Weekly Notes – Page 11 – Raymond James, Barbican

The Week In Markets – 23rd April – 29th April

April 29, 2022April 29, 2022

Much like stock markets, writing the weekly round-up can be a volatile affair. Some weeks there is little to report on, while in other weeks there are a multitude of topics to cover – I’ll let the readers guess what this week is!

Elon Musk appeared to win the race to buy Twitter, with the board agreeing to sell the company for $44bn. The deal, if completed will be one of the largest leverage buyouts on record. It was not all celebrations this week for Musk however, with his other prized asset, Tesla, falling circa. 10% on Tuesday, wiping out $108bn from the market cap of the company. Investors have become concerned about Musk’s ability to run both Twitter and Tesla. Shares such as Tesla and Netflix, which fell heavily last week, have been firm favourites with US retail investors, but the mood music has begun to shift, with investors questioning whether the growth rates of these companies are sustainable.

Tesla’s fall on Tuesday compounded a difficult day in US equity markets, with the tech-heavy NASDAQ index falling close to 4% on the day. Microsoft, the second largest company in the S&P 500, posted very strong Q1 earnings on Tuesday evening, which helped bring some calm back to the markets later in the week.

Gas prices in Europe remained spiked this week, with Russia cutting off exports to Poland and Bulgaria, two nations that Russia declared “unfriendly”, who refused to make payments for gas in Roubles. Oil prices also rose this week, moving above $100 a barrel as investors begin to consider future Russian sanctions.

For many of us in the western world COVID lockdowns are hopefully a thing of the past; the same cannot be said for China with Shanghai under a strict lockdown and fears Beijing may be next. Shanghai has been in a strict lockdown for a month, putting pressure on Chinese economic growth as well as the global supply chain. Chinese President XI Jingping highlighted this week his willingness to help support the domestic economy with increased investment into infrastructure and construction projects to help boost growth.

The US Dollar has continued to rally against a basket of currencies this week, including the Euro and Sterling. The Euro/USD rate has fallen to a five-year low on the back of slowdown fears in Europe, while Sterling fell to its lowest level in two years against the USD this week. The moves were in part driven by weak UK economic data, with both consumer confidence and retail sales disappointing. At a portfolio level we have recently increased our USD exposure, so have benefitted from the moves this week.

US consumer confidence also missed consensus, although housing data was more positive; the US House Price Index showed prices were up 19% year-on-year, a staggering rise. The popular 30-year US mortgage rate is now around 5.3%, the highest level in over a decade – this could act as a headwind to the housing market and slowdown the red-hot property sector.

With so much apparently going on in markets currently it is very important to stay aligned with one’s investment process and maintain a long-term time horizon. The short-term noise can in fact create opportunities for the long-term investor. We have felt that is the case with US government bonds and Japanese equities, where we have increased exposure recently.

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.

The Week In Markets – 16th April – 22nd April

April 22, 2022April 22, 2022

“Clear and Present Danger”. Film lovers will recognise this as the title of the 1994 thriller starring Harrison Ford. But no, this week’s note is not a movie review; this a quote lifted from the International Monetary Fund’s (IMF) World Economic Outlook (WEO) report when they discussed inflation.

The WEO predicts inflation for advanced economies will now be 5.7% in 2022, before falling to 2.5% in 2023. The threat of higher inflation is a “clear and present danger for many countries” according to their report. Global growth was downgraded from 4.4% to 3.6%, with every member of the G7 group of nations likely to experience slower growth than predicted three months ago. The WEO highlighted the Russian invasion of Ukraine as the key driver to their downgrades.

Staying with the movie theme, Netflix made the headlines this week when it released its latest set of results. Their subscriber numbers fell by 200,000, and the company predicted there will be further declines over the next quarter. The news sent the share price tumbling 35%, with analysts predicting we may have now seen a peak in Netflix subscribers. The competitive landscape has intensified, while cost pressures are impacting consumers.

