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Weekly Notes

The Week In Markets – 27th April – 3rd May 2024

This week we moved into the month of May. The month is often associated with transition and growth, with warmer times approaching for the Northern Hemisphere and nature coming out in full bloom. The first few days of May in markets have certainly been in keeping with growth, after a disappointing April for asset markets.

The US was the main focus this week, with the Fed meeting to set interest rates, alongside key employment data today. As expected, US interest rates were held steady at 5.5%. The US Fed is not yet confident enough that inflation will soon reach target, and as such plan to maintain interest rates in restrictive policy. The shift in market expectations surrounding interest rate cuts in the US has been stark in 2024. Heading into the year the market was pricing in 6-7 interest rate cuts, but the market now only expects one interest rate cut from the US in 2024. The huge shift back towards “higher for longer” rate policy has caused a significant headwind for fixed income assets this year.

UK equities have had a strong two months, with the momentum carrying on this week. At the time of writing the FTSE 100 is on course to close at a new record high. The reflationary narrative has been supportive for sectors such as mining and financials, which are big constituents of the UK index. Persistent mergers and acquisitions (M&A) have also provided a short-term boost for the UK. We’ve recently seen sizeable bids for Anglo American (£31bn) and Darktrace (£5bn) and this week there were rumours that private equity was circling to buy Alpha FMC, a £400m market cap company. The share price surged around 38% on the rumours, and it is pleasing the company was a large position in our UK smaller companies fund. Card Factory, a position in our global value fund, announced strong results this week and re-instated its dividend. The positive news helped lift the share price 7% as the turnaround of the company continues.

UK share buybacks have been a common occurrence in recent months, however, it was one of the biggest companies in the world who announced a huge share buyback program this week. Apple posted mixed Q1 results, with iPhone sales plunging over 10%. However, such is the strength of the balance sheet, the company announced an increase to its small dividend and a £110bn share buyback program.  While Apple results delighted markets, Starbucks update left a bitter taste for investors. The coffee company announced a surprise drop in sales in both US and international markets, leading to a 10% drop in share price. With the cost of a cup of coffee increasing, it appears some consumers are now cutting back on consumption.  

Switzerland had been the first developed market central bank to break cover and cut interest rates. This week Swiss inflation figures showed inflation reached a four-month high of 1.4% in April (year-on year). The acceleration in inflation was a surprise to markets and may be cause for concern for the Swiss central bank if the trend persists.

 US Non-Farm Payroll data showed 175,000 jobs had been added to the economy, much lower than the expected 238,000. February’s jobs data was revised down by 34,000. Average hourly earnings increased less than expected while unemployment made an unexpected jump to 3.9%. Collectively the data, for the first time this year, highlighted a slowing labour market. The bad news appeared to be good news for markets, with equities pushing higher this afternoon, while bond yields fell (prices up) for government bonds. The data will potentially allow the US Fed to ease interest rate policy in the near term.

After a difficult April the start of May has proven to be positive, with both equities and bonds rallying over recent days. Here in the UK, we have seen new all-time highs in the FTSE 100, while M&A activity continues at pace. Government bonds have enjoyed a strong end to the week as weaker US jobs data has once again shifted the interest rate pendulum back in the direction of cuts. We think it is important to be diversified at a portfolio level against the uncertain and changing macroeconomic backdrop.

Andy Triggs, Head of Investments

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.

The Week In Markets – 20th April – 26th April

In typical British fashion the FTSE 100 reached all-time highs this week to little fanfare. After closing at a new all-time high at the start of the week, the large cap index advanced further on the back of strong trading updates from AstraZeneca and Unilever and yet another takeover bid, with Anglo American being targeted by BHP for £31bn.

