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Investors bask in the good economic news

Key takeaways

Economic data updates are holding the spotlight at present, with US inflation growth showing signs of moderating, and UK economic data providing evidence of a summer rebound. Against this backdrop, financial markets enjoyed a more upbeat spell.

  • The latest data points to moderating growth in US inflation. The prices of energy and used vehicles have been a meaningful driver of the inflation rate versus the same period last year, but energy prices are now showing signs of decelerating, and the cost of used cars and trucks has fallen for the second month in a row. However, inflation remains at an elevated level versus the central bank’s target, and mortgage and grocery shopping costs appear to be rising. We continue to believe that the current inflationary pressures will prove transitory, though this is an area we are monitoring closely.
  • According to the latest figures, the UK economy grew by 1.7% over the three months to the end of August. This represented a rebound in August following a weaker July, when the Delta wave of the COVID-19 virus impacted economic activity. To the end of August, the UK economy has grown by 5.7% in 2021, though it is worth noting that economic output still remains below its pre-pandemic levels.
  • In other UK economic news, the employment picture continues to improve. With an estimated cost of £68.5 billion, the furlough scheme may have been eye-wateringly expensive, but it was highly successful in supporting UK workers through the worst of the pandemic. In September, UK employment levels continued to grow and unemployment continued to fall, but data in these areas has yet to reach pre-pandemic levels. In the US, the jobs picture is also improving, with new jobless claims falling below 300,000 last week for the first time since the start of the pandemic.
  • Turning to news on the pandemic itself, it comes as little surprise to see COVID-19 levels rising among unvaccinated population groups. A significant portion of new cases emerging are in 10-14 year-olds, alongside an uptick among people in their 40s (potentially the parents of school-age children). Encouragingly, though, COVID-19-linked deaths in the UK remain at low levels, and despite relatively high levels of community infection, the number of COVID-19 cases in UK hospitals is only 18% of its previous peak. Taken altogether, this adds to the evidence that the COVID-19 vaccines are safe and working, which is good news for both public health and economic recovery.

Weekly market moves

  • Government bond yields have been moving higher globally, but paused for breath last week. Bond prices (which move inversely to yields) ended the seven-day period in relatively flat or mildly positive territory in sterling terms.

  • Meanwhile, global stock markets staged a recovery towards the end of the week, with the UK leading the way, helped by strengthening sterling. Emerging markets continued to lag.

  • The Japanese yen continued to weaken, expressing financial markets’ unease about economic plans from Japan's new prime minister.

What to look out for this week

  • ‘Earnings season’ continues this week, with large corporations reporting their results for the third quarter of the year, and offering outlooks for their businesses. So far, the earliest reports have been positive, helping the market mood.

  • More inflation data from a number of countries, including the UK, is set for release this week.

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