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All eyes on the world’s policymakers

Key takeaways

Against the backdrop of a plentiful (if mixed) week for global economic news, the gaze of the world now turns to the COP26 event in Glasgow. Meanwhile in the US, President Biden continues to push his infrastructure bill through a political quagmire.

  • Last week was a bumper period for a range of economic data releases, including growth figures for the US and European economies in the third quarter of the year. The former slowed sharply over the summer months, held back by a fall in consumption. Meanwhile, economic growth in Europe continued to recover, driven by improvements in the service sector.
  • Both the US and Europe also released their latest inflation data. Core PCE data (personal consumption expenditures) pointed to slowing US inflation on a month-by-month basis, as expected and the lowest reading since February. Core PCE is an important measure used by the US central bank to assess inflation in the economy, so this reading could well feed into forthcoming policymaker considerations. Meanwhile in Europe, an early look at consumer price data (CPI) for October pointed to higher than expected inflation, and a marked increase on September’s reading.
  • Moving to China, where survey data covering the manufacturing sector has indicated ongoing weakness in this key area for the second consecutive month. The news has sparked calls for a more supportive approach from China’s policymakers in order to support the economy known as the world’s factory floor.
  • Turning to the political arena, the latest update on President Biden’s ‘Build Back Better’ infrastructure bill revealed a pared back version of his original plan, intended to placate more moderate members of his Democratic Party. The terms of the bill still include substantial spending on clean energy, as well as an increase to corporation tax. The latter would rise by less than previously suggested, and the brunt of the increases would be borne by larger companies.
  • As we continue to move through the current corporate ‘earnings season’ (covering the third quarter of 2021) the latest results from large corporations remain broadly positive. However, supply chain constraints are increasingly coming into focus across a range of industries. In recent days, both Apple and Amazon have seen their share prices fall amid supply chain concerns, as well as other issues such as rising wage costs. Encouragingly, though, there are some tentative signs that supply chain issues could be improving slightly; the US steel sector has recently been enjoying a large increase in orders from auto manufacturers, where shortages had previously been playing out.

Weekly market moves

  • Developed world share prices – particularly in the US – continued to make healthy gains over the week. Emerging markets lagged behind, weighed down by troubled markets in China.

  • Key areas of bond markets endured substantial volatility over the week, disguised by relatively calm headline performance. Short-dated government bonds were especially turbulent, with prices falling and yields (which move inversely to prices) rising, reflecting investor nerves surrounding forthcoming central bank updates.

What to look out for this week

  • COP26 (the United Nations’ 2021 climate change conference) takes place in Glasgow this week. Within financial markets, given COP26’s goals around mobilising ‘climate finance’, sustainable assets are likely to find themselves in the limelight.

  • Policymakers at the US Federal Reserve Bank are expected to take their first significant steps away from the extraordinary support measures put in place during the earlier stages of the COVID-19 pandemic. Meanwhile in the UK, the Bank of England looks increasingly likely to announce an increase to interest rates on Thursday.

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