Bond markets came under pressure on Thursday following comments from US Fed Chair Powell regarding the potential for a 50bps (0.5%) interest rate hike at their next meeting at the start of May. The US 10-yr Treasury yield rose to nearly 3%, while in the UK the yield on the 10-yr Gilt breached 2%. Rising bond yields put pressure on the US Technology sector, with the NASDAQ equity index falling over 2% on Thursday.

Supply shortages continue to plague the car industry, with European new car sales dropping over 20% year-on-year. The dramatic fall in sales has been driven by a lack of semi-conductors, high inflation and the Russian invasion of Ukraine.

Research from Deutsche Bank showed that the US consumer continues to be in a strong position, despite rising inflation. US households cash levels now exceed their debt levels for the first time in 30 years. Despite a more uncertain economic outlook, it can be argued that the consumer is in a very strong position to be able to weather tougher conditions.

The continued volatility in both bond and equity markets can be uncomfortable, but as we have often highlighted, it can also create opportunities, particularly for long-term investors. It is also important to be willing to challenge consensus and consider a range of different scenarios. Netflix shares falling 35% is a timely reminder of what can happen when consensus is wrong. The consensus in bond markets is now that inflation is persistent, and the US Fed will have to aggressively raise interest rates over the next 12 months. While this could be true, there is an opportunity to buy US government bonds with a yield of circa 3%, while also accessing an asset that typically performs well in recessionary environments.

Andy Triggs | Head of Investments, Raymond James, Barbican

The Week In Markets – 9th April – 14th April

April 14, 2022April 14, 2022

“We expect March CPI headline inflation to be extraordinarily elevated due to Putin’s price hike”. This was a quote from White House Press Secretary Jen Psaki as she delivered the White House Briefing on Monday evening.

Given the White House’s signposting of elevated inflation, all eyes were on Tuesday’s US inflation data, and this didn’t disappoint, coming in at a fresh 40-year high at 8.5%. The figure was boosted by gasoline prices, which have risen 18.3% in the space of a single month. One notable turnaround in the data was the fall in prices of used cars and trucks, which fell 3.8% on a month-on-month basis. This could be an early sign that consumers are starting to feel the pinch of higher costs and have cut back spending on some high-ticket items. The reaction in bond markets will have no doubt caused confusion for many, as bond yields actually fell on the news of higher than expected inflation.

UK inflation was reported at 7% on Wednesday, a 30 year high, highlighting elevated inflation is a global phenomenon currently. Economic commentators have warned that inflation is likely to head higher in the spring, before starting to level off later in 2022. With the Bank of England Monetary Policy Committee meeting at the start of May, there could be further interest rate rises in an attempt to stifle inflation. The UK jobs market remained buoyant, with unemployment dropping to pre-pandemic levels of 3.8%. Wage growth came in at 5.4%, and while this is higher than in recent years, it is still below current inflation levels.

US earnings season kicked off this week, with JP Morgan reporting on Wednesday. The lacklustre results led to the banking sector falling, with CEO Jamie Dimon appearing cautious on the outlook, driven by concerns around interest rate rises and the Russian invasion of Ukraine. There has been a slow-up in dealmaking and Initial Public Offerings (IPOs) for the bank, as companies are holding back while volatility is high. Despite the banking sector falling, the US market rose strongly on Wednesday, driven by the technology sector.

Infrastructure assets are seen as attractive investments in an inflationary environment. This was highlighted with a bid for Italian airport and motorway operator Atlantia, in what would potentially be the second largest M&A deal of the year. The bidders, Blackstone and the Benetton family, will take the company private if successful, and highlights the ability of private markets to complete extremely large deals. Further M&A news broke on Thursday, with Elon Musk making an offer to Twitter, valuing the company at $43billion, an 18% premium to Wednesday’s closing price.

The European Central Bank (ECB) meeting provided few surprises, with the ECB continuing with their reduction in bond purchases, which will likely end in Q3 2022. Interest rates were held, and are unlikely to rise in the near term, despite high inflation prints across Europe. The ECB is mindful of the impact of the Russian War on economic growth and wants to be flexible in their approach.

