Although Covid-19 cases declined globally in October, there was a resurgence in the UK and Continental Europe which saw increased threats of a new wave in these regions. The ongoing supply chain issues and the effects that it is having on inflationary pressures were largely overshadowed by a broadly positive quarterly earnings season, which has led to new highs in many of the major share markets – we talk about this more in the ‘Markets’ section.
Strong demand paired with supply chain constraints lifted energy prices to new record highs in October. It is worth noting that Russia has pledged to increase natural gas supplies to Europe, with this anticipated to be fulfilled from the second week of November when Russian storage facilities are expected to be filled. Getting a steady supply of gas is a key priority for Europe as we head into the winter months, and will be crucial to avoid further bottlenecks and even higher prices.
Data released in October showed that the UK’s services and manufacturing sectors continue to grow. UK services have slightly increased their pace, remaining at the elevated levels observed in the previous month, which has been supported by the reduction of Covid-19 restrictions. UK manufacturing also grew, albeit at a slower rate than the rapid growth rates seen in previous months due to supply chain issues increasing delivery times. Both of these measures have exceeded expectations. Pent-up consumption is still driving an economic expansion, which was also evident in UK unemployment, which fell to 4.5%, the lowest point so far in 2021.
UK inflation also fell slightly, from 3.2% to 3.1% year on year (yoy) in September, despite the increase in petrol prices and supply chain issues. This was partly caused by base effects, when the UK’s ‘Eat Out to Help Out’ scheme finished at the end of August 2020, which saw restaurant prices this time last year increase. This contributed to the dip in yoy inflation data that we saw last month. US inflation lifted slightly higher from 5.3% to 5.4% yoy for September, while Eurozone inflation increased from 3.0% to 3.4%. This is now the highest inflation level in Europe for almost 30 years, as rising energy prices continue to weigh heavily on inflation data.
October was broadly positive for global share markets. The US topped the list (+6.91%) after a strong start to the quarterly earnings announcements with over 80% of companies beating earnings expectations which drove the S&P 500 to new highs. Europe (+4.55%), the FTSE-100 (+2.13%), Asia ex-Japan (+1.70%), Emerging Markets (+0.93%), and the FTSE-250 (+0.33%) all finished the month in positive territory. However, political uncertainty saw Japan end the month negative (-1.90%).
Japan’s Prime Minister, Fumio Kishida, prompted concerns regarding his economic and tax policies at the beginning of October. However, the market reaction led him to backtrack on his proposed capital gains and dividend tax changes, which was positively received and helped deliver a strong come back in the second half of the month as the Liberal Democrat Party (LDP), maintained its single-party majority.
The gains in assets held in foreign currency are lessened in our Plans due to the Sterling’s appreciation, which we’ll discuss below.
Sterling strengthened against the Japanese yen (+3.82%), the euro (+1.71%) and the US dollar (+1.52%) amid growing expectations that the Bank of England could increase interest rates quicker than previously expected. The improved market sentiment and increasing energy prices weighed on the yen.
Investment type performance breakdown
As discussed in the markets section, shares improved (1.21%) with their performance dampened slightly by the strengthening of sterling against other major currencies. The global property sector increased (2.96%) as Evergrande avoided defaulting by paying the overdue bond payments, providing some calm to the property sector. Bond prices fell (-0.22%) as yields rose from already very low levels due to inflation and concerns around increasing interest rates.
Summary with Plan details
All our investment Plans performed positively in October. Plans with a higher allocation to shares, such as our Ambitious and Adventurous styles, performed particularly well. Plans that hold more bonds, such as our Cautious Investment Style, would have seen the growth in shares and property smoothed by the flat performance of bonds.
Our Investment Team continue to actively monitor the financial markets and their impact on your Plan, and as always, we are ready to act in your best interests to events as they unfold.
*Past performance is not a reliable indicator of future results.
Please remember the value of your investments can go down as well as up, and you could get back less than invested.