Agenda item

(To receive a report by Peter Jones, Independent Advisor, which provides a market commentary on the current state of global investment markets)

Consideration was given to a report by the Committee's Independent Advisor which provided an update on the current state of global investment markets.

The Committee's Independent Advisor informed the Committee that the conclusion of his report which had been written two weeks prior to the meeting, had been "to travel hopefully" in respect of global equities, and since then there had been a growing number of caveats which he wished to explore during his update.  However, the most important event had been the US President's stimulus package of $1.9 trillion, which equated to around 9% of US national output.  About one third of that amount would be issued as cheques in the post to many private individuals in the US in the coming week or so.  This would then be cash in the bank for families and would be spent on goods and services.  This would provide a huge stimulus to the US economy and most commentators believed this would have a worldwide effect.

In terms of the caveats previously mentioned, it was reported that the principal one was the long term interest rates, which had risen sharply this year.  This, plus other factors were increasing fears of inflation.  It was reported that views of economists were split.  It was believed that globally inflation would rise.  However, it was not clear whether it would rise to 2 – 2.5% around the world then fall back or whether it would be a substantial rise over the coming years.

The Advisor had been reminded from a question in a previous set of minutes about speculation in the tech stocks (e.g. Amazon and Google), and at the time he had stated that they had been some of the major beneficiaries from Covid-19 due to the increased numbers of people working from home, shopping online, and their valuations had risen sharply.  However, as Covid-19 was now in decline in the US, and this pattern was likely to follow around the world in the second half of 2021, it was noted that these stocks had fallen sharply between mid-February and mid-March 2021 by 12%. 

The Independent Advisor concluded his update by discussing the role of the global central banks, as they had assisted government support by providing liquidity and lowering interest rates.  It was commented that they would not want to take any action, such as withdrawing that liquidity too soon as it might risk stalling any economic recovery.  If central banks remained unconvinced about the pace of economic recovery, it was thought that the outlook for equities remained positive.  However, if everyone, including the banks, was certain of a robust economic recovery, that would be when concerns arose.  The Federal Reserve had recently announced that interest rates would remain unchanged until 2022 at the earliest.  It was also noted that the Bank of England was meeting that day as well.

It was commented that if there was rising inflation and interest rates also went up, this was likely to result in a lot of people and businesses struggling financially.  The Committee was advised that this was the last thing that central banks and the government wanted, but the question would be how far they would be prepared to let inflation rates rise.  It was noted that the markets were comfortable with inflation and interest rates up to 2%.  It was commented that if inflation went up to 3% (for example) in the US, it was likely that the Federal Reserve would step in and take some action.

RESOLVED

            That the update be noted.