International Communique No. 312 – 26th October 2021


Financial markets appear to have factored in a rise in interest rates at some point as central banks’ shy away from loose monetary policies. These policies have buoyed stock markets in recent years but there is scant reason for alarm. The major equity benchmarks ended last week in positive territory.

Despite the recent recalibration of bond yields, monetary policies will likely remain accommodating in historical terms for a long time yet. The Bank of England is expected to move quickly. It has already mooted not only the possibility of tapering its QE (quantitative easing) but also of upping its base rate in view of the inflation situation and the recent gas crisis. The world is experiencing shortages of just about everything, from oil to copper to semiconductors, stoking concern about high, persistent inflation. But since supply chains are not a monetary issue, central banks cannot shorten waiting lines for containers. The Fed, which also aims for full employment in the US, will probably take longer to nudge up the cost of money.

Activity in America’s services sector has picked up over the past three months. During the same period, growth in manufacturing slowed thanks to nagging shortages of goods and labour that have increased inflationary pressure even more throughout the economy. The PMI services index rose to 58.2 points from 54.9 a month earlier while the manufacturing PMI fell to a seven-month low of 59.2 (from 60.7 previously). In the euro zone the same two indicators both marked a noticeable slowdown, with the composite index dipping to 54.3 points, a six-month low.

The company reporting season continues, bringing generally pleasant surprises that offer reassurance. Even so, delivery bottlenecks and staffing gaps are still being highlighted.

Unlike the rather gloomy weather across Asia in the third quarter, in the end it was Asian economies that provided the major impetus of performance in the luxury sector, together with the US where store re-openings boosted consumption. LVMH reported revenue of USD 15.5 billion in Q3, with organic growth up 11% over the same period in 2019 (before the pandemic). The group’s figures for the first time included the integration of Tiffany’s, whose sales recovered to their 2019 level. Hermès likewise recorded exceptional Q3 growth, up 40% from the same period two years ago, prior to the Covid crisis. Business activity was bolstered by the recovery in European sales, a pickup in America and continuing buoyancy in Asia. Both Tiffany’s and Hermès are confident regarding the current quarter, thanks to the gradually improving Covid situation and the comeback in consumption.

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