Peace talks between Russia and Ukraine have made very little progress, with Putin stating talks were at a “dead end”. On the back of the news, oil prices rose, moving through $100 a barrel once more with an increased likelihood of a prolonged war and escalating Western sanctions.

Given the uncertain economic backdrop currently, we think it makes sense to hold a range of different asset classes across a range of different geographies. We also think a willingness to be flexible in one’s investment approach is key – as John Maynard Keynes famously said “When the facts change, I change my mind – what do you do, sir?”

Andy Triggs | Head of Investments, Raymond James, Barbican

The Week In Markets – 2nd April – 8th April

April 8, 2022April 8, 2022

The number 9 is an iconic number to football followers, with clubs’ star strikers often allocated this shirt number. It was a tough week for Chelsea fans, who had to witness a fine display by Real Madrid’s number 9 on Wednesday evening. But it was not just in the sports pages where this number was appearing. Financial papers this week reported that the bond market is now pricing in an additional 9 interest rate rises in the US in 2022.

Bond markets have been under considerable pressure this week and we saw yields rise further, fuelled by hawkish language from US Federal Reserve Governor Lael Brainard. The bond market is now pricing in around nine 0.25% hikes for the remainder of this year. The 10-yr US Treasury yield rose on the back of Brainard’s comments to reach a three-year high and continued to push higher throughout the week, currently standing at 2.68%. The implications of higher rates are not just felt in bond markets. Within the US housing market, the interest rate for the popular 30-year fixed mortgage broke through 5%, the highest level in a decade. Higher rates will make affordability tougher for home buyers and if this continues it will likely act as a headwind to the currently red-hot US housing market.

Economic data from UK and Europe was surprisingly strong this week, with Services PMI data coming in ahead of expectations and showing both areas firmly in expansionary mode. UK Construction PMI data was also strong, showing the fastest rise in orders since August 2021.

China’s zero-Covid policy continued this week with Shanghai remaining in a form of lockdown. Nomura estimated that there have now been 23 cities placed into lockdown in China in the last month. As a result of these lockdowns, we have seen Chinese GDP growth downgraded to 5% this year by the World Bank. There could also be spill-over effects to the global economy, with the lockdowns contributing to supply issues. Shipping bottlenecks have been worsening, with around 30% lower ship traffic in the Port of Shenzhen compared to this time last year.

Twitter shares spiked on the back of news that Elon Musk has taken a 9% stake in the company and has been added to the board. The shares rose 27% on the news, leading a rally in US tech stocks at the start of the week. Shell had less positive news, when it stated it is likely to take a $4bn-$5bn hit on its exit from Russian assets. Despite this news the shares have performed very strongly in 2022, rising around 26% this calendar year.

This week’s data has highlighted that despite the apparent headwinds, the global economy is still growing, and this should create opportunities for investors. However, it’s clear that the impact of higher inflation is yet to be fully felt by consumers and businesses. Given this mixed backdrop, we continue to maintain a balanced approach in portfolios.

Football fans will be eagerly anticipating Sunday’s big match between Manchester City and Liverpool. Interestingly, neither team operates with a traditional number 9, both managers challenging the status quo, and producing stellar results. We think a willingness to challenge conventional thinking and to operate outside the box is key to investing, as well as it seems, success on the football pitch.

Andy Triggs | Head of Investments, Raymond James, Barbican

The Week In Markets – 26th March – 1st April

April 1, 2022April 1, 2022

Today marks the start of April and with it many will be playing pranks on their friends and relatives in reference to April Fools Day. Looking back over this past week, rampant European inflation data has left the European Central Bank (ECB) looking rather foolish.

German inflation came in at 7.6% this week and Spanish inflation surprised at 9.8%, a multi-decade high. So far, the ECB has been behind the curve with regards to inflation, but this week’s data is going to put more pressure on them to act and raise interest rates in an effort to curb inflation. The bond market reaction this week has begun to price in a shifting in ECB policy with bond yields rising across the board. The yield on the 2-year German bund turned positive for the first time since 2014 while the 10-year yield on Italian government bonds is now through 2%. One of the contributors to inflation is the war in Ukraine, which has pushed commodity prices higher. The war has also had the effect of knocking consumer and business confidence which will cause growth to slow. On Wednesday ECB President Lagarde acknowledged these headwinds during a speech and stated the longer the war persists the higher the economic costs would likely be.

