The demand recovery following 2020’s historic pandemic recession has been concentrated in goods and has pushed supply chains to their limits, extending delivery times to records and boosting prices and volatility in growth and inflation. Supply shortages are raising current inflation, while secular forces that alter the balance of supply and demand and sustain high inflation are also in play. Global growth is tilting in a reflationary direction as a result of the interaction among policy preferences, the recurring waves of the pandemic, and underlying structural change. In November we maintained our twelve-month forward forecast of Growth (U.S. GDP greater than 2.5%) through the period but we are closely monitoring the outlook for inflation.

In contrast to growth elsewhere, China’s current policy is focused on deleveraging, de-carbonization, and a reduction in income inequality. Actions to deliver long-term gains come at the expense of weaker near-term growth. Significant overhangs exist in China’s real estate sector and corporate balance sheets. The Chinese economy grew by a seasonally adjusted 0.2% in the three months to September 2021.1 China’s annual inflation rate accelerated sharply to 1.5% in October 2021 from 0.7% a month earlier.2 China’s surveyed urban unemployment stood at 4.9% in October 2021, unchanged from the previous month, which was the lowest level since December 2018.3

The Euro Area economy advanced 2.2% in the three months to September 30 2021, following 2.1% growth in the previous period. The economy continued to recover from the coronavirus hit with Austria (3.3%), France (3%) and Portugal (2.9%) recording the biggest expansions.4 The British economy advanced 1.3% in Q3 2021, lower than 5.5% in Q2.5 Annual inflation in the Euro Area jumped to 4.1% in October from 3.4% in September.6 This was the highest reading since July of 2008, as the bloc battled surging energy costs due to supply shortages. The annual inflation rate in the U.K. edged down to 3.1% in September from a 9-year high of 3.2% in August. The Euro Area seasonally adjusted unemployment rate edged down to 7.4%.7

As expected, the Fed announced that it will reduce the pace of its asset purchases beginning this month. While manufacturing supply constraints and U.S. labor market dislocations can be linked to pandemic dynamics, the slow supply improvement in recent months raises concerns that global slack is less than previously assumed. The American economy expanded by an annualized 2% in Q3 2021, slowing sharply from 6.7% in Q2.8 This is the weakest quarter of pandemic recovery, as government stimulus declined while a surge in COVID-19 cases and global supply constraints weighed on consumption and production. The annual inflation rate in the U.S. surged to 6.2% in October of 2021, the highest since November of 1990. Upward pressure was broad-based, with energy costs recording the biggest gain (30% vs 24.8% in September).9 The U.S. unemployment rate fell to 4.6% in October 2021, the lowest since March 2020.10 The annual inflation rate in Canada went up to 4.4% in September of 2021 from 4.1% in August.11 The unemployment rate in Canada declined for the fifth straight month to 6.7% in October of 2021 from 6.9% in September.12

Despite lingering inflation concerns, U.S. equities recovered strongly in October, thanks to robust corporate earnings. The S&P 500 posted a gain of 7.0%, outperforming mid and small caps, as the S&P MidCap 400 and the S&P SmallCap 600 rose 5.9% and 3.4%, respectively. Canadian equities posted strong gains in October, with the S&P/TSX Composite up 5.0%. The S&P Europe 350 strengthened 4.7% in October. The U.K. and Switzerland were the top contributors, adding 1% each to the large-cap European benchmark’s performance. The large cap S&P Southeast Asia 40 and S&P Asia 50 outperformed, adding 5.1% and 2.6%, respectively. Commodities run continued in October with the main S&P GSCI Index gaining 5.8%, as S&P GSCI Crude Oil and S&P GCI Silver jumped 12.2% and 8.6%, respectively.

In November, we eliminated our gold exposure and replaced it with exposure to U.S. small caps across all portfolio models. Corporate earnings across all market caps are solid in the third quarter. U.S. fiscal spending that will fund local governments in the pending infrastructure bill supports our exposure to short-term treasuries and municipal bond exposure in the U.S.

The global economic recovery is moving forward with limited slack. Against the backdrop of an incomplete recovery and a significant buildup of public sector debt, we have lowered our growth recovery expectations while maintaining our outlook to above 2.5% GDP growth in the U.S. over the next twelve-month period. The changing picture of the economy comes with structural challenges to some sectors but eventually leads to improved liquidity, healthy consumer balance sheets, and a healing labor market. Our approach to portfolio management is nimble, opportunistic, and deliberate in identifying asset classes that are best placed to generate returns in a new world order. Our focus is on protecting portfolios from downside risk, and we believe that our investment process is working to achieve that goal.


Deborah Frame, President and CIO


1 Trading Economics. China GDP Growth. October 18, 2021.

2 Trading Economics. China Inflation. November 10, 2021.

3 Trading Economics. China Unemployment. November 10, 2021.

4 Trading Economics. Europe GDP Growth. November 16, 2021.

5 Trading Economics. U.K. GDP Growth. November 11, 2021.

6 Trading Economics. Europe Inflation. October 29, 2021.

7 Trading Economics. Europe Unemployment. November 3, 2021.

8 Trading Economics. U.S. GDP Growth. October 28, 2021.

9 Trading Economics. U.S. Inflation. November 10, 2021.

10 Trading Economics. U.S. Unemployment. November 5, 2021.

11 Trading Economics. Canada Inflation. October 20, 2021.

12 Trading Economics. Canada Unemployment. November 5, 2021.


Index return data from Bloomberg and S&P Dow Jones Indices Index Dashboard: U.S., Canada, Europe, Asia, Fixed Income. October 31, 2021. Index performance is based on total returns and expressed in the local currency of the index.