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Capital Markets Update: August 2021

Octopus Multi-Manager team1 September 2021

Market updates from August

In a Nutshell

The S&P 500 reached its highest point this month, after the US Fed signalled it would continue its stimulus program. Also breaking records was the FTSE 250, which was particularly boosted by travel companies expecting to regain lost ground as the vaccine continues to be rolled out worldwide.

This period was a tougher time though for retail and manufacturing industries, as increased labour shortages in the logistics sector hit UK supermarkets and restaurants, and global production restraints for semiconductors continue to affect multiple sectors.

Slow and Steady

The US Fed’s annual symposium at Jackson Hole was once again held virtually this year, amidst the Delta variant’s continued spread across the United States. This continued Covid-cautious approach was reflected in the announcements made by the Fed’s Chair, Jerome Powell, which included the extension of federal stimulus for those affected by the pandemic; the continued monthly purchase of $120 billion of Treasury and mortgage-backed securities; and an expression of caution towards any raises to interest rates in the short term.

With this “wait and see” approach towards tapering announced, investor sentiment increased further, with the S&P500 reaching a record-breaking 4,509 in the last week of August — a 96% increase since the start of the pandemic.

That’s Logistics

The UK saw a burgeoning supply-chain issue for many retail and leisure outlets, resulting in empty shelves in supermarkets, and a headline-grabbing milkshake shortage for McDonalds. This has been attributed to a dearth in HGV drivers, caused by a combination of poor pay and working conditions, a reduction in immigration following Brexit, and disruption to training caused by the ‘pingdemic’. Similar shortages have been seen in agriculture, with too few people available to assist with harvest.

To try to ease matters, an increase to ongoing pay is being offered, and many supermarkets are providing ‘golden hello’ bonus payments to new drivers; however due to the increase in costs this can in turn increase prices — thereby boosting inflation.

Any increases to inflation would put further pressure on the Bank of England to raise interest rates from their record lows, and make debt more expensive.

The Chips are Down

A more globally-present shortage has occurred in the form of semiconductor computer chips; an issue which has been increasing throughout the last year, but exacerbated this month after a surge in Covid infections triggered a national lockdown in Malaysia — a major producer of microchips.

With chips used in all manner of goods, from phones to games consoles to cars, supply of these end products have diminished. Major car producers including Toyota, Volkswagen and BMW have cut global production significantly, with their share prices reducing accordingly. Intel, the largest semiconductor chip manufacturer by revenue, announced they believe it will be up to two years before the shortage is rectified, and production can return to normal.

Looking Ahead

September will see the return to schools without the previous covid safety restrictions — a further test of the efficacy of the UK vaccine program, and one which many businesses will watch with interest.

We will also expect to see more house-price data following the phasing out of the stamp duty holiday at the end of June, and whether the record-breaking asking prices for homes we saw this Summer have been able to hold steady.

Important information:

The value of an investment, and any income from it, can fall or rise. Investors may not get back the full amount they invest. Past performance is not a reliable indicator of future results. Personal opinions may change and should not be seen as advice or a recommendation.

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