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6th September 2021
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The Cambridge Weekly
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The Cambridge Weekly – 6th September 2021
Politics and policy sit at the head of the table
Last week felt a bit like the whole month of August. Equity markets (North America and Europe) were in
the green, and then last Friday expressed their disappointment over the weak US jobs report. Market
participants discovered yet again their taste for cash-rich mega-caps in the US, especially after the previous
week’s Jackson Hole symposium. US Federal Reserve (Fed) Chair Jerome Powell made clear that tapering
would happen in the foreseeable future, but was not hawkish in terms of timetable or pace. As we explained
last week, much more depends on how the Fed chooses to scale back its security purchases, and less on
the precise start date. Last Friday’s US jobs report revealed the US economy created just 235,000 jobs in
August, a steep decline on the 1.1 million created in July, and short of economist expectations by over half
a million. The numbers appear to confirm that the US economy is still in a repair phase, which speaks in
favour of a softer stimulus withdrawal. And, while Fed liquidity is important, the focus will firmly remain on
fiscal support packages going forward.
August market review: plenty for markets to think about
And just like that, the much-awaited summer is over. In the UK, as in the rest of the developed world, the
mood was a little mixed. While the lifting of restrictions and rapid vaccination programmes seemed to give
the public a much-needed boost, the equally rapid spread of the Delta variant caused great concern, and
dampened the optimism built up in the spring. The Great British sunshine was notably milder in August
than in July, a trend reflected in capital markets. Global equities climbed for a seventh consecutive month,
with the MSCI World index posting a 3.6% gain in sterling terms. But this was partly down to currency
effects, after sterling dropped in value against its major peers. In US dollar terms, global equities climbed a
more modest 2.5%, showing steady if unspectacular returns.
Germany’s Dax goes for growth
The German stock market is getting a much-needed makeover. From mid-September, Germany’s
benchmark equity index – the Dax – will expanded from 30 constituents to 40. The old guard will be
joined by the next ten largest German companies by market capitalisation, but only if those businesses
meet the index’s new profitability requirement. To get into Germany’s elite club, new companies will need
to have two years of positive earnings before tax and other deductibles. It should be a big boost for the
new boys (if only on the branding side), though none have been officially confirmed yet. The list is likely to
include established names like Airbus and Porsche, as well as newer firms such as Hello Fresh and Zalando.
