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Weekly Note

The Week In Markets – 5 March – 11 March

The last seven days have felt like a rollercoaster in markets with big daily moves in asset prices and volatility remaining high throughout the week. The constant newsflow and short-term noise can prove slightly overwhelming at times like this and frankly it can be unconstructive to making sound long-term investment decisions. We have focused our efforts in recent days and weeks on meeting with or speaking to the underlying fund managers in the portfolios, as opposed to simply relying on BBC news, to get a better understanding of how the current global backdrop is impacting holdings.

At a market level we witnessed big moves in oil markets with the US banning Russian oil imports and the UK stating that they would phase out of Russian oil by year end. At one point on Tuesday, we saw Brent Crude momentarily touch $139 a barrel before falling heavily on Wednesday and is now currently at around $112 a barrel. Prices at the petrol pumps hit all-time highs this week and this will act as a pinch to the consumer. The higher prices are in effect a windfall for the UK government given the level of fuel duties. It will be interesting to see if there are any reductions to these duties to support consumers.

Gold was once again an asset in demand this week as prices rose through $2,000 an ounce on geopolitical and inflationary fears. At times it can be a frustrating asset to hold, but we continue to see the merits in holding this real asset that offers good portfolio diversification and has returned circa 10% this calendar year.

It was not all doom and gloom in equity markets this week. On Wednesday European equities were in favour with the German equity index rising a staggering 7.9% in a day. The UK and wider global equities all participated in this relief rally too, which appeared to be driven in part by the rumours that Zelensky may be willing to agree to certain Russian demands. It’s a reminder of how quickly things can change and highlights the risk of being out of markets. Positive UK data, which showed the economy emerged strongly from the Omicron variant in January, boosted UK equities on Friday; the FTSE 250 index is now on course for its best week in a year, albeit after falling heavily last week. The strong data may encourage the Bank of England to once again raise interest rates when they meet next week.

US inflation came in at a new 40 year high of 7.9% on Thursday, which was in line with consensus. The expectation is that inflation will continue to rise in the coming months as rising oil and commodity prices feed into the data. With the US Fed also meeting next week, many are expecting to see their first interest rate rise of this current cycle.  

As mentioned in the first paragraph we have been meeting with a lot of fund managers recently and will continue to over the coming weeks. There were some interesting takeaways; a global equity manager said that their portfolio was flagging the highest upside to fair-value since August 2020. A UK equity fund manager said that they had personally invested in their own fund this week, acknowledging that they didn’t know if this was the bottom, but it provided a good entry point on a medium-term time horizon. We were also reminded of the embedded inflation protection built into some of our infrastructure and real asset holdings. We will continue to carry out this exercise and focus on making sure we are partnered with talented fund managers and diversify across asset class, investment style and geography.

Andy Triggs | Head of Investments, Raymond James, Barbican

 

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.

Weekly Note

The Week In Markets – 26 February – 4 March

This has been another tough week on a humanitarian front, and we want to continue to extend our thoughts and best wishes to everyone impacted by the Ukraine crisis. The purpose of the weekly note, as always, is to report on financial markets, which too have endured a difficult end to the week.

This week has seen heightened volatility across most asset classes as markets attempt to price in a prolonged Russian invasion and the associated risks this would create. As Simon Evan-Cook alluded to in yesterday’s monthly note, uncertainty is something that markets dislike, and uncertainty has increased over the last few trading days.

Safe-haven assets have generally rallied this week, albeit, with bumps along the way. At the start of the week, we witnessed significant falls in developed government bond yields (prices rise). The likely driver of this is the expectation of slower economic growth, which could deter central banks’ from raising interest rates at an aggressive pace. However, it is still likely that the US Fed will raise interest rates by 0.25% this month. Fed chair, Jay Powell, spoke to the House of Financial Services Committee and clearly showed his support for a modest interest rate rise in March to help curb inflation, while acknowledging it was too early to determine the economic impact of Russia’s invasion of Ukraine.

While government bonds and gold responded to the escalating conflict by rallying, equity markets hit more turbulent times, with big falls on Thursday and Friday (at the time of writing). French president, Macron, spoke with Putin for 90 minutes, with little success and it became clear a resolution was not close and there could be worse to come. While the sell-off has been broad-based, European equities have generally fared worse than US equities, which is a clear reversal from the trend in January and February this year.