It has been an interesting week for US equities with large moves in some of the mega cap stocks. Last Friday afternoon Nvidia fell 10% to erase $200bn of value from the company. Meta (Facebook) updated the market this week and, despite positive headline results, the stock sold off heavily due to concerns around the level of capital expenditure for artificial intelligence (AI) and the long-term payback time horizon. There was mixed economic data out of the US this week, with the main attraction being advanced GDP growth for Q1. The figure of 1.6% was below the expected 2.5% and, while it highlighted the US economy is still growing over the first quarter of the year, the lower level of growth caused concern for markets. Both bonds and equities sold off on the news on Thursday, with the yield on the US 10-year treasury reaching 4.7%.

Geopolitics has taken a back seat this week, with limited news coming out of the Middle East. This relative calm led to a retreat in oil, which had recently approached $90 a barrel. Safe-haven currencies, such as the US dollar, retreated this week in a sign of a more risk-on mood in markets due to subdued Middle East news flow.

European PMI data showed the services sector is rebounding and in expansionary mode. European growth is lacklustre, but there are some encouraging signs from the continent. With inflation falling close to target and subdued growth, many investors are expecting the European Central Bank (ECB) to be the next developed market central bank to break cover and cut interest rates.

In a week light on economic data, it was company specific announcements that took centre stage. The potential takeover of Anglo American once again highlights the value foreign buyers are seeing in UK listed companies. The bid by BHP would lead to the creation of the world’s largest copper company. Copper is a critical metal involved in the electrification of the grid and a commodity that is likely to be in short supply over the next decade.

At an index level we have continued to see a broadening out of the market, with some of the technology names now coming under pressure, while other sectors, such as resources of consumer staples, performing better. 

As we look out to next week, the main focus will be on US jobs data. The resilience in the US economy has led to the market swiftly changing expectations on interest rate cuts, with only 1-2 cuts now priced in, compared to six cuts priced in at the start of the year. Our investment approach continues to see us focus on shorter-dated bonds which exhibit less interest rate sensitivity, while we hold longer-dated bonds to offer protection against any economic growth shocks.

Andy Triggs, Head of Investments

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.

The Week In Markets – 13th April – 19th April 2024

At the start of the week the festival Sechseläuten was the main attraction in Switzerland. Traditionally at this event at 6pm on the dot the church bells ring and a snowman named “The Boogg” is lit. Legend has it that the faster the snowman burns (generally within twelve minutes), the better the summer will be! Sadly, it was not possible to burn the Boogg this year due to heavy winds – an ominous sign for the summer!

In the UK, March’s inflation print was announced on Wednesday. Headline inflation fell from 3.4% to 3.2% (year-on-year), however the drop was not as significant as market forecasts of 3.1%. Similarly with core inflation (excludes food and energy prices), market expectations of 4.1% was just below the 4.2% figure. Services inflation is being closely watched by the Bank of England (BoE) and this eased slightly from 6.1% to 6%. An increase in the price of fuel also contributed to headline inflation as the ever-growing geopolitical tensions and potential supply disruption have raised oil prices. Inflation is still expected to fall this quarter in the UK with the new energy price cap kicking in from 1st April, however, the market is becoming concerned about reflation on a global scale.

UK wage data was released the day before the inflation print as average earnings (incl. bonus) stayed firm at 5.6%, above market forecasts of a fall to 5.5%. Average earnings (excl. bonus) saw a slight fall to 6% over the last 3 months from 6.1%. While wage data was strong, the unemployment rate rose more than expected, providing mixed messages on the labour market strength. The ONS confirmed that the rate of inactivity in the UK jobs market rose to 22.2%, the highest figure since 2015. Data point sensitivity is high at the moment and the slightly higher than expected inflation led to government bonds selling off and rate cut expectations were moved out further.

Another UK FTSE 250 firm, Hipgnosis, has just agreed to a £1.1bn takeover by music rival Concord Chorus. The music royalties firm own the rights to songs by some of the biggest artists in the world like Beyonce, Ed Sheeran and Justin Bieber. Concord’s deal offers Hipgnosis shareholders a 32% premium and makes the troubled firms future more certain. In a blow to the UK there are plans to delist the firm from the UK stock market.

