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D-PIMS Weekly Market Update - Week of 27th September to 3rd October 2021

Today’s Monday Update:

Over the course of the last week, headlines were mostly economy and Covid related:

• On Monday, widening power shortages in China halted production at numerous factories including many supplying Apple and Tesla, while some shops in the northeast operated by candlelight and malls shut earlier as the economic toll of the squeeze mounted.

Germany's Social Democrats started the process of trying to form a government after they narrowly won their first national election on Sunday since 2005, to end 16 years of conservative-led rule under Angela Merkel.

The Bank of Japan would continue to focus on cushioning the economic blow from the coronavirus pandemic, given lingering uncertainty over the outlook and subdued inflation, Governor Haruhiko Kuroda said on Monday. Sluggish domestic demand and companies' reluctance to pass on higher raw material costs to consumers will likely keep any rebound in inflation moderate, Kuroda said.

Kwasi Kwarteng, the business secretary, suspended competition laws to allow fuel suppliers to co-operate and ensure that petrol stations running empty were restocked. The move comes after Boris Johnson announced that 5,000 foreign lorry drivers would be allowed into the country in an attempt to ease the delays in supplying filling stations.

The U.S. economy will soon meet the Federal Reserve’s bar for beginning to reduce its bond purchase program, Chicago Fed President Charles Evans said on Monday, but it will be late 2023 before an interest rate hike is warranted.

• Central bank digital currencies (CBDCs) can slash the time needed for cross border payments to seconds from days and cut costs, the Bank of International Settlements (BIS) said, citing a pilot scheme to test the digital forms of fiat currencies. The trial showed cross border transactions could be made in a few seconds, instead of three to five days, as CBDCs help skirt complicated arrangements under which payments are passed via a network of banks, the BIS said in a report on Tuesday.

Nasdaq futures fell more than 1% on Tuesday as technology heavyweights came under pressure from a surge in bond yields, which have been lifted by expectations of higher interest rates following recent comments from the Federal Reserve. The two-year U.S. Treasury yield surged to 18-month highs, weighing on shares of high-growth companies whose values rest heavily on future earnings.

Europe needs to stop being naive when it comes to defending its interests and build its own military capacity, French President Emmanuel Macron said on Tuesday after Greece sealed a deal for French frigates worth about 3 billion euros. France was plunged into an unprecedented diplomatic crisis with the United States, Australia and Britain earlier this month over a trilateral nuclear security deal which sank a multi-billion dollar French-designed submarine contract with Canberra.

The UK has administered more than 48 million first doses of coronavirus vaccine, so far. But attention is increasingly falling on those who haven't had it. Speculation has centred on which dancers on Strictly Come Dancing have so far not taken up the offer, as well as how many Premier League footballers are potentially unvaccinated. Exactly how many are yet to receive a Covid jab is unknown, but it's estimated it is more than five million people aged 16 and over in the UK. Multiple studies show coronavirus vaccines are highly effective at preventing serious illness and side-effects are rare. Immunologists say even if you have been infected naturally, vaccination will boost your immunity further.

Life expectancy for men in the UK has fallen for the first time in 40 years, according to Office for National Statistics (ONS) estimates. Life expectancy at birth in the three years to 2020 was 79 years for men, falling back to a level last seen in 2012-14. Normally, life expectancy in the UK and around the world increases over time - and falls are rare. But the Covid-19 pandemic saw life expectancy fall across most of Europe and the USA in 2020, on a scale not seen since the World War Two, according to research from Oxford University.

• On Wednesday, a looming U.S. government shutdown is adding to markets’ unease, coming as it does amid a hawkish shift by major central banks and signs of strain in China from a power crunch and the problems at property developer Evergrande. For a second day in a row, U.S. Senate Republicans blocked a bid by President Joe Biden’s Democrats to head off a potentially crippling U.S. credit default. With federal government funding expiring on Thursday and borrowing authority running out around 18th October.

German import prices rose the fastest in 40 years last month, driven by a jump in the price of oil and gas, and supply chain bottlenecks for raw materials worsened further, pointing to a further rise in prices for consumers. Import prices jumped 16.5% in August from a year earlier, the Federal Statistics Office said on Wednesday.

• On Thursday, there were reports that one of the world's former most powerful oil traders and former Glencore executive Alex Beard, is now raising money to build a portfolio of strategic battery sites across the United Kingdom to support the renewable energy industry. In his first interview since leaving the commodities giant in 2019, billionaire Beard said his Adaptogen Capital investment fund planned to build storage with a capacity of at least 500 megawatts (MW) to power homes when grid supplies fall short. "The current crisis gives you a taste of what we will be experiencing more and more often," said Beard, "Batteries provide you with stability when the grid becomes unstable and are key enabling assets in the energy transition."

Fashion brands like Benetton are increasingly turning away from globe-spanning supply chains and low-cost manufacturing hubs in Asia, in a shift that could prove a lasting legacy of the COVID-19 pandemic. Italy's Benetton is bringing production closer to home, boosting manufacturing in Serbia, Croatia, Turkey, Tunisia and Egypt, with the aim of halving production in Asia from the end of 2022, Chief Executive Massimo Renon told Reuters.

Pfizer and Merck, as well as partners Atea Pharmaceuticals and Roche have all said they could seek emergency approval for their COVID-19 antiviral pills this year. Laboratory studies show that Merck & Co's experimental oral COVID-19 antiviral drug, Molnupiravir, is likely to be effective against known variants of the coronavirus, including the dominant, highly transmissible Delta. Since Molnupiravir does not target the spike protein of the virus - the target of all current COVID-19 vaccines - which defines the differences between the variants, the drug should be equally effective as the virus continues to evolve, said Jay Grobler, head of infectious disease and vaccines at Merck. Molnupiravir instead targets the viral polymerase, an enzyme needed for the virus to make copies of itself. It is designed to work by introducing errors into the genetic code of the virus.

• The new North Sea Link power cable linking Norway and Britain began commercial operations on Friday, Britain’s National Grid said, improving the UK's energy security as it grapples with soaring energy costs. British power prices have hit record highs amid skyrocketing global natural gas prices, outages at some nuclear plants and lower than usual wind power output. read more The £1.4 billion North Sea Link cable will be able to channel up to 1.4 gigawatts of electricity between the two countries when it reaches full capacity in around three months time, enough to power around 1.4 million homes.

• Over the week, the main Global Stockmarkets were down, except Hong Kong and China. Unavoidably, all the D-PIMS Portfolios were down especially the higher risk portfolios. They were helped by their diverse allocations.

 

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The comments made above represent our interpretation of events and market views and are in no way a guarantee of future investment performance.

 

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