September was dominated by concerns in which the Fed prominently figured. While it had previously stated that inflation would only be transitory, the latest pronouncements by Fed Chairman Jerome Powell are suggesting that the central bank may be forced to start reducing its purchases of government securities again this year. The markets are now expecting the central bank to start tapering in November. Problems in the supply chain have persisted for months, with little sign of improvement. The effects of the Chinese port closures due to Covid-19 cases in August are also being felt. Another key element, despite the fight against global warming, is the price of energy, the price of fossil fuels, with Brent crude oil, for example, approaching USD 80 per barrel. Inflationary pressure is all the more worrying as the larger than expected rise in unemployment claims indicates that the economy has lost momentum compared to the second quarter of the year, which annualised growth was revised upwards (+10 basis points to 6.7%). A period of 14 consecutive months of job creation has come to an end. The level of annualised growth is expected to have fallen to 5.5% between July and September.
Political standoffs in the US
On the political side, the federal government was once again on the verge of a shutdown. Without accounting for the fact that the Biden administration’s programs to develop infrastructure, social services and combat climate have not yet been approved by both houses. The first, less ambitious package is under threat from Democrats who are only willing to accept it if the second package is also adopted. Confidence according to the purchasing managers’ indices (PMI) is deteriorating. For the
manufacturing part, however, it remains largely in the growth zone, with 60.5 points. The services index, on the other hand, fell to its lowest level since July 2020, at 54.4 points. Consumer demand is also showing signs of weakness.
In addition to all these factors, which are hardly reassuring, there are fears of a possible
bankruptcy of the heavily indebted Chinese property group Evergrande. It does not seem certain that this group will end up being saved by the State. Analyses have established that the consequences of a bankruptcy of Evergrande are hardly comparable to Lehman Brothers’ in September 2008. However, these findings are yet to reassure investors.
ECB is not changing its policy (yet)
These fears have also affected Europe. The mood on the Old Continent, however, appears to be a little more serene. First of all, the ECB, unlike the Fed, has not signalled any significant change in policy. Annualised inflation was 3.4% in September, 40 basis points higher than the previous month, driven by energy prices. In Europe, higher gas prices are also fueling higher electricity prices.
This rate of inflation, the highest for 13 years, is obviously also above the ECB’s average target of 2%. However, the central bank maintains that this period will be transitional. According to a Credit Suisse note, a rise in inflation could even boost European industrial companies, which have a more favorable profile than software developers.
For the second quarter, GDP growth has been revised upwards to 2.2%, thanks in particular to stronger than expected consumption. A slowdown does not seem to be expected in the forecasts for the rest of the year, unless supply problems weigh too heavily on production. The manufacturing PMI stands at 58.6 points. This is a significant drop from June, but still high by five-year standards. Services present a similar picture, at 56.3 points. Growth in export demand was judged to be rather disappointing. In Europe, on the other hand, the recovery in demand is continuing.
