A new tool in the COVID-19 toolkit

Key takeaways

News of an antiviral drug to combat COVID-19 hospitalisations caught investor attention last week, while economic and political news continued to capture media headlines.

• A new tool may have been added to the pandemic toolkit last week, with the news that pharmaceuticals firm Merck is seeking regulatory approval for its oral antiviral drug, molnupiravir. Trials have indicated that – given twice a day to those with COVID-19 – the drug could halve the chances of hospitalisation. This would have obvious benefits for healthcare systems in their efforts to manage the pandemic, and the US has already ordered 1.7m doses of the drug. Merck expects to produce 10m doses in 2021. The company’s shares rose by 9% on Friday, while the share price of vaccine maker Moderna fell by 10%.
• Inflation remained a hot topic last week, as US inflation (measured by core PCE – personal consumption expenditures) rose to 3.6% in August – the highest level since May 1991. In Germany, inflation (measured by CPI – consumer price index) has increased by 4.1% over the past year. Supply chain issues continue to dominate the inflation discussion, with fuel in high demand across UK petrol stations. A pickup in short-term inflation had been widely expected, and we continue to believe that this should prove to be transitory.
• Meanwhile, new data releases added some weight to the argument that the pace of growth may now be slowing, following an initial surge of economic recovery from the lows of the pandemic. US consumer confidence has recently fallen to its lowest level in seven months, while US manufacturing survey data has pointed to a decline in new orders. Nevertheless, it is worth noting that these readings are still at healthy levels relative to history, and the latest consumer confidence data from the University of Michigan (released on Friday) provided some reassurance, suggesting that confidence edged higher in late September.
• Sticking with the US, political wrangling continues over a range of entangled issues including the federal borrowing limit (known as the ‘debt ceiling’), Biden’s latest infrastructure bill, and proposed tax hikes. The current deadlock has been caused by debate around proposals for social spending, with the debt ceiling debate embroiled as a bargaining chip. If history is a guide, the debt ceiling is almost certain to be lifted, but political point scoring always takes us uncomfortably close to a cliff edge.

Weekly market moves

• Last week was generally negative for most major stock markets in sterling terms. Despite lagging behind for much of 2021, Japan and emerging markets were among few regions to deliver marginally positive performance over the week.

• Bond yields continued to rise (bond prices, which are negatively correlated to yields, dropped further) as markets digested the latest inflation and growth data.

• Commodities enjoyed a buoyant week, with oil the standout performer.

What to look out for this week

• Today, the world’s dominant oil producers (OPEC+) will meet via video conference to review their output policies amid the ongoing global energy crunch.

• Central banks in India, Australia and New Zealand will release their latest policy decisions this week.