The end of September saw the withdrawal of the UK’s furlough scheme and the temporary cut to stamp duty in England, Wales, and Northern Ireland. Both these schemes were designed to keep unemployment low and the housing market buoyant, and their success will be measured in the coming months with how unemployment progresses without this support and where house prices end up stabilising.
The Delta variant continues to be a concern for the global recovery, although new cases declined globally during September, with hospitalisation and death rates remaining low due to the continued vaccination roll-out. The impact of the Covid-19 on supply chains has become a key short-term worry for investors as inputs to goods and services, such as raw materials, shipping, and labour continue to drive costs/inflation up.
Despite supply chain and labour issues, data released in September showed that UK’s services and manufacturing sectors continue to grow strongly, although at a lower rate than the previous month. Unemployment in the UK continued to decline, falling to 4.6% over the course of the month, leaving it still 0.8ppt above pre-covid levels. Job vacancies also surged in the UK to the record amount of over 1 million. The strength and momentum of the jobs market provides confidence that the economy can take on many of those looking to return to work after being on the furlough scheme.
UK Inflation rose from 2.0% to 3.2% year on year (yoy) in August, largely driven by the ongoing supply chain issues, reopening of the economy, and a low base to start with. US inflation remains elevated but slowed slightly from 5.4% to 5.3% yoy in August, while Eurozone inflation increased from 2.2% to 3.0% on the same basis. The Bank of England, the Federal Reserve, and the European Central Bank have all publicly stated their support for the global recovery, emphasizing the goal of getting as close as possible to full employment. In this respect, they have signalled caution in removing support too early which would harm the recovery efforts.
US manufacturing and service sectors have continued to grow, with 235,000 jobs added in August, which drove the US unemployment rate to the lowest post-lockdown figure of 5.2%.
September was a mixed month for global share markets. Japan (+3.65%) was the strongest performing share market, following the resignation of Prime Minister Suga. Having initially had a positive reception to his tenure, Prime Minister Suga’s handling of the Covid-19 pandemic in Japan was deemed a failure and his resignation offered the country a chance to regroup, which was received positively by investors. However, rising inflation and supply chain issues weighed down most markets in September. The FTSE-100 (-0.47%), Europe (-3.41%), Emerging Markets (-4.25%), Asia ex-Japan (-4.31%), FTSE-250 (-4.44%) and US (-4.76%) ended the month in negative territory.
The performance of investments in foreign currencies was boosted in our Plans due to the weakening of sterling against the euro, US dollar, and Japanese yen. We go into more detail on this below.
Sterling weakened against many of the major currencies this month amid renewed pessimism regarding the Delta variant and ongoing supply chain disruptions. This led to a decline in sterling’s valuation, weakening against the US dollar (-2.09%), the Japanese yen (-0.92%), and the euro (-0.11%).
Investment type performance breakdown
As discussed in the markets section, shares generally fell (-1.03%) with their performance improved by the decline in the value of sterling against other major currencies. The global property sector fell (-2.21%) as a looming default crisis at Evergrande, China’s second-largest property developer, sent shock waves through their property market. Bond prices fell (-0.65%) as yields rose from already very low levels due to inflation and concerns around increasing interest rates.
Summary with Plan details
Due to the concerns outlined above, all our investment Plans saw negative performance in September. Plans with a higher allocation to shares, such as our Ambitious and Adventurous styles, exhibited the greater losses. Plans that hold more bonds, such as our Cautious Investment Style, would have seen the fall in shares dampened by the lower fall in bonds.
We understand that this news can be concerning, especially if you haven't been investing for long, but our Investment Team will continue to actively monitor the financial markets and their impact on your Plan. Remember, that when you invest your capital is at risk, as markets can go down as well as up. We always believe in taking a long term approach and are ready to act in your best interest to events and changes in the markets.
*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.