In the US, strong retail sales provided further evidence of a growing US economy and impressive consumer strength. For the month of March, retail sales were up 0.7% outpacing the 0.3% market forecast, while February’s figure of 0.6% was revised up to 0.9%. Despite sticky inflation figures and elevated interest rates consumer spending remains solid, especially in areas such as food services and garden equipment stores. There were areas of weakness such as a fall in furniture stores, most likely combatting the rise in mortgage rates which has led to lower housing transactions. At the start of the year the market was expecting six rate cuts from the US Fed, however, after further strong data this week the market is now expecting only 1-2 cuts. So far this has negatively impacted bond markets, however, equities have remained resilient this year.

Peloton, the fitness equipment and media company, has been in the news this week, as it has dropped its free membership offer, as it failed to bring in additional paying customers and actually cannibalised some of its existing paying users, who downgraded their service. Peloton was one of the darling stocks during COVID as investors bet on a shift to more exercising from home. Such was the excitement and high expectation that Peloton’s valuation approached $50bn and it’s share price traded above $150 a share. Today, although people are exercising more at home, the lofty expectations for Peloton have simply not been met and the company’s market cap is now a little over $1bn, with the shares falling from $150 to $3. The lesson is not to overpay for shares with extremely high expectations, as any disappointment to these expectations can be crippling to share prices.

The looming tensions between Israel and Iran have lurked over markets this week, with rumours of further escalation on Thursday night leading to weakness in equities. Risk assets sold off, while areas such as US government bonds, gold and oil all rallied this morning.

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.

The Week In Markets – 6th April – 12th April 2024

On Monday there was a total solar eclipse passing over Mexico, the US and Canada. Millions of observers saw the moon temporarily steal the spotlight from the sun, and just like in markets there can be moments of darkness and uncertainty, however the sun will emerge once more.

US inflation was the standout data event this week as investors were eager to see if the recent pickup in inflation would continue. Headline inflation rose greater than the market forecast of 3.4% to 3.5% (year-on-year). Core inflation (excludes food and energy prices) remained at 3.8%. Shelter (rent) and energy have been the largest contributors to inflation and food inflation joined the party. For example, there was a 4.6% rise in the price of eggs. This is the third inflation data point of the year which shows no significant progress towards the 2% target and has led investors to question if and when US rate cuts will materialise. US government bond yields rose on the back of the higher inflation data with the yield on the 10-year US treasury bond breaching 4.5%. The pain in bond markets spilled over into other regions with UK bonds also selling off on the back of the US data.

Following the US inflation print, markets began to expect the Bank of England (BoE) to cut rates earlier and by more than the US Fed in 2024. BoE policymaker, Megan Greene, spoke this week and attempted to pour cold water on any hopes stating rate cuts remained “way off”. Inflation data in the UK will be released next week with the BoE keeping a close eye on strong services inflation, however investors are still optimistic that the UK will reach the 2% inflation target rate before the beginning of summer, which should facilitate an easing of monetary policy.

There has been positive news in the UK this Friday. For the month of February, GDP rose by 0.1% (month-on-month) in line with market expectations. The pleasing start to the year for growth almost certainly means the UK is no longer in a recession, following two quarters of negative growth at the end of 2023. UK equity markets embraced the positive news on growth; the UK large-cap index rose above 8,000, approaching all-time highs.

Gold has continued its strong performance this year and has reached a new all-time high above $2390 an ounce. Other commodities such as silver and copper have also experienced sharp rises of late. The commodity price strength has provided tailwinds to the mining sector, and we have seen strong share price performance from the sector, which lagged for much of 2023.

Inflation in China for the month of March rose by a mere 0.1% (year-on-year), coming in less than market expectations of 0.4% and cooling from the previous month’s 0.7%. Producer price deflation persisted at -2.8%, continuing an 18-month stretch of declines. The sustained weakness confirms investors worries on the effectiveness of the Bank of China’s monetary policy and the ability to raise demand.

The European Central Bank met this week and to no surprise kept interest rates firm at 4.5% for the fifth straight meeting. Despite the uncertainty of the US Federal Reserve’s next move, markets are pricing in a 25-bps cut in June. By June, the central bank will also have data points on Q1 wage growth, a key area of concern for any potential inflation spike.  

