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Investment Update - September stutters

With retail sales falling, it’s a sign that the UK economy is cooling following a resilient summer. But inflation is on the rise.

September got off to a shaky start for financial markets, highlighting concerns that the pandemic could carry on moderating the recovery for some time. Global stock markets dipped at the start of the month, after reaching record highs in previous weeks. The FTSE 100 index also struggled, with falls in sectors including construction and commercial property firms.

The Organisation for Economic Cooperation and Development (OECD) sounded a warning during the month to central banks about withdrawing stimulus support abruptly. Its economists underlined that the recovery from the pandemic-induced recession is still ongoing.

UK struggles with shortages and rising prices

Despite the successful vaccination rollout across most of the UK and healthy economic activity over the summer, the rebound has slowed in recent weeks. Attention has turned to the effects of Brexit and lockdowns on the economy and trade in particular. Employers are facing a severe shortage of workers in key service, construction and supply chain industries (like the lack of drivers of heavy goods vehicles).

Rising prices are affecting companies and consumers alike and business lobby groups have warned that the labour shortage could last up to two years if not addressed by the government. The rise in prices was reflected in the inflation figures for August, which at 3.2% marked the highest rate since 2012 and the biggest jump on record.

US shows ongoing stability

US stock markets performed well, with the S&P 500 recording its seventh consecutive monthly rise in August, suggesting that investors are confident about the Federal Reserve keeping interest rates low. This performance came despite a lower-than-expected August jobs report.

Data released in September also showed the consumer price index was higher in August than at the same time in 2020. However, this did not stop retail sales rising last month, as US consumers shopped more online but bought fewer cars, due to shortages and higher prices.

European central bank to slow stimulus

In early September the European Central Bank (ECB) announced it had decided to slow the pace of its €1.85 trillion pandemic bond-buying programme. Germany suffered supply chain bottlenecks, causing the lowest level in factory output in six months. The region’s annual rate of inflation rose to 3% in August, with Germany’s rate at 3.9% – its highest since the early 1990s. The ECB believes the pressure on prices due to the reopening of economies will ease as we move into 2022.

China central bank bailout

Financial markets were rocked by the news of a $13.9 billion injection from China’s central bank into its financial system during September, around fears about the heavily indebted property giant Evergrande. Yet China’s exports and imports performed well due to strong overseas demand. This helped calm internal concerns about a slowdown in industrial growth (and the drop in retail sales in August) in light of recent issues, such as the government’s clampdown on tech companies and declaring cryptocurrencies illegal.

South Korea’s central bank raised the country’s benchmark interest rate to 0.75%, marking the first increase in almost three years. South Korea is experiencing a rise in consumer spending and debt, along with fast-paced economic expansion.

The news that Japan’s prime minister Yoshihide Suga will not seek re-election – after just one year in office – did not deter the Japanese stock market. Investors rallied the Tokyo stock price index to a 30-year high in the belief that a new prime minister could bring increased stimulus to the economy.

The financial – and human – cost of climate change

With climate-affected disasters happening with such frequency around the world, it came as no surprise to learn that weather-related events have caused $3.64 trillion of damage since 1970, according to the World Meteorological Organisation, resulting in more than 2 million deaths.

Key takeaways

  • The UK’s economic rebound has slowed in recent weeks and attention has now turned to the effects of Brexit on the economy and trade.

  • Wall Street stock indices performed well following news that the S&P 500 recorded its seventh consecutive monthly rise in August.

  • China’s exports and imports performed well in August, due to strong overseas demand.


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