See you in November?

Weekly update
  • Weekly update
  • 5 minute read

A good week for

  • US equities, which rallied over 1% in sterling terms
  • The US dollar, which gained c. 1% on a trade weighted basis

A bad week for

  • Non-US equities, which broadly weakened
  • Oil declined c. -8%

US monetary policy

Last week markets were undermined by concerns that US monetary policy will tighten. The publication of the July meeting minutes of the Federal Open Markets Committee was interpreted as hawkish by investors. Most participants noted that, “provided that the economy were to evolve broadly as they anticipated, they judged that it could be appropriate to start reducing the pace of asset purchases this year." Taking into account the logistical constraints of the asset purchase calendar, and a desire to provide, “advance notice”, November seems to be the most likely month for the taper to begin. The detail of the minutes also implied that the taper would be slower than observers had anticipated, spreading the taper out over more months, so as not to cause volatility in markets.

UK economy

UK employment was in better shape than expected in June, according to data published last week. June unemployment declined to 4.7%, from 4.8% in May, and employment gains are accelerating, with employment rising by 95,000 in the three months to June, relative to 25,000 in May. Jobs are also plentiful, with the July three-month average level reaching 953,000 a record high. Buoyant demand is causing wages to rise fast – the Office of National Statistics estimates that wages are growing by 3-4%. Headline wage growth was further flattered by changes in the composition of employment and the return of workers to employment from the furlough scheme (under which, less than full wages are payed). Robust employment and wage data bodes well for spending in coming months, though the end of the furlough scheme may put pressure on employment and wage growth.

UK inflation

UK inflation swooned in July, falling by 0.5% to 2.0%. The fall was mostly a result of the anniversary effect – prices increased sharply a year ago, when the economy emerged from lockdown and the ONS stopped imputing prices for goods and services that were previously unavailable. July data indicated that steep price rises were mostly confined to sectors exposed to the global chip shortage, such as cars. However, a number of factors are likely to push inflation higher later in the year. These include changes to the energy tariff cap, trends in food import prices and the end of the 5% VAT rate for the hospitality sector in August.

China economy

Weaker economic data caused concern across markets last week. In July, industrial production growth slowed by almost 2 percentage points to 6.4% year-on-year (yoy), due to severe weather and weaker construction activity. Retail sales growth also slowed notably in July, falling by 3.5 percentage points to 8.5% yoy. Weaker consumption activity is likely due to renewed coronavirus restrictions on travel and meeting in some regions, following the small resurgence of Covid-19 cases in July. While new cases have dropped in August and more people have been vaccinated, some restrictions are likely to be in place for longer, weighing on consumption and sentiment.


The return to power of the Taliban in Afghanistan has already had some impact on markets but investment implications may take longer to reveal themselves. One key aspect of the situation has been the US administration’s approach. While the withdrawal of US troops from Afghanistan was set in motion by Trump, President Biden did not reverse the decision that precipitated the Taliban gaining control of Afghanistan so quickly. China’s leadership has already sought to build ties with the Taliban, potentially in a bid to avoid the Taliban supporting an uprising of oppressed Uyghur Muslims within China. Economic influence in the region may also fit with China’s aims, but may create a new point of friction between China the US, and India.


Important information
The information contained in this article is believed to be correct but cannot be guaranteed. Past performance is not a reliable indicator of future results. The value of investments and the income from them may fall as well as rise and is not guaranteed. An investor may not get back the original amount invested. Opinions constitute our judgment as at the date shown and are subject to change without notice. This article is not intended as an offer or solicitation to buy or sell securities, nor does it constitute a personal recommendation. Where links to third party websites are provided, Close Brothers Asset Management accepts no responsibility for the content of such websites nor the services, products or items offered through such websites


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