César Pérez Ruiz, Chief Investment Officer Pictet Wealth Management.

Central banks continue to steal the limelight for markets. On Thursday, the Federal Reserve announced its plans to reduce its quantitative-easing purchases by USD15 bn per month, as expected. Strong US jobs growth in October underscored this move as Fed chairman Powell waxed nonchalant over supply- side constraints. At the same time, the US central bank delivered a rather dovish message. For its part, the Bank of England surprised markets by keeping interest rates steady, as opposed to raising them as anticipated (although a rate hike could be on the agenda in December). Sterling moved lower as a result and interest rates across all regions declined. The combination of lower rates and a strong third-quarter earnings season produced strong performances for developed-market (DM) equities. Emerging-market (EM) equities continue to lag because of ongoing hardship for Chinese property developers and the struggling Brazilian economy. We prefer DM to EM equities.

In US politics, the Republican party secured a victory in the state of Virginia’s governor election, exposing the Biden administration’s weakness among voters. However, good news for the president came late Friday night, when his USD1.2 trn infrastructure spending plan was passed in the House of Representatives. Biden’s “human infrastructure” package will have to wait until mid-November, but Friday’s approval was a step forward for the president all the same. Meanwhile, US labour costs look set to remain elevated even as the recent decline in production has hurt productivity numbers. While we expect a part of this productivity decline to reverse, the coming months will be crucial to determine whether companies can compensate higher wages with productivity gains.

Crude oil prices remain elevated following the OPEC+ decision to keep production stable, despite demands for accelerated supply increases coming even from the White House directly. We remain positive on real assets. The inherent conflict of keeping energy prices low while world leaders grapple with how to resolve the climate crisis highlights the challenges around making real progress at COP26. As regards another type of crisis, news that Pfizer ’s Covid antiviral drug reduces the risk of hospitalisation or death by 89% could finally transform the pandemic into an endemic. This reinforced markets’ confidence in the US employment outlook, driving US bond yields lower.