Economy hits an air pocket
October has carried on where September left off, with quite a bit of daily up and down for markets, but
with a slight downwards trend. We deliver our end-of-month review of September in this week’s second
article. For UK readers, the lack of positive vibe in stock markets is probably unsurprising, with petrol last
week only slowly returning to being a commodity – rather than a scarcity – but with many staple goods
still not as readily available as consumers expect them to be.
September market review: Autumn chill for the economy
September brought the summer joy in markets to an abrupt end. Investors were nervous about China’s
largest property developer Evergrande defaulting on its debt triggering a Chinese financial crisis (Which it
did not). Added to this were worse-than-expected macroeconomic data and rising inflation leading to fears
of higher interest rates. US and UK government bond yields increased as central bankers reasserted their
commitment to reducing emergency monetary support measures but also pricing in rising inflation, as
supply bottlenecks appearing longer lasting than had been anticipated.
Trust in UK plc appears to be in short supply
Panic at petrol pumps and pig populations culled – it has been another painful week for Britons. Supply
shortages have been a feature of the world’s post-pandemic recovery, but rarely have such issues been as
acutely felt as in the UK right now. There are a few explanations for this. Brexit effects have teamed up
with pandemic shocks to squeeze the UK labour market particularly hard – mainly in areas with previously
high proportions of migrant workers. Problems have been compounded by what seems to be a peculiarly
British present-day penchant for panic-buying. Economists have speculated that this bandwagon effect might
itself be a consequence of people’s perception of the crisis, and confidence in the government’s ability to
manage it (or rather lack thereof). In any case, this perfect storm leaves the nation with more acute supply
crunches than elsewhere, and sharp demand spikes to match them.
Italy may have the leader to achieve its growth ambitions
Since the global financial crisis, there have been numerous political efforts to revive the sleeping beauty
Italy. The (once) strong industrial base in the North and wider economy needs oxygen, but has long been
held back by an enormous administrative apparatus, regulation, fractured banking system, and (some may
say) many years of austerity. After almost decades of hopes rising and fading, an international heavyweight
took on the task: Mr “Whatever it takes” himself, former European Central Bank (ECB) President Mario
Draghi.