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We would like to start this weekly note by wishing everyone a happy New Year. This has certainly been a busy first week back in markets with various data releases.

UK Prime Minister Rishi Sunak delivered his first speech of 2023 where he outlined five key targets for 2023. These include halving inflation, growing the economy, reducing debt, cutting NHS waiting times and stopping migrant boats crossing the border. The speech was described as “high on ambition but low in detail” with Mr Sunak making a bold demand that the public judge his premiership on the results achieved. Currently the opposition Labour Party hold a strong lead in the polls to win next year’s election, however Sunak will be hoping to rebuild trust in the Conservative Party.

In December we saw the US Fed slow down its aggressive rate hike trend and this led to a slower 50bps rise. The meeting minutes from December’s meeting were released on Wednesday. The key points were that policymakers are still focused on taming inflation that threatens to run hotter than anticipated and wanted to eliminate any “misperception” that their commitment to fighting inflation was wavering. The next phase for the Fed is to balance its fight against rising prices with the risk of slowing down the global economy too much. Their next meeting is scheduled for 31^st January, where another 0.5% rise is expected.

This afternoon we have seen non-farm payrolls for December come in hot as the US economy continued its strong run of job growth, adding 223k jobs. Unemployment is also down to 3.5%, beating the forecasted 3.7%. Government data showed there were 10.45 million job openings at the end of November, this translated to around 1.74 jobs for each unemployed person. This comes as a surprise to the market as major tech companies such as Twitter, Salesforce and more recently Amazon continue to cut thousands of workers after “over-hiring” during the 2020 pandemic.

On brighter news in Germany, inflation eased in December for a second consecutive month. Households received a one-off payment in December to cover energy prices and this had a downward effect on prices. Core inflation (excludes food and energy costs) still remains high, and this has created doubts in economists minds that a continued slowdown is not a given. President Nagel of the Bundesbank predicted that inflation levels would drop to 7% over 2023 before declining significantly in 2024.

Inflation in France also dropped in December, falling to 6.7%, down from a record high a month earlier. This is another sign that a mild winter and slowing energy prices are aiding Europe to overcome the inflation crisis. France has managed to keep inflation lower than other European countries due to government limits on regulated gas and power prices.

Falling inflation data in Europe helped propel European equities. After a strong final quarter of 2022, the unloved equity market has had a strong start in 2023, with the Euro Stoxx index rising close to 3% this week. UK equities have also had a strong start to the year, with both the FTSE 100 and more domestically focused FTSE 250 rising. The US market has been the outlier this week, with the headline index struggling, being dragged down by large falls in stocks such as Tesla, which fell nearly 14% on Tuesday, after declining 65% in 2022.

It was a mixed start to 2023 for commodity markets, with gold nudging higher while oil continued its general downtrend of recent months. Crude oil is currently trading around $73 a barrel, $5 lower than 12 months ago and considerably lower than recent highs of $120 a barrel in March 2022. This weakness in oil is likely to feed into the upcoming inflation data releases and should further support the view that inflation (in the US at least) has now peaked and will fall this year.

As we look forward to this year, a fund manager reminded us to “never waste a good crisis”. 2022 was a tough year across most asset classes and regions however this has created opportunities and with strong portfolio diversification and active management we believe that the outlook is positive for long term investors.

Andrew Triggs, Head of Investments & Nathan Amaning, Investment Analyst

Risk warning: With investing, your capital is at risk. The value of investments and the income from them can go down as well as up and you may not recover the amount of your initial investment. Certain investments carry a higher degree of risk than others and are, therefore, unsuitable for some investors.

Financial markets continued their revival from the early summer lows through November as investors’ perceptions regarding the risks prevalent throughout 2022 diminished somewhat. That those risks had not disappeared completely was evidenced by violent protests breaking out across China at the end of the month in response to the new Chinese government’s apparent desire to persist with its aggressive “zero Covid” policy.

Even those with the longest careers in the financial markets are struggling to remember a year quite as tumultuous as 2022 has proved to be. Military conflict in Ukraine and sabre-rattling over Taiwan have made headline news all year and served to intensify volatility across all international financial markets.

Are you ready for some football? Not American football, but global football—otherwise known as soccer! For the five billion spectators awaiting the start of the 2022 World Cup in Qatar this November, the sport is the epitome of speed and agility. But for the players on the 32 participating teams, it is so much more. The deceptively simple-seeming game requires years of training. It goes beyond the fundamentals of ball control to pitch awareness, anticipation, and making the right decisions under duress quickly.

What the Chancellor, Kwasi Kwarteng, presented to the House of Commons on Friday was definitively not a Budget; it was ‘The Growth Plan’. The sixth chancellor since 2016 was careful to avoid the B word, despite the huge sums of spending and borrowing that he announced – greater than in most, if not any, real Budgets, let alone mini-Budgets. When the Autumn Budget proper emerges – probably in November or December it is most unlikely to contain anywhere near such a wide range of radical and costly measures as were announced on 23 September.

The investing environment could hardly be more challenging. Global economic activity is slowing, Western developed economies are flirting with recession, inflationary pressures are extremely elevated, and Western central banks remain committed to raising interest rates in a concerted effort to bring them under control. The geopolitical backdrop is still as dark as ever; the war in Ukraine continues, China’s bellicose threats against the United States ahead of House speaker, Mrs Nancy Pelosi’s visit to Asia have become more pointed. Europe faces a natural gas shortage over the coming winter, Dr Mario Draghi’s Italian government has collapsed, while in the UK, the same fate has befallen Mr Boris Johnson’s administration.

More than 200 years ago, a French military officer stumbled across the Rosetta Stone, a 2000-year-old carving with clues to deciphering the Egyptian hieroglyphs that had puzzled the world for centuries. We don’t exactly have a Rosetta Stone for our perplexing market’s future – no one does. But just as the Rosetta Stone opened a window into Egypt’s mysterious past, we have some clues that might help investors crack the code in the coming months.

Every year is different from what you expect, and that is particularly true in financial markets. It is easier to say over the first five months of 2022 which investment areas have lost you money, especially if you also factor in the enhanced inflationary backdrop. There will always be some element of volatility in financial market investment, but it still plays the most essential role in any pension fund portfolio or medium-term financial target. What really matters is maintaining confidence during times of uncertainty.

Whilst the spring weather continues to warm, plenty of financial sector issues continue to worry global investors across both equity and bond markets. Meanwhile heightened inflation levels continued to impact bank account balances, and the war in Ukraine has led to many tragedies along with heightened geopolitical, commodity and supply concerns.