In conclusion, markets have been reactive to data points, geopolitical tensions and the beginning of earning reports. Our key investment principles remain on diversification within portfolios and long-term investing in order to navigate dynamic markets and take advantage of the opportunities ahead. Our diversified approach meant we have been able to participate in the recent equity rotation into areas such as resources and financials while our dedicated physical gold holding has also performed well.

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.

The Week In Markets – 2nd April – 5th April 2024

We kicked Q2 off with the third bank holiday of the year, Easter Monday. Historians will tell you once upon a time until 1834, the UK had a total of 33 bank holidays but there will only be five more this year.

A “feeding frenzy” has begun in the UK but it’s not because of the Easter eggs consumed over the last weekend but rather due to the pickup in M&A activity of London-listed companies. Buyers are taking advantage of the low valuations within the FTSE 350 & FTSE Small Cap arena as twelve companies have already been bid for in Q1, a much higher level than 12 months earlier. Jeremy Hunt has been reported to have met with large firms in a bid to persuade them to list in London and re-establish the UK as a financial powerhouse. The initial sugar rush of bid premiums can be a good short-term boost for markets, however, over the longer term the UK could suffer if high quality businesses continue to be taken over by foreign investors.

Inflation in Germany has continued to ease as figures showed it dropped to 2.2% over March (year-on-year). This is a fall from 2.5% in February, in line with market expectation. Germany is edging closer to the 2% target and with a stagnant economy the hope will be that the European Central Bank (ECB) go ahead with rate cuts in June which could help kickstart the largest economy in Europe. Core Eurozone inflation for March fell more than expected to 2.9% (year-on-year), while headline inflation was expected to remain at 2.6% but surprisingly fell to 2.4% with food and energy costs falling. The inflation data does put forward a credible case for the ECB to imminently begin cutting interest rates, however, they may be reluctant to break rank early and may aim to hold on until the US Fed begins to cut rates. Economic data out of the Eurozone however may force their hand. Eurozone unemployment has held firm at 6.5%, a relatively low level of unemployment compared to history.

Last week we reported that the Swiss were the first major central bank to cut rates and this week inflation within the country has continued to ease. Headline inflation for March fell to 1% (year-on-year) when it was expected to be reported at 1.3%. This is the lowest level consumer prices have risen since September 2021, causing the Swiss Franc to weaken on the news. Investors are forecasting another two cuts in June and September.

US Non-Farm Payroll Data this Friday afternoon has raised eyebrows as a staggering 303,000 jobs were created in the month of March. We have not seen this figure of jobs created since May 2023 and it completely beat the market forecast of 200,000, highlighting the continued tightness in the labour market. February’s strong jobs number has been revised down slightly, so it will be interesting to see if this number is also revised down. Government bond yields rose (prices fell) on the back of the strong data as expectations for interest rate cuts were pushed out further on the back of the strong labour market.

One of the magnificent seven, Tesla, has continued their struggles this year. This week they reported a sharp fall in global sales, down almost 10% in comparison to Q1 last year. Tesla citied issues including disruption to shipping via the Red Sea region and an arson attack at their factory in Berlin. Tesla CEO Mr Elon Musk is always in the headlines with investors constantly questioning his stretched focus on the business. Just this week he called for the current Disney CEO Bob Iger to be sacked and endorsed former hedge fund manager, Nelson Peltz, to replace him following Mr Iger’s decision to halt all advertising spending on social platform X.

The start to the quarter has proved to be bumpy, much like the opening week of January. We have seen volatility pick up, driven by escalating tensions in the Middle East. For much of this year investors have not paid too much attention to the potential risks spilling out of the Middle East, however, that came firmly back on the agenda this week. Brent Crude oil rose above $90 a barrel as concerns around supply re-surfaced. Gold, which many see as a geo-political hedge, continued its recent strong performance and rose above $2,300 an ounce this week, making new-all-time highs. US inflation figures will be announced next week and signs of falling inflation could act as a catalyst for equities to regain their upward trajectory.

