October 18, 2021

Financial Markets

  • Equity prices moved higher most of the quarter with major U.S. and international indices hitting new highs propelled by strong earnings reports. Those gains were mostly erased in September on worries about risinginflation, slowing growth rates, China’s regulatory crackdown, and the debt ceiling standoff in the U.S. Congress.
  • Bond yields reversed and rose after the Federal Reserve Open Market Committee (FOMC) said it will slow thepace of asset purchases soon and projected a rate hike in 2022. Markets reacted negatively to this news.
  • Oil prices rose to a three-year high and natural gas prices spiked over 30% on supply disruptions and strongdemand. Prices for some commodities such as lumber retreated but others such as aluminum increased.

Overview of the Economy

  • Manufacturing and service activity continued to rebound globally but shortages are increasingly a problem forbusinesses and consumers pushing up wait times, increasing costs, and hampering growth.
  • Inflation is rising around the world due to supply chain bottlenecks and rising energy prices. Inflation rates in theU.S. and the United Kingdom are well above central bank targets. The producer price index in China hit a 13-yearhigh of 9.5% on a year-over-year basis.

Notable Events

  • Regulatory actions in China rattled markets. Restrictions were put in place on the gaming, education,cryptocurrency, and other sectors as part of the common prosperity initiative. Power outages and rationing ofenergy occurred as a result of carbon emission reduction goals, hurting production and adding to supply chainissues.
  • A summer spike in COVID-19 cases contributed to economic slowing during the quarter but appears to be easing.