September 2021 Mid Monthly Update


The US and UK inflation reports have just been released.  US inflation in August was less elevated than anticipated.  Does that mean that US inflation’s recent spike is indeed transitory? 

Inflation Watch 

The US and UK inflation reports have just been released.  US inflation in August was less elevated than anticipated as shown below.  Does that mean that US inflation’s recent spike is indeed transitory? 

Source: Bloomberg

Possibly, but as we’ve said previously, it is too early to tell.  Will the stockbuilding cycle and the difficulty in re-building inventory ebb?  Maybe.  Will labour shortages unwind as benefits do the same and wage pressures subside?  Quite possibly.  Will this alter the US Federal Reserve Bank’s timetable for asset purchase reduction (aka Tapering)? Probably not.

Of course, the newswires will be full of these questions and debates and yet most bonds from governments to high yield offer yields below inflation, so these debates do not take too much of our investment thinking time.

Consumers also take a short-term view and look at the prospects for inflation by what they can buy today.  A recent survey released by the New York Federal Reserve showed that US consumers expect inflation to be 5.2% in a year’s time, the tenth consecutive monthly increase in that series.  The following graph of that survey (sourced from Bloomberg) by region shows the greatest inflation expectations reside outside the north-east of the US.  Presumably, they don’t own many bonds in their portfolios!

UK inflation data was released by the Office for National Statistics (ONS) and in contrast to the US, showed a sharp rise in inflation above expectations to 3.2% for the twelve months to August 2021.  The ONS described the rise in the Consumer Prices Index (CPI) as likely to be temporary.  Market expectations would appear to believe that a further rise is likely to 3.4% by year end before any moderation in 2022.  That might depend on developments in UK Employment.

A Perfect Storm

This week’s UK employment data is something of a headscratcher for economists.  A million plus vacancies, shortages in certain sectors which point to training needs, a slight fall in unemployment, but still plenty not being able to find work and over a million still on furlough to the end of the month.  One to watch.

Bad Language

Last week we learned that tapering is effectively a swear word in the corridors of the European Central Bank who will reduce their asset purchases but were keen to point out that it isn’t tapering!


The Japanese stock market has been resurgent over the past few weeks coinciding with the announcement that incumbent Prime Minister, Yoshihide Suga, will step down and not seek re-election as leader of the ruling Liberal Democratic Party at their leadership election on 29 September ahead of a General Election on 17 October.  Suga has metaphorically fallen on his sword for his party’s handling of the pandemic and its decision to go ahead with the Tokyo Olympics.  Nonetheless, and providing little comfort to the exiting PM, the Japanese Nikkei 225 Stock Average has hit its highest level since the heady days of 1990.

While most equity indices have languished month to date, the aforementioned Nikkei 225 is up over 9.5% over the past month.  Japan has some world-leading businesses in robotics, and given the reform agenda set by Suga’s predecessor, Shinzo Abe, has been a more rewarding investor landscape for shareholder returns over the past decade. Many of you or your employees may have used Indeed as an employment tool.  Indeed is owned by Recruit, a Japanese company.

The two Japanese equity funds that feature in the T. Bailey funds have been long-standing and rewarding relationships for the funds’ performance and diversification.

Your Money

It has been a quiet month for transactions.  Steady inflows have resulted in a topping up of some positions to maintain cash levels at 9% on Growth and 10% on Dynamic.  Cash was raised on both funds to those levels at the end of August to reflect how well most asset classes have performed and to reduce general equity market beta.

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