The commodities sector looks poised to finish the week with its biggest weekly gain since the 1960’s. Brent crude oil briefly touched $119 a barrel this week, the highest level since May 2012. European and British gas prices pushed higher with the benchmark Dutch gas price hitting new all-time highs. Rising oil and gas prices will hit the consumer hard which will be a drag on economic growth and is something we need to pay attention to. Consumer balance sheets are generally robust given the ability of many to deleverage and save during COVID-induced lockdowns, however, higher energy prices could see this trend reverse. It wasn’t just oil and gas rising this week, copper hit a new all-time high while wheat prices have risen nearly 75% in 2022. Ukraine and Russia are two of the major exporters of wheat globally and their supply is likely to fall significantly.

As is customary for the first Friday of the month, US Non-Farm Payroll data was released. This is normally a key focus of the market; however, it has been left in the shadows by the geopolitical concerns. The data was very strong, showing 678,000 jobs had been added to the economy against the consensus of 400,000 and the unemployment rate fell to 3.8%. These numbers highlight the underlying strength of the US economy at present and will likely encourage the US Fed to raise rates later in March.

The backdrop of a Russia war makes it uncomfortable to be invested currently and will stir up a range of emotions for investors. While the cause of the concern is different this time, many of the emotions people are feeling will be similar to the initial COVID-19 crisis in March 2020, a period where uncertainty engulfed markets and assets sold off indiscriminately. With hindsight this was the opportune moment to actually be increasing risk. While we don’t want to take undue risks in portfolios, it can be helpful to look back to other crisis moments in history.

Andy Triggs | Head of Investments, Raymond James, Barbican

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.

Citizen of the World

Events in Eastern Europe over the last week have correctly dominated TV, radio, newspaper and online news. It also meant that almost all equity or bond investors made losses during February, many for the second consecutive month unless – like the U.K. equity market – there was high proportional exposure to commodity sector shares.

2022 Outlook

Athletes at the Olympic Winter Games will either taste the thrill of victory or the agony of defeat. The same can be said for investors, as the easy victories over the last two years will become more challenging and hard fought in the year ahead.

Budget Newsletter

Less than eight months ago, Rishi Sunak presented a Budget that was anticipating the ending of the pandemic’s impact on the UK economy. He announced extensions and end dates for the furlough scheme, the self-employed income support scheme, reduced VAT for hospitality and the £20 a week uplift to Universal Credit. To finance some of that expenditure, the Chancellor also revealed a 6% increase in corporation tax, deferred until 2023.

Weekly Note

The Week in Markets – 4 – 10 September

Global equities reversed this week, ending a long winning run. When markets have dropped, but there’s no clear reason why, it’s traditional for us market reporters to put it down to “profit-taking” then break early for lunch. But on this occasion, it’s worth taking a quick tour of the regions, as differing trends are playing out.

To understand what’s happened to a global equity index, the first place to look is always the US. American equities punch well above their weight in world stock markets: while their economy makes up less than a third of the globe’s, their companies represent double that amount in a global equity index. So they usually dictate the global tone. This week the consensus is that investors are worrying about the Federal Reserve beginning to slow the pace of stimulus. It isn’t yet overly clear why they’re worrying this week more than last, but that’s the mystery of markets for you.

If investors in U.S. equities are worried about this, then holders of British and Continental European shares are even more concerned: share prices on this side of The Pond have had an altogether soggier week. Looking at the winners and losers in the fund world, “value” funds have fared worse than “growth” funds, which implies investors are becoming less convinced that broad-based economic recovery and/or inflation are what we’re headed for.
The stand-out market this week has been Japan. For most of this year, it’s seemed as if investors had simply forgotten that Japan existed; its market has flatlined while most others raced upwards. But the recent resignation of Prime Minister Suga has jolted their memory, and talk of new leaders with new cheque books helped the Tokyo index to defy the wider gloom; it has rallied by 4% in just a week. (This is why Japanese equities form a useful part of a global portfolio – it’s good to have different parts doing different things at different times, and Japan often marches to its own tune).

Finally, we hop across the sea to China, where gaming giants Tencent and Netease were called in for another telling off from Beijing officials. Having already been on the receiving end of one share-walloping lecture earlier in the summer, they were again chided to “profoundly understand the importance and urgency of preventing minors from online game addiction.” Their shares promptly tanked again, dragging other tech giants with them, and turning what had been a mildly positive week for Asia Ex-Japan shares into a negative one.

And now a market scoop: The success of these tactics duly noted, the Evan-Cook household, which is similarly blighted by gaming-hooked minors, will henceforth move to the communist governance model. Sadly, at the time of writing, the US and Japanese markets are closed, so you’ll have to wait for next week’s report to hear how hard this hits shares in Microsoft and Nintendo.

In the meantime, have a great weekend.

Simon Evan-Cook
(On Behalf of Raymond James Barbican)

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. 