Russia-Ukraine peace talks took place in Turkey this week. Initial hopes of progress led to equity markets rallying, although towards the end of the week there was little sign of any meaningful progress on the ground and equities gave up some of the recent gains. Despite this, global equities have rallied strongly over the last three weeks, recovering a significant portion of year-to-date losses. The US equity market has been a bright spot during March, in part due to its distance from the conflict and limited reliance on Russia for energy needs. Apple, the largest share in the S&P 500 rose on Tuesday for the 11^th consecutive trading day, the share’s longest winning streak since 2003 and took the market capitalisation of the company close to $3 trillion. Tesla announced a stock-split on Monday and on the back of the news the shares rallied around 8%, adding roughly the value of Volkswagen to Tesla’s market cap.

Putin’s demands that payments for Russian gas from ‘unfriendly’ nations be made in Roubles led to significant volatility in European gas prices. On Thursday morning there were reports that Putin would accept Euros, but then later in the day stories broke that Putin once again demanded payments in Roubles. The gas price fluctuated by a massive 18% at times during Thursday.

It felt like déjà vu in the UK, with a Canadian company approaching a UK business for the second week in a row. After Brookfield’s rumoured pursuit of Homeserve, the market was made aware of Royal Bank of Canada’s £1.6 billion offer for Brewin Dolphin. The news propelled Brewin Dolphin’s share price over 60% on Thursday morning and once again highlights the value foreign entities are seeing in UK listed businesses. Staying with the UK, housing data continued to be very strong, with house prices rising on average by 14.3% year-on-year, the fastest rate in 17 years.

As is customary for the first Friday of the month, US Non-Farm Payroll data is released. The figure showed 431,000 jobs had been added to the economy, highlighting the continued strength in the labour market. Unemployment fell to 3.6%, while average hourly earnings came in ahead of consensus at 5.6%. The underlying strength of the US jobs market is likely to encourage the US Fed to continue on their tightening path.

The first quarter of 2022 has been a challenging one for investors with a wide range of asset classes falling over the period, driven by big shifts in interest rate rise expectations and latterly the Russian invasion of Ukraine. Despite these headwinds, it’s been pleasing to see portfolios rebounding from the lows in early March. We continue to believe that diversification in asset class and style will be important when trying to navigate more volatile conditions. Some of the best performing holdings in portfolios this quarter have been gold and infrastructure, two asset classes that wouldn’t typically be found in a traditional bond/equity multi-asset portfolio. We will continue to do the hard work and consider a wide range of asset classes to dampen portfolio volatility and capture investment opportunities, that going forward, could look a little different to the past.

Andy Triggs | Head of Investments, Raymond James, Barbican

The Week In Markets – 19th March – 25th March

March 25, 2022March 25, 2022

It has been a while since we covered the UK in detail in a weekly note, but with inflation data, the Spring Statement and retail sales data all being delivered this week, the UK deserves some bandwidth.

The Spring Statement took centre stage on Wednesday, and the pressure on Rishi Sunak increased with the release of inflation data on Wednesday morning, which came in at 6.2%, the highest level in 30 years and ahead of expectations of 5.9%. The Spring Statement, in truth, did not provide too many surprises and the immediate effect on UK markets was muted. At an economic level, growth was downgraded from 6% for 2022 to 3.8%. While this growth level is still above trend, the impacts of inflation and Russia-Ukraine are expected to negatively impact growth. Data on Friday highlighted that the UK consumer may already be feeling the effect of higher prices, with retail sales falling 0.3% month-on-month and consumer confidence falling to the lowest levels since November 2020. We’ve frequently highlighted that UK equities have traded on a discount to their developed peers since 2016 (Brexit) and one likely outcome of this would be increased M&A activity. After lots of corporate activity last year, we saw Brookfield, a Canadian asset manager emerge as a potential bidder for Homeserve this week. Homeserve shares rose around 15% on the speculation.

