Market Update

Most markets wrapped up the week on a positive note, despite intermittent volatility driven mainly by short-term factors.
The week kicked off with attention on the US, specifically centered around President Biden's economic directives. However, the two-day policy meeting of the European Central Bank (ECB) that began on Wednesday emerged as the week's primary market catalyst. While policies remained mostly steady, the anticipated end of the PEPP (pandemic emergency purchase program) by March 2022 was the notable shift. The spotlight then turned to ECB President Christine Lagarde's statements. Despite her avoidance of speculating on premature market expectations of interest rate hikes, the market perceived her stance as hawkish, leading to a bond rally and some stock market jitters. Nonetheless, our interpretation hinges more on her explicit statements than her omissions. Lagarde emphasized their conviction that supply chain issues would wane, leading to inflation gravitating toward or even below the 2% target in 2022. Her emphasis on markets misreading the ECB's signals and her commitment to reiterate their stance underscores our perspective on inflation being transitory, presenting significant opportunities amidst market ambiguities.
Validating our stance on fleeting inflation, the current surge in gas supply prices has shown signs of easing. President Vladimir Putin of Russia directed Gazprom, the largely state-controlled energy company, to restock its European gas storage facilities. This decision has begun to bring down gas prices in Europe, promising positive implications for markets as 2022 approaches.
Over in the US, President Biden outlined the blueprint of his revised economic plan to congressional Democrats. Although scaled down to $1.75 trillion from the original $3.5 trillion proposal, it garnered general Democrat support. While final deliberations might take weeks, this potential economic bolster is set to mitigate existing fiscal and monetary uncertainties in the US.
On the UK front, UK Chancellor Rishi Sunak's autumn budget was a noteworthy event. Yet, besides assorted tax changes and duty cuts, global stock markets remained largely unfazed.
In other developments, the Bank of Japan maintained its interest rate at -0.1% during its monthly policy meeting and revised down its growth and inflation outlooks, attributing the changes to supply chain challenges. The US earnings season saw Apple and Amazon reporting Q3 results that fell below expectations. Considering supply chain disruptions and an elevated baseline from last year's lockdown-triggered online sales surge, these figures could be seen in a skewed light.
Looking forward, next week's focal points will be policy meetings from the Bank of England and the US Federal Reserve.