In the first week at COP26 in Glasgow: an alliance of more than 90 nations, representing two-thirds of the global economy, agreed to reduce methane emissions by at least 30% from current levels by 2030; more than 100 world leaders, including Brazil, agreed to reverse deforestation by 2030; India, currently a major polluter, intends to generate half its electricity from renewables by 2030 and achieve net zero emission status by 2070; 20 governments promised to stop financing oil, coal and gas projects beyond their borders; and several countries pledged to phase out coal power, although this did not include Australia, India, the US and China.
Global bonds rallied sharply after the Bank of England held interest rates at record lows, surprising investors who had spent recent weeks positioning for a shift towards tighter monetary policy from big central banks.
Global stocks rallied as data indicated that the US economy was picking up steam once again and on news that Pfizer’s oral antiviral drug for COVID-19 cut the risk of hospitalisation or death by 89%. The latter boosted stocks most affected by the pandemic, including cruise operators, airlines and travel firms.
The FTSE 100 gained 0.9% over the week.
The final reading of the IHS/Markit composite purchasing managers’ index hit a three-month high of 57.8 in October, up sharply from the 54.9 recorded in September and above the earlier “flash” reading of 56.8 . Services sector activity rose to 59.1, the highest reading since July, but manufacturing lagged thanks to supply chain disruption and severe shortages of materials.
The UK government was forced to do a U-turn when it tried to change the rules to avoid Owen Patterson being barred from parliament for 30 days when the standards committee found him guilty of “egregious” lobbying. Mr Patterson later resigned, meaning the government now faces three bi-elections.
The S&P 500 rallied 2.2% over the week, hitting fresh highs and its best weekly performance since June.
As widely expected, the Federal Reserve confirmed plans to start trimming its $120bn asset-purchase programme. Purchases will be reduced by $15bn each month, putting it on track to finish all bond-buying stimulus completely by the middle of next year. Fed chair Jay Powell insisted that it is still far too early to think about raising US interest rates despite widespread inflation, saying “it’s appropriate to be patient”.
Non-farm payrolls rose 531,000 in October, while the figure for September was revised up to 312,000. The data ends two straight months of disappointing gains as Covid-related concerns that have kept workers on the sidelines eased.
The unemployment rate fell to 4.6% in October, down from 4.8% in September and well below June’s level of 5.9%.
Average hourly earnings rose 0.4% over the month of October, taking the rose on an annual basis to 4.9%.
The FTSEurofirst 300 rose 1.6% over the week.
So far, third-quarter earnings for European companies have beaten estimates, with large businesses managing to pass higher costs onto customers.
Eurozone retail sales registered a surprise 0.3% decline in September, following an upwardly revised 1.0% growth in August.
The Nikkei 225 jumped 2.5% over the week.
Pacific Basin ex Japan
Australia’s central bank officially abandoned its policy on keeping the three-year bond yield at 0.1%.
The stress in China’s real estate sector continued with property developer Kaisa Group saying it had missed an interest payment.
Poland’s central bank hiked interest rates for the second time in two months. The 75 basis point increase was larger than expected and lifted rates to 1.25%. Year-on-year inflation in the country reached a 20-year high of 6.8% in October.
The Czech National Bank raised its benchmark two-week repo rate by 125 basis points to 2.75%, exceeding market expectations of a 50 basis points increase.
Bonds rallied after the Bank of England decided to leave UK interest rates unchanged. 10-year UK Gilt yields sank to 0.76%, having traded at almost 1.1% prior to the BoE’s decision, while yields on two-year Gilts fell 32 bps to 0.41% as investors reined in their expectations for a steep rise in interest rates over the coming year.
10-year US Treasury bond yields fell 9 basis points over the week to 1.46%, while 10-year German Bund yields dropped 17 bps to -0.28% and German two-year yields sank to a six week-low of -0.73%.
Please email us if you would like to receive our weekly newsletter direct to your inbox.