Money Week - UK (2021-10-08)

MONEYWEEK 8October2021 moneyweek.com

6 Markets

“Withpriceincreasesslammingeconomies
fromalldirections,”marketsaregetting
increasinglyjumpy,saysSusannahStreeter
ofHargreavesLansdown.Investorsalso
fretthatweakeningmacroeconomicdata
couldheraldaslowdown.Nowonderthat
inrecentweeksconcernsaboutstagflation,
thecombinationofeconomicstagnation
andhighinflation,“seemtohaveturned
fromnigglingworriestoananxietyattack”.

Marketshavehitawall
America’sS&P 500 finishedSeptember
down 4 .8%,itsworstmonthsincethecrash
inMarch 202 0.Thesellingcontinuedinto
thisweek,withthetechnology-focused
NasdaqCompositetumblingby2.1%on
Monday.Highly-valuedtechnologyshares
areparticularlyvulnerabletorisinginterest
ratesandbondyields(whichmakebonds
moreappealingrelativetoequities).The
FTSE’sexposuretocommoditystockshas
sparedittheworstofthesell-off:theindex
isdownbyabout 1 %sincethestartof
September.Yetmarketsseemgloomyabout
theoutlookforthewiderBritisheconomy.
Lastweekthepoundtumbledto$1.3 441
againstthedollar,itslowestlevelof 202 1,
notesPhilipAldrickinTheTimes.That
isworryingbecausetheBankofE ngland
isexpectedtoraiseinterestratessooner
than othe rcentralbanks,whichsh ouldbe
givingsterlingalift.Therearesignsthat
UK“growthisf lagging”justa senergyand
foodpricessoar;Britishwagegrowthis
“thehighestsince2008”.
Ifstagflatio ntakeshold then“theBank
ofEngl andcandolittleabout”it,says
Chri sDillowinth eInvestors’Chronicle.It
canraiseratestof ightinflationorloosen

policytostopstagnation,butno tboth.

Someofthecurrentinflationarypressure

should provetemporary:“labourmarket

mismatchesshouldfadeasfirms...train

newstaff”,whilethecommo ditycyclewill

even tuallyturn,asitalwaysdoes.Ift here

isoneareaforconcern,itisthatthecurrent

shockise xposingBritain ’schronicprobl em

with productivi ty,whichhasgrownat“just

0.3%peryear”overthelast14years.

Goodbye“Goldiloc ks”

Globalmarketshaveenjoy eda“Goldilocks”

environmentformuchofthisyear,says

OlivierMarciotofUnigestion.That

combined“recordgrowth”witheasy

monetarypolicyfromcentralbanks,both

ofwhic hbooststocks.Bu tasi nflation

spikesandcentralbanksreinin support,

thatfavourablealignmentoftheeconomic

planetshas“probablycometoanend”,

drivingtheselloff.

Since2008,investorshavelivedby

“TINA”:“thereisnoalternative”to

investingins tocks,says JonSindreuin

TheWallStreetJournal.Thelogicgoes

thatwhene vertheeconomytakesahit

thencentralbankswillstepinw itheasy

moneytor escuestocks.Soequitiesalways

goup.Thefearnowist hatinflationwill

forcece ntralbankstohikeratesnomatter

howmuchthathurtsmarkets.Yet“every

precedentsuggeststhat...officials will

course-corre ctwhene ver” bondmarkets

throwabigenoughtantrum.Therecovery

couldalsoproveweakerthan expected,

enablingcentralbankstokeeppolicyloose.

“There isst illnoa lternative”toTINA.

Spectre of stagflation shakes stocks

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MarketshavebecomepessimisticabouttheoutlookfortheBritisheconomy

Investorsappearunimpressed

withJapan’snewleader. The

rulingpartyhaschosenFumio

KishidatoreplaceYoshihide

Sugaastheheadofthe

world’sthird-biggest

economy. Kishidawasthe

continuitycandidate.

That meansmoreloose

fiscal andmonetarypolicy,

“decarbonisation,

digitalisation”andthe

“promotionoffreetrade”, says

MaTieyingofDBS.Thenew

governmentis preparingto

launchyetanotherstimulus

package, worthatleast5.5%of

GDP. Happily, Covid-19is back

undercontrolin Japan, with

vaccinationratesnow

exceedingthosein theUS.

Japanesestocksralliedin

SeptemberwhenSuga

announcedhisresignation,

sayToshiroHasegawaand

Gearoid ReidyonBloomberg.

Therewashopethat Japan

couldturnthepageon a

difficultyear. It is ameasureof

just how“uninspiring”

investorsfindKishida that the

benchmarkTopix indexhas

sincegivenbackalloftheir

post-Sugagains.

Kishidahasgotoff toabad

startwithinvestors, sayLeo

LewisandKanaInagaki in the

FinancialTimes.Thisweekhe

suggestedthat hecould

increaseJapan’scapital-gains

tax.Theresultingselloff,

dubbedthe“Kishidashock”,

senttheTopix downby3%on

Tuesday. Highertaxeswould

mark a“sharpreversal” from

the pro-investmentlinetaken

byTokyosince2013.

Japaneseinvestorsaren’t

that gloomy,sayHideyuki

SanoandTomWestbrookon

Reuters. Thecountry’s shares

outperformedboth theUS and

Europelast month. Abetter

Covid-19pictureandimproved

corporate earningsoutlook

alsobodewell.Supporters

viewKishidaas“asteady

consensus-builder”,butmany

doubthecanseethrough

overduestructural changesto

Japan’s“old-fashioned”

bureaucracy. Hewill facethe

votersinageneral electionat

theendof thismonth.

Japan’s new prime minister rattles the markets

Fumio Kishidahas contemplatedraising capita lgainstax

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Alex Rankine

Marketseditor