |
| Dollar per Sterling | -0.1% | 0.0% | 0.6% | 1.3% | |
| Euro per Sterling | 0.0% | -0.3% | 0.9% | 5.1% | |
| MSCI PIMFA Income | -0.2% | 0.4% | 1.9% | 8.3% | |
| MSCI PIMFA Balanced | -0.2% | 0.4% | 2.0% | 9.5% | |
| MSCI PIMFA Growth | -0.3% | 0.5% | 2.2% | 11.7% | |
Source: Bloomberg as at 17/08/2021. TR denotes Net Total Return
