Weekly Market Insight

Weekly Market Insight – 22nd November

22nd November 2021

Powell or Brainard – could a new Fed chair give markets a short term bounce? Irish foresters call for the introduction of an Irish carbon code as a way of incentivising planting and international demand for Irish real estate continues to grow despite temporary resumption of working from home advice.

Economy

Higher than expected inflation remained a dominant theme across the global economy last week as UK
consumer and producer price inflation for October both came in higher than expectations with consumer
inflation of 4.2% representing the highest since 2011 and heaping further pressure on the Bank of England to
increase interest rates. Thus far though rising inflation in many economies hasn’t weighed too much on
consumer sentiment – our chart of the week shows the increase in UK inflation this year alongside consumer
sentiment. From an economic and markets perspective investors will hope that this relationship continues to
hold and that consumer spending worldwide can remain resilient in 2022 in the face of higher prices.


The negative economic impact of rising COVID case numbers is another theme on investors’ minds at present,
one which hit home here in Ireland as the government reimposed some restrictions last week to curb the
virus’ spread. Overall we are hopeful that the high rate of COVID vaccination in Ireland will spare the Irish
economy from a similar blanket lockdown to the one that applied in the first half of 2021 and that the
domestic economy can continue to perform strongly into 2022. However, over the winter months it is
certainly possible that temporary restrictions could dampen activity in the domestic side of the economy in
particular.


Turning to the US monetary policy outlook, this week is also an important one insofar as President Biden will
make a decision about the next Chair of the US Federal Reserve. The choices are between current incumbent
Jay Powell and Lael Brainard, a very experienced and well thought of economist who herself has been a
Federal Reserve Governor since 2014. Normally we would expect Powell to be a heavy favourite to be reelected given how he has guided the US economy through the COVID crisis. However, the recent trading
scandal at the US Fed is a serious blot on his copybook. Were Brainard to be elected markets may react
positively in the short term as at the margin she may be viewed by investors as a central bank ‘dove’ or one
who normally promotes economic policies that usually involve low interest rates.

Equities

Equities managed to eke out some gains last week despite continuing nervousness about the impact of rising
COVID cases on economies and inflation rates which remain troublesome. The better performances came
from developed economy markets, particularly those with significant exposures to technology. In the
emerging markets however it was a different story. Equity markets here were more jittery for a couple of
reasons. The collapse in the Turkish lira last week to an all time low versus the US dollar hurt sentiment
towards developing markets while the recent strengthening of the US dollar on foreign exchange markets is
also reigniting some uncertainties around emerging markets given how exposed they are to US dollar
denominated debt.

Bonds

Commodities

Commodities were weaker last week mainly on the back of lower oil prices. Over the past few weeks oil’s rally has
slowed due to weaker oil demand concerns which have accompanied high prices and a broader slowdown emerging
economies. Furthermore, the combination of rising COVID cases in developed economies last week together with talk
of the US and China tapping their strategic supplies of oil, pushed prices modestly lower. Industrial metals also
softened as, with oil, they will take their cue from the temperature of the world economy which has cooled of late.

Sector News:

Commercial Real Estate – Demand rises for Dublin real estate even as temporary working from home resumes

Last week Yew Grove REIT announced plans to sell its portfolio to Canadian property group Slate Office REIT for €128m, highlighting how the Dublin real estate sector remains popular among international investors who have been responsible for four of the top five office transactions in the first three quarters of the year. The return of large-scale international investment can also be seen in this year’s expected investment volumes of €4.5bn, a marked improvement on the €3bn in 2020. With demand for office space growing by 5% between September and October and the vacancy rate easing from 10.6% to 10.5% conditions are improving in the Dublin market. The growing demand for office real estate in particular also indicates that the market can overcome any temporary resumptions of working from home practices as were announced by the government last week.

Hospitality – Tourism promotion activity bubbling up as 2022 nears

Tourism Ireland attended the Travel News Market in Sweden last week to negotiate and exchange vital contracts for 2022, providing a valuable opportunity to promote Ireland to large Swedish tour operators and travel agents. The €320,000 Nordic campaign launched in September will run until the end of this month with the hope of encouraging Swedish tourists to push the ‘Green Button’ and drive bookings for short city breaks and holidays. Last week Der Touristik, a major German tour operator also announced it would host its annual travel academy in Killarney, with over 200 German travel agents and travel journalists expected to attend. The event is always held in leading tourist destinations and will provide a significant boost to the local hospitality sector. Following the announcements, the Minster for Tourism, Culture, Arts, Gaeltacht, Sport and Media, Catherine Martin TD said she was “very positive’ about next year’s outlook and that the continued resolve and adaptability of the sector would be crucial as it continues to recover.

Forestry – Calls for the introduction of an Irish Forest Carbon Code intensify

The Society of Irish Foresters (SIF) last week released the findings of a preliminary report on the climate action plan 2021 underlining the need for the establishment of a Forest Carbon Code (FCC) to incentivize farmers to afforest their lands, planting enough new forestry to meet the goal of net zero by 2050. The SIF highlights in its report that the climate action plan 2021 fails to mention a planting target to reach net zero goals and indicates that a new innovative approach is needed like that of the woodland carbon code in the UK. By adopting this approach, it believes farmers can benefit from the carbon sequestered from their forests, thereby incentivizing farmers and landowners to afforest areas and plant between 10,000 and 15,000 hectares per annum.

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