Energy crisis continues

04 October 2021

The noise

  • The Federal Reserve’s massive asset purchase which helped to stabilize markets at the start of the pandemic will soon need to be reduced as the Fed’s goals for maximum employment and inflation has almost been met. This week, the FED hinted that a Taper announcement in November could be in store, with Powell becoming slightly more cautious, adding one more wrinkle into events that investors will need to navigate this fall.

  • The energy crisis spread into this week as three more UK energy companies were pushed out of business by sky-high natural gas prices, bringing the number of customers who have lost their supplier to almost 1.7 million and adding pressure on the government to step in. London, the South East, East Midlands, and North West have been rated “red” for fuel shortages. UK fuel stations are still being depleted faster than usual with an estimated 27% of service stations in the UK having no fuel and 21% have one grade in stock, according to a survey by the Petrol Retailers Association.

  • The UK government is considering lowering the limit at which university graduates need to pay back their student loans. Students in England have reacted with anger to reports that the government is planning to make them start paying back their loans earlier in their careers when salaries are lower, as part of an overhaul of student financing design to save the treasury money. The move would ensure that more students start paying their loans back earlier in their careers, with lower earners being hit hardest. In 2018-2019 prices, this would mean reducing the threshold from £25,000 to £23,000 however the panel would expect that the change would be implemented in 2021/2022.

The numbers

Thenumbers5.JPG


The nuance

A significant sell-off in government bonds across the UK, the US and Germany this week resulted in a rise in yields and a fall in price. The reason for the move is that investors have started to price in the acknowledgement that central banks may need to increase rates sooner than expected considering stubbornly high inflation. At last week’s FOMC meeting, Fed officials indicated that, depending on economic data, tapering could commence in the final quarter of the year and be finished by the middle of 2022.

What was perhaps a temporary effect on used car prices rising has broadened out into a supply-side shock with energy prices being the most watched and bottlenecks in the manufacturing sector persisting.

Equity volatility has picked up which has led to sell-offs in the past week with broad based weakness across indices. Global equities seemed to have regained their poise, shrugging off concerns over the Evergrande Saga.

As active managers, we continue to review our positions and have taken profits in some companies which have done well recently against the backdrop of increased risk aversion in markets. We continue to monitor winners from global growth and in the coming weeks, we will be following corporate earnings releases.


Quote of the week

“Goxx-Capital - Crypto-trading hamster Mr Goxx has outperformed the S&P 500 since June“.

He's notable for two reasons: first, he is making money, with his lifetime career performance up about 20% - beating many professional traders and funds. Second, Mr Goxx is a hamster. The business-minded rodent has a trading office attached to his regular cage. Every day, when he enters the office, a livestream starts on Twitch, and his twitter account lets followers know Mr Goxx has started a trading session. By running in his "intention wheel", he selects which cryptocurrency he'd like to trade, as the wheel spins through the different options. His office floor has two tunnels nearby: one for buy, one for sell. Every time he runs through a tunnel, the electronics wired to his office complete a trade according to Mr Goxx's desires. Widening divergence between producer costs and consumer prices. "We have many features in mind that would make the whole thing much more fun to watch and would mean even more space for Mr Goxx to play around in," they said. But Mr Goxx, like a true successful executive, keeps his own hours. The portal between his regular cage remains open except when he needs to stay put for cleaning, so he can clock off at any time.

Source: BBC News


Phil Smeaton
Chief Investment Officer

All investment views are presented for information purposes only and are not a personal recommendation to buy or sell. Past performance is not a reliable indicator of future returns, investing involves risk and the value of investments and the income from them, may fall as well as rise and are not guranteed. Investors may not get back the original amount invested.

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