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.

The Week In Markets – 23rd March – 28th March 2024

Last year in the US Easter chocolate sales reached $5.4bn and early expectations are that sales will reach this figure once more, however this will be achieved by the increase in prices rather than volumes sold. Confectionery brands have had to hike prices due to a “cocoa crunch” as the price of cocoa has tripled over the past 12 months due to difficult weather conditions and disease affecting supply in West Africa.

UK retail sales for February (month-on-month) held flat despite negative market expectations of -0.2% following strong January figures. We have had one of the wettest winters this year affecting footfall in stores, however this was offset by an increase in the volume of online sales, the largest rise since July 2023. With UK CPI continuing to fall and the highly anticipated interest rate cuts expected to begin this summer, there is the expectation that retail activity will continue to rebound as pressures on the consumer begin to ease.

Bank of England (BoE) policy committee member, Catherine Mann, was one of two committee members who changed their view on increasing interest rates to keeping them steady. She warned that markets are expecting too many interest rate cuts this year and expects that the BoE will not cut rates before the US Federal Reserve or European Central Bank. High street banks have already begun to offer households and businesses cheaper loans ahead of interest rate cuts, which Ms Mann believes may be premature. Her change in stance to hold rates came after positive signs of a slowing jobs market with more companies reluctant to hire, a theme that may combat wage inflation.

In the US, the CEO of aircraft company Boeing has announced he will step down at the end of this year. Dave Calhoun’s company has been under severe pressure to reassure US regulators, airlines and passengers that their aircrafts were fit for purpose following the recent cabin panel blowout incident. The confirmation of key overhauls in management sent the stock up marginally this week, however the company’s share price has struggled since the blowout event, down 25% for the year and a long way off the highs set before Covid-19.

This Wednesday in Japan an emergency meeting between key policymakers was held to discuss the weak Yen as it hit a 34-year low against the US Dollar. Despite the Bank of Japan making the historic shift away from negative interest rates last week, the Yen has continued to fall against the US dollar. Japan Finance Minister, Shunichi Suzuki, said that policymakers would take “decisive steps” against the yen weakness, the last time he used such language was in 2022 when Japan intervened to buy the currency.

Today is the last working day in Q1 and brings to a close a strong quarter for equities, with it being the best start to a year for US equities since 2019. As we look out into Q2 there are reasons to be positive, with the possibility of falling inflation and interest rate cuts helping push equities and bonds higher. We have marginally increased interest rate sensitivity in portfolios, while also maintaining our small and mid-cap equity exposure, which could be big beneficiaries of falling interest rate expectations, something we witnessed at the end of 2023.   

We would like to wish everyone a fantastic long weekend. For those wondering it is estimated the UK will spend £415 million on Easter chocolate this year!  

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.

The Week In Markets – 16th March – 22nd March 2024

Vladimir Putin cemented his position as leader of Russia, winning a record 87% of the vote, securing a fifth term in office. The longest serving Russian ruler since Stalin, Putin spoke before reporters thanking the public for their “overwhelming support” and outlined his goals for the next six years. The result was not a surprise to many!

We have been barraged with many data points this week. Starting with the UK, inflation for February was reported on Wednesday. Headline inflation (year-on-year) fell from 4% the previous month to 3.4%. Core inflation (excludes food and energy prices) also fell from the previous month and beyond market expectations to 4.5%. The UK continues to creep towards the 2% target with the fall in CPI consistent across many sectors. Food inflation has continued its sharp drop from a peak of 19.1% in March 2023 to 5% this February. Investors have staked bets for inflation to reach target before the summer, a task the UK may achieve before the US.

