The Cambridge Weekly – 26th April 2021

‘Risk on’ pauses while the real world keeps accelerating

Equity markets finally paused in their upward trend last week, with the most speculative assets like Bitcoin experiencing their first serious setback since February. It was hard to pin the cause on any one specific development, although falling oil prices got their share of blame. The earnings season was certainly not at fault, with reported sales and earnings growth in the US outstripping already optimistic expectations, while bond market action likewise continued its newfound supportive stance that we wrote about last week.

More likely it was a more general dampening of investor sentiment in the face of increasingly cautionary reports from investment bank analysts about overheating markets, alongside a powerful resurgence of COVID in India. Plus, there were headlines on tax hikes for investors, as well as mounting levels of government intervention in the free market economy to slow the climate crisis, and even an abortive football ‘coup’ of sorts. We cover the intervention aspect in a separate article this week and discuss the news on investor taxation here.

Has COVID reduced government intervention thresholds?

Last week saw an astounding few days in the sporting world, and if you don’t want to see the scores, look away now. After a renegade bunch of Europe’s biggest football clubs announced plans to break away to build their own league, only for the whole enterprise to fall apart as quickly as it appeared – after an alliance of fans, football authorities, media outlets and even the UK government expressed their disdain. One-nil to the fans, or so the media narrative goes.

The epic fail of the football fat-cats is perhaps a romanticised view of things. Events may have gone differently had the club owners offered a slice of the promised profits to the big sports media outlets and organisations. But whatever the case, two parts of the story stick out. First, it was incredible to see so many disparate groups – fans and political parties of all stripes, together with sports professionals and major media executives – agree so strongly. Second, and perhaps more astounding, was the speed and force of the British government’s response, effectively pledging to use legal and legislative tools to prevent anything like this happening again.

Housing market: still hot property

Markets and the public are eagerly anticipating the economic recovery, when last year’s lockdown bust will make way for the post-pandemic boom in growth. A combination of incredibly supportive monetary and fiscal policy, together with a rapid vaccination programme in the UK and US (and now belatedly picking up steam in Europe), has led to widespread expectations of growth in activity and price inflation. We are
beginning to see signs of this coming through in actual data, but one area where the boom already seems in full swing is the housing market. House prices have been surprisingly well-supported throughout the crisis, with ultra-low interest rates and favourable policies (in the UK, namely the government’s stamp duty suspension) providing the backdrop for strength. Meanwhile, emergency fiscal spending has bridged the funding gap for households and supported incomes at decent levels – despite the deepest recession on record.

Read the full commentary here