European Composite Purchasing Managers’ Index (PMI), which is seen as a useful measurement of economic health, slipped slightly from the previous month, however, was still above expectations and showed the area was still in expansion territory. Digging a little deeper into the data, it appeared that supply issues continued to deteriorate, which could impact future European growth.

The US economy delivered mixed messages this week. Services and Manufacturing PMIs rebounded from last month and came in well ahead of expectations, however this was offset by declining durable goods orders and US business investment falling for the first time in a year. The data potentially highlights that the US economy may be slowing, which could lead investors to question whether the US Fed can be as aggressive in their planned interest rate hikes.

Unfortunately, there appeared little advance in any peace talks between Russia and Ukraine this week with the conflict continuing, deepening the humanitarian crisis. US President Biden was in Europe this week for talks with allies, and said that Nato would respond if Russia escalated to using chemical weapons in Ukraine. The West also promised more aid for Ukraine and increased sanctions on Russia once again, but stopped short of sanctioning Russian gas supplies into Europe. Many European nations rely heavily on Russian gas and the Belgian Prime Minister this week summed up the difficulties they are facing by saying “We are not at war with ourselves. Sanctions must always have a much bigger impact on the Russian side than on ours”.

Equity markets have in general continued to advance this week, despite what feels like an uneasy economic backdrop. At a stock level Apple recorded its eighth consecutive day of rising on Thursday as the tech heavy Nasdaq index rose nearly 2%. The S&P 500 has advanced in six of the last eight trading days as investors have begun to buy the dip following the sharp declines in markets earlier in the year. The recent success in equities has not spilt over into bond markets however, with developed government bond yields continuing to push higher this week. Continued hawkish language from the US Fed has led the market to now price in an additional 7 rate hikes (of 0.25%) for 2022.

Despite the sell-off in government bond yields, we continue to see merits in maintaining small allocations in portfolios for diversification benefits. Our view is that if we are to enter choppy waters ahead, these assets have the potential to perform well, and would likely offset some of the volatility we would see in equity markets. At some point we may even consider adding to these positions if prices continue to fall, as we are in effect buying portfolio insurance at a cheaper price, with a higher potential future payoff.

Andy Triggs | Head of Investments, Raymond James, Barbican

The Week In Markets – 12th March – 18th March

March 18, 2022March 18, 2022

There are times when content for the weekly note can be hard to find. There are other times when the challenge seems to be finding a way to squeeze in all the key points into just a few short paragraphs that can be easily digested on a Friday afternoon. This is definitely one of those busy weeks with subjects such as Russia’s invasion of Ukraine, US and UK interest rate rises and China’s market intervention all needing to be discussed.

While the Russian invasion of Ukraine has continued, with strikes seemingly intensifying, there have been reports of a softening stance towards negotiations and the hope is that some sort of agreement can be reached in the near-term. These rumours of a potential agreement supported European equities, with the Euro Stoxx index up nearly 5% over the course of the week. UK markets were also once again strong this week, with the more domestically focused FTSE 250 index rising around 3.5% since Monday. The oil price has remained volatile throughout the week, at one point falling below $100 a barrel, but rising again on Thursday and Friday.

The US Fed raised interest rates for the first time since 2018, nudging base rates up by 0.25% to 0.5%. Given the recent strength of the US economy, coupled with inflation running at 7.9% currently, it’s staggering to believe policy has been so accommodative. The market, and indeed US Fed, believe they will need to continue to raise rates throughout the year in an effort to combat inflation and excess growth. However, economists have this week downgraded US growth expectations for 2022 and there is a risk of policy error here; that the US Fed raise interest rates too quickly into what is a slowing economy. On the back of the rate hike and hawkish language from Fed chair Powell US government bond yields rose, with the 10-year treasury hitting 2.2%, a post-COVID high. The Bank of England (BoE) followed suit on Thursday, increasing UK interest rates from 0.5% to 0.75%. The BoE struck a much more dovish tone, acknowledging that inflation is likely to be higher in the short-term due to the invasion of Ukraine, but that higher energy prices would be a drag on growth to net energy importing countries, such as the UK. The expectation now is the BoE may be slightly more cautious in raising rates going forward.