The Bank of England (BoE) met on Thursday and by lunchtime had announced a fifth consecutive pause in interest rates at 5.25%.  If we think back to the start of the year, this March meeting was circled on calendars as the day base rates would be cut. Fast forward to today and the vote for rates to remain at current levels by policymakers was almost unanimous. Dr Swati Dhingra, was the stand-alone member who voted for a 25-bps rate cut as the eight other members voiced concerns that inflation is on the right path but are wary of prices spiking again, particularly in the services sector. The notable shift in voting came from two members who had previously voted to increase rates, they now have changed tact and become more dovish, voting for a pause instead of hike. The market took this as a positive sign that rates will soon be cut, and UK equities and bonds rallied on Thursday; the UK large cap index climbing nearly 2%.

The US Federal Reserve board held their March meeting the day before the UK as they concluded to hold rates at 5.5%. Many data points in the US would have been vigorously analysed before the meeting and a conclusion of stickier than expected inflation with continued labour market strength has made the path for rate cuts more complicated. Fed Chair Powell stated that there is “sometimes a bumpy road towards 2%” for inflation and indicated that they still expect to cut rates by 75bps this year. This commentary sent US equity markets to record highs, with investors reacting positively to the news that three rate cuts in 2024 were still likely.

Japan’s central bank made a historic switch as they ended eight years of negative interest rates, raising the base rate to 0%. The change in the Bank of Japan’s (BoJ) approach signals that Japan is slowly emerging from a deflationary environment, however Governor Ueda, did not want to elaborate on the pace or timing of further rate hikes. Japan stocks responded positively as the Nikkei 225 rose 2.3% on the day closing at new record highs.  

Other central banks have met this week and there were a couple of meetings that left investor eyebrows raised. In Switzerland, the Swiss National Bank cut their base rate by 25bps to 1.5%, a surprising move making them the first major central bank to begin to ease monetary policy. On the other hand, Turkey’s central bank raised interest rates to 50% on Thursday eager to tackle inflation that continues to soar towards 70%.

Apple has had an interesting week. Rumours of a deal to build Google’s (Alphabet) Gemini artificial intelligence (AI) engine into the iPhone sent both stocks up beyond 2.5% on Monday. A partnership of both Apple and Google would be significant to rival Microsoft in the AI race as Google would expand its AI service to more than 2 billion active Apple devices. By the end of the week, Apple were fighting a federal case after the US accused the tech giant of creating “barriers” to protect their monopoly. One example citied was that Apple made it difficult to connect iPhones to rival smart watches, promoting the need for Apple watches. As they appeal the case, Apple shares fell 4% on the news adding to the tough year to date performance.

It has been a busy week in markets and pleasingly a positive week for equities and bonds. The general takeaway from central bank meetings is that interest rate cuts are still likely to occur in the short-term, despite sticky inflation data in 2024. Other parts of the portfolio have also performed well this week. Our focus on diversification leads us to hold assets such as gold in portfolios, alongside equities and bonds. Gold hit an all-time high this week of $2,222, helping benefit portfolios, while also aiding with risk management.

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.

The Week In Markets – 9th March -15th March 2024

There are many planned elections across the globe this year, but a change of political leadership in Haiti was not planned. However, Prime Minister Ariel Henry has announced his resignation. Mr Henry has led the country on an interim basis since July 2021 but over recent weeks pressure from heavily armed gangs, who have demanded his resignation, has grown. A “transition council” is set to be put in place to replace Mr Henry and restore order in the capital, Port-au-Prince.

 Looking up the North Atlantic Ocean to the US, inflation figures for February were announced this week. Headline inflation (year-on-year) ticked up to 3.2%, coming in greater than market expectations of 3.1%. Core inflation (excludes food and energy prices) fell from the previous month to 3.8% but still came in higher than expected. Inflation is certainly sticky in the US as higher costs in oil and shelter (rent) contribute to the rise in inflation. The inflation data is likely to deter the US Fed from any imminent rate cuts and the market moved their expectation of a first rate cut towards the summer. In response to a “higher-for-longer” narrative US and global bonds sold off.

