Notes from the Kitchen

Let the good times roll

  • Nov 09, 2021
  • Craig Farley

Strong third-quarter corporate earnings, patience from central banks and the passing of a trillion dollar infrastructure bill put the wind in the sails of global stock markets higher last week. The technology focussed Nasdaq (+2.4%) led the gains, followed by the broader blue-chip S&P 500 index (+1.8%) which gained on every trading day, setting consecutive record highs.

Pfizer’s announcement on Friday that its Covid-19 oral antiviral drug, Paxlovid, lowered the risk of hospitalisation or death by 89 per cent in vulnerable adults in late-stage clinical trials added to the optimism. Travel stocks took off on the news and Expedia (+10.8%), Royal Caribbean Cruises (+14.5%) and British Airways’ parent International Consolidated Airlines Group (+10.0%) were standout performers during the week.

Bond markets also gained last week after central banks signalled they will not rush into raising interest rates despite surging inflation. On Wednesday, the US Federal Reserve announced it will start to wind down its USD 120 monthly asset purchase programme at a run rate of USD 15 billion per month, ending in mid-2022, however, Chair Jay Powell stressed it is far too early to think about hiking rates. The dovish tilt suggests the Fed is on hold until at least next summer.

While the Fed’s decision was widely expected, the Bank of England caught markets off guard the following day. Just a fortnight ago, a rate increase in November looked inevitable after Governor Andrew Bailey warned the bank “will have to act” to head off inflationary pressures but the Monetary Policy Committee voted 7-2 in favour of leaving rates unchanged, opting to wait and see how the end of the furlough scheme will impact jobs. The governor insisted the bank “will not bottle it” in an interview after the meeting but markets now see little more than a 50 per cent probability of a rate hike next month. Once bitten, twice shy.

Energy markets started off on a weak footing before reversing most of the losses – Brent Crude slipped just 1.5%. Opec’s resistance to White House pressure to ramp up oil production and few signs that Russia is ready to increase gas exports into Europe, despite President Putin’s earlier commitment to do so.

Crypto currencies, including Bitcoin (+7.8%) and Ethereum (5.7%), also climbed to new all-time highs in a broad rally. Bitcoin is set to roll out its first major upgrade, Taproot, in four years next week to improve the efficiency and privacy of transactions and enable smart contracts.

TEAM Asset Management is a trading name of Theta Enhanced Asset Management Limited which is regulated by the Jersey Financial Services Commission.