Chinese equities came under intense selling pressure early in the week as investors questioned whether China’s links to Russia could lead to Chinese sanctions. This was on top of concerns around regulation and the Chinese property market and was enough to trigger Beijing to intervene. The state council vowed to keep capital markets stable, support overseas stock listings, handle risks for property developers and said regulation for the technology sector would soon end. The news sent Chinese stocks higher, with the Hang Seng Tech Index up an incredible 14% on Wednesday. China and US tensions continue to be a little strained, so all eyes will be on the call between US President Biden and Chinese President Xi Jingping later this afternoon, the first time the two will have spoken since Russia’s invasion.

What appears like a challenging week has actually been positive for global equities, with most major indices advancing throughout the week, and this has fed through to our portfolios. Bond markets have remained challenged with inflationary pressures negatively impacting prices.

Next week’s note is likely to be a busy one once again; Rishi Sunak is due to deliver the Spring Statement on Wednesday, with energy prices and the National Insurance increase in focus. At a portfolio level we will try to assess the longer-term implications of any announcements, instead of trying to make short-term bets, which are often driven by luck as opposed to skill and notoriously hard to get right consistently.

Andy Triggs | Head of Investments, Raymond James, Barbican

The Week In Markets – 5 March – 11 March

March 11, 2022March 11, 2022

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

The Week In Markets – 26 February – 4 March

March 4, 2022March 4, 2022

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

The Week In Markets – 19 February – 25 February

February 25, 2022February 25, 2022

Many of our readers will no doubt be aware that this week has been historic for all the wrong reasons, with Russia invading Ukraine. We know it is a difficult time and our thoughts are with those people affected by these events.

Focusing on the impact on markets, we have seen big swings in global equities this week. It’s worth remembering that equity markets are typically forward-looking, and the potential geopolitical risks were in part already discounted into prices. However, it appears that the full invasion witnessed towards the end of the week was not ‘in the price’ and we saw European and Asian markets fall heavily on Thursday. The US equity market, after opening in the red, staged a remarkable comeback and actually ended the day up, with the S&P 500 closing 1.5% higher. Japanese equities rose by a similar amount overnight and UK and European equities are in positive territory today at the time of writing. At this stage, it’s not 100% clear what the endgame will be, and with that uncertainty still lingering, there is potential for asset prices to remain volatile in the short term.

Safe-haven assets have responded to the turmoil, with prices generally rising this week. Within bond markets, investors are beginning to question whether central banks will be able to raise interest rates as aggressively as expected, into what could be a slowing global economy. Other safe-havens such as gold and the US dollar also performed well. It’s a timely reminder of their insurance like characteristics and it is why they are held in our clients’ portfolios.

The oil price broke through $100 a barrel, climbing to eight-year highs on concerns around global supply. Russia produces around 11 million barrels of oil a day, much of which is exported, and this supply could be impacted if Western sanctions escalate. European natural gas prices also spiked; Russia currently supplies around 35% of Europe’s natural gas and again this supply could become strained. Rising commodity prices will do little to soothe concerns about inflation, although it should be remembered that higher energy prices act as a quasi-tax on the consumer and could have the effect of dampening demand for goods and services and this is deflationary.

There was some positive economic data released this week, although clearly this has been overshadowed by Russia’s invasion of Ukraine. Services and manufacturing PMI data for the UK came in ahead of consensus and US GDP for Q4 2021 was revised higher to 7%.

Periods, like we are going through now, are highly emotive and it can feel very difficult to be invested in asset markets. History has repeatedly shown us that these uncomfortable moments are often also opportunities, especially for investors with a long-term time horizon, who can look through the short-term headwinds. At an investment committee level, we try to do this in an objective, structured way to ensure we are making appropriate long-term decisions for the portfolios.

Andy Triggs | Head of Investments, 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.