Retail sales in the US fell over the month of February to 0.6%, rebounding less than the expected 0.8%. With inflation appearing to remain sticky, there are signs of slowing consumer spending over this first quarter of the year. Sales at petrol stations rose 0.9% reflecting a higher price at the pump, however online sales, personal care and health sales all fell. The number of Americans applying for new unemployed benefits also fell as weekly jobless claims came in at 209k from the previous 210k. Revisions of data points are certainly happening at a greater occurrence, as a revision to the previous weekly jobless claims showed laid off workers are finding work quicker and not spending a significant time on benefits.

In the UK, GDP data for January (month-on-month) was positive at 0.2%, boosting the hope that the UK recession is already over. Data from the Office for National Statistics (ONS) showed that a 3.4% jump in retail spending was the main contributor to growth. There was also a pickup in housebuilding to start the year as construction output saw a 1.1% jump. The UK will remain in a technical recession until GDP figures for Q1 24 are released, however the positive start to the year in terms of economic growth is certainly welcomed.

Japanese car manufacturer Toyota Motors has enjoyed huge success recently and this week agreed to give factory workers their biggest pay rise in 25 years. Toyota are not the only company doing this as Panasonic, Nippon Steel and Nissan also agreed to meet union demands of meaningful monthly pay increases. Japan Prime Minister, Kishida, who made a point to end weak wage growth in the hopes of boosting consumer spending, will be pleased union talks were positive. It is key that the wage growth momentum trickles down from large firms to the small and mid-sized firms in order to help boost spending in the domestic economy.

The Bank of Japan (BoJ) are also watching the wage growth cycle closely as they meet at the beginning of next week to discuss the potential end of negative interest rates that have been in place over the last nine years.

The impact of sticky US inflation led to a small pull back in both bond and equity markets. Commodity prices have ticked up on the back of a stronger economy, with crude oil rising above $80 a barrel this week and both the copper and silver price performing well. In general equities exposed to energy and mining performed poorly in 2023, however, they appear well placed to benefit from any signs of persistent inflation and have been the bright spot this week. Our resource exposure in portfolios is based on long-term views of scarcity of supply, with improving structural demand, however, the asset class also provides us with an inflation hedge and helps offset some of our growth focused equity positions, such as technology.  

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.

The Week In Markets – 2nd March – 8th March 2024

The focus in the UK this week was on the March Budget, which was dubbed the “The Budget for Long Term Growth”. After much heckling and jeering the Chancellor announced his plans to boost the economy, while attempting to close the gaps in the polls with the Labour Party. We saw the arrival of a new British ISA, a measure introduced to encourage more people to invest in UK equities. This measure has been in the pipeline for some months, although it has faced push back from various groups. Jeremy Hunt’s decision to push ahead with the British ISA is hoped to help “grow our economy, reward investors and support British businesses”.

There were other major announcements, such as National insurance (NI) being cut by an additional 2%, the earnings threshold for child benefit increased to £60,000, the windfall tax on oil and gas companies extended to 2029 and the higher rate of capital gains tax on residential property reduced from 28% to 24%. Overall, there were no major surprises in the Budget, and markets seemed fairly pleased with the outcome, with both UK equities and UK government bonds rallying on Wednesday.

This week we saw our latest example of mergers and acquisitions (M&A) in the UK as Nationwide agreed to purchase Virgin Money in a £2.9 billion deal. Just last month Barclays bank purchased the banking operations of supermarket Tesco for £600m. Many banks currently trade on low valuations, despite increasing profits recently and having strong balance sheets, as such the trend for M&A could continue going forward. The same is true for the whole UK market, where there has been a recent pick up in M&A activity, largely driven by foreign buyers picking off cheap UK assets. While this provides a short-term boost for investors, over the long-term it could damage the UK market as companies are picked off.  

The European Central Bank (ECB) met for their second meeting of the year on Thursday and as expected they held the base rate firm at 4.5%. Investor expectations for the first-rate cut has now been pushed back to June as ECB President, Christine Lagarde, mentioned cuts were not discussed this meeting but the “dialling back of our restrictive stance” will begin in following meetings. Incoming data releases will be pivotal towards the rate decision as inflation falls towards the 2% target, while the ECB will also evaluate Q1 wage data before making their move. We have previously written that it is likely the ECB will not cut before the US Fed make their first move, for fear of devaluing their currency, however, the data may force the ECB’s hand to act sooner rather than later.