Weekly Note

The Week In Markets – 7 August – 13 August

With a new football season upon us, some brave managers will adopt the approach of attack being the best form of defence. It seems President Biden is taking a similar approach in his response to COVID-19, with spending and stimulus measures being viewed as the best form of defence against the havoc created by the virus.

The Senate Democrats released a vast $3.5 trillion budget resolution on Monday, which was effectively approved on Wednesday, meaning the budget could be passed over the next few weeks or months, with little the Republican opposition can do to prevent it.

The timing of the budget is interesting, given the US economy has recently returned to pre-pandemic levels following the release of Q2 GDP last week. With the economy recovering, inflation running at elevated levels and jobs being added back at an impressive pace, some will question whether such stimulus is required, or whether it should be saved for the next downturn. Will this lead to more persistent inflation? The market is clearly dismissing this scenario, with bond yields still historically low and little expectation of rate rises in the near term, even with inflation above target in US, UK and Europe. In Germany we have just seen inflation reported at 3.8% year-on-year, a 27 year high. Yet despite this, investors are still willing to lend to the German government at deeply negative rates, with the yield on the 10 year bund at -0.46%.

With rising inflation, low interest rates and low bond yields, it is strange that the gold price continues to lag, with the precious metal falling at the start of the week to circa $1745. Remember the precious metal breached $2,000 an ounce for the first time in August 2020. Gold in theory should perform well in this backdrop; falling real yields has historically been ideal for it, although we are not witnessing this at the moment. It’s rare that everything in a portfolio works at once; indeed the objective of a well-diversified portfolio is to ensure that assets perform in different ways to one another. Although gold has been lagging over recent weeks, more risky parts of the portfolio continue to perform well, with UK mid-cap equities advancing over the last week or so. UK M&A activity has been picking up, with international companies continuing to pick off UK assets. Meggitt was subject to a rival bid on Wednesday, with two US firms now battling it out for the company. While these events are great for the short-term share price, one may question the overall effects to the UK economy on a more medium-long term time horizon. 

Like every football season the months ahead will be filled with success, surprise and disappointment with various management strategies constantly analysed by fans and pundits alike. In terms of investing, like all good managers we have an eye on the defence as well as the attack and are willing to tweak the strategy along the way to score as many goals as possible while trying our hardest not to concede.

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. 

Weekly Note

The Week in Markets – 31 July – 6 August

When Raymond Jackson the inimitable cartoonist better known as JAK, who drew cartoons for the Evening Standard for 45 years, was away on holiday some lesser-known cartoonist would draw a cartoon for the newspaper and a line underneath would simply explain “JAK is on holiday.” So too, we are writing this piece informing you first of all “Simon Evan-Cook is on holiday.” He’s away next week too!

The summer months in investment markets are often viewed as quiet months, characterised by low trading volumes, as key decision-makers often take annual leave (there’s a theme developing here) and little portfolio activity takes place. This week has felt fairly uneventful in markets, despite China’s best efforts with continued regulatory pressure.

US ISM manufacturing data, released on Monday, highlighted that manufacturing activity may slow from its frantic pace earlier in the year. The slightly disappointing data had an immediate impact on the oil markets, where prices fell around 3%, driven by concerns that the pace of growth could be slowing. Despite this, US equity markets were not impacted and in fact by Tuesday had recovered to close at an all-time high.

A market that is a long way from its all-time high is China, where a series of increased regularity interventions has spooked investors. This week Tencent suffered, falling around 6% on Tuesday, as a state article described online gaming as “spiritual opium”. Given the stock’s exposure to online gaming, it was no surprise to see investors sell in droves on this news.

On domestic shores all eyes were on the Bank of England Monetary Policy Committee meeting on Thursday. Despite expecting inflation to reach 4% this year due to the strength of the economic recovery in the UK, interest rates were kept on hold, although they may need to be raised in 2022 to curb inflation. The Bank of England stated it expects UK GDP growth to reach 8% in 2021.

As is customary for the first Friday of the month, US non-farm payroll data will be published later today. It will be interesting to see the pace at which jobs have been added to the US economy over the last month. Hiring has been occurring at a healthy pace, and anecdotally there are stories of continued labour and skills shortages, leading to higher wages being offered to entice workers. Perhaps US employers would find it easier to recruit if they simply offered staff more holiday and that might mean less inflationary pressure.

If you are managing to get in a summer holiday, perhaps taking advantage of the further lifting of travel restrictions, stay safe and enjoy while we keep an eye on your portfolio.

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. 

Summer Surprises

For most investors focused on the U.K., Europe and/or the United States, July was far from an unattractive month in all but a minority of equity sectors. This pleasingly allowed a further building of year-to-date returns. Meanwhile bond market yields generally tightened further. Although fixed income markets remain on average dull performers in 2021, performance has improved in recent months.

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