Market Updates

We saw a clear shift in sentiment on lockdowns last week, as countries across Europe continue to hit new daily case records and death rates increase again.

Inflation remains front and centre. Strong US inflation data raised fears that the Federal Reserve is behind the curve and would need to take more hawkish action in the future.

Climate change and the transition to a low-carbon future will be a key driver of long-term asset returns. BlackRock have seen encouraging development from the ongoing UN climate summit (COP26). There are risks to that path.

A dovish tone from several central banks helped support equity markets, alongside positive news on a Pfizer COVID-19 treatment. Earnings season continues to be supportive, with more companies beating than missing on earnings metrics.

Strong earnings growth is due to the strong economic restart – and the realization of such strength was priced in by higher multiples last year as stocks surged back from the Covid-19 shock. BlackRock are likely to see earnings growth normalize as activity settles after the powerful restart.

Central Bank action continues this week, with the Reserve Bank of Australia (Tuesday), Federal Reserve (Wednesday), Norges Bank and Bank of England (Thursday) all meeting. the Fed is expected to announce the start of tapering, including key details on the pace, timing and composition of its plan to reduce asset purchases.

Surging natural gas and coal prices amid a powerful economic restart have exposed a lopsided transition toward low-carbon power. BlackRock still see an orderly transition in the medium term – but with bumps on the way that could lead to growth and inflation volatility.

Global equities were back near record highs last week despite a series of headwinds. Tapering fears, concerns of peak growth, supply chain issues and Chinese property developer Evergrande’s potential default have been key market themes of late and they show little signs of abating.

Prices have climbed around the world, with commodities prices surging and U.S. inflation hitting a 13-year high. It’s the first time since the 1970s that a supply shock is the main culprit. This is where the comparison ends.

We still see a low risk of technical default by the U.S. and expect the debt ceiling debacle to ultimately resolve. The broadening economic restart keeps us tactically pro-risk, yet we see a narrowing path for risk assets to push higher and markets more prone to temporary pullbacks.