US Non-farm payroll data was announced this afternoon with 275,000 jobs being added to the economy in February despite the market expectation of 200,000 jobs. This shows the continued resilience in the labour market, highlighting the strength of the US economy. The US Fed will consider all data points before deciding to cut interest rates later this year.

Apple have had a tough start to the year. They have just been hit with a €1.8bn EU antitrust fine and now they face another dilemma as iPhone sales in China have fallen 24% (year-on-year) over the first six weeks of 2024. China contributes just under a fifth of total sales for Apple. Huawei are China’s leading tech giants in smartphones, and they have seen sales rise by 64% over the same period. Apple are one of the “Magnificent Seven” stocks that contributed to the extraordinary US market performance in 2023, however it appears that their bubble may have burst.

Super Tuesday is a term commonly known in the US as the beginning of the race for the White House during an election year. Voters in 15 states chose their candidate to run for Presidency and the expected winners were no surprise as Joe Biden and Donald Trump emerged as front runners. Republican Nikki Haley did her best but came short in convincing the party that it was time to dump Trump.

It was a largely positive week for equity and bond markets. After a stellar end to 2023, UK assets had started the year on the back foot but have begun to erase earlier falls. One asset class that has regained its shine has been gold, which is approaching all-time highs once again.

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.

The Week In Markets – 24th February – 1st March 2024

Today marks the first day of March as we close the chapter on February. History has shown that February is on average the second worst month for equity returns. However, despite all the narratives we can currently think of, this February is turning out to be an anomaly. The S&P 500 and tech-heavy NASDAQ are up beyond 3%.

In the UK, house mortgage approvals have risen in January to 55,227. This was a surprise as it beat market expectation of 52,000 and signals the largest rise in approvals since October 2022. Recovery of the UK housing market is underway following the squeeze of higher restrictive policy environment over the past 2 years. The Bank of England (BoE) are expected to cut interest rates heading into Q2 2024, and mortgage rates will follow the trend. Rates on the two-year and five-year for mortgages have also continued to fall from their peak last July. The government’s latest proposal of a 99% mortgage scheme in an attempt to encourage first time buyers has also received mixed reviews.

Shein is a Chinese clothes retailor that has in recent years gained huge popularity through apps such as YouTube and TikTok. It was downloaded twice as many times as Amazon’s app over 2023 making it the world’s most popular shopping app. The reason we bring it up is because this week, UK Chancellor Hunt held talks with Shein in a push for the company to list on the London Stock Exchange. A listing the size of Shein’s would be a huge accomplishment for the UK, who have struggled to attract IPOs and retain promising companies who have listed in the US. Bloomberg have estimated the float could total up to $90billion!

US inflation figures were out on Thursday as the US Fed’s preferred measure of inflation, PCE, was announced. Headline PCE in January (year-on-year) fell to 2.4% from the previous 2.6% in December as Core PCE also fell to 2.8%, 10bps lower than December. The timing of the first interest rate cut by the US Fed remains uncertain and recent policymaker commentary have indicated they are in no rush to make that first cut.

Japan inflation figures were also released this week as headline inflation (year-on-year) was 2.2% in January, falling from 2.6% the previous month. This is the third consecutive month inflation has fallen and as core inflation hit the central banks target of 2%, the end of negative interest rates is a possibility in the following month of April. Energy costs falling has been a significant contributor to the slowdown as government subsidies assisted in curbing oil and gas bills. The challenge for the Bank of Japan (BoJ) will be to balance falling inflation but also tackle the two consecutive quarters of falling GDP alongside the weak Yen. Off the back of positive inflation figures, Japan’s Nikkei approaches the 40,000 level.

Next week is the March Budget as we eagerly await to see what measures will be announced. This event is largely regarded as Rishi Sunak and Chancellor Hunt’s last opportunity to sway the imminent election back towards the Conservatives.

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.

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