The market was due a correction, and while there is a strong case in favour of big tech, the momentum trades are always the biggest casualties. Whether it was the Nasdaq ‘whale’ (Softbank) or a frenzy of smaller investors that drove equity prices higher over the summer, the risks were self-evident.
The only sustainable route to full employment lies in a resolution of Covid-19, not asset inflation. There is only so much the Fed can do. Safe science will be critical: Trump is in danger of squandering the benefits of a vaccine, by compromising the integrity of the Food and Drug Administration (FDA).
The California, Oregon and Washington wildfires will intensify the trend towards ESG investing. Antarctica and Greenland are losing ice “six times faster than expected”, matching the worst case scenario for climate change. Nevertheless, some of the biggest ESG trades suffered heavily during last week’s sell-off. Tesla was down a further 10.9%.
The Fed will be under the spotlight next week as it convenes for its regular policy update. There are some signs of core inflation returning to levels recorded prior to the pandemic. The core CPI was up again in August, with a notable rise for ex-food, energy & shelter (+0.57% m/m). Components of the CPI where demand has been strong, have seen a rise in inflation. Important examples include cable & satellite television & radio services (up 5.20% y/y), television services (up 4.99% y/y) and postage & delivery (up 4.01% y/y).
Summary
• California fires underpins the case for ESG
• The Fed will stay in reflation mode
• But core inflation rises
To download a pdf of the full report click here
