Weekly Notes – Page 13 – Raymond James, Barbican

The Week In Markets – 11th June – 17th June

June 17, 2022June 17, 2022

Central banks have been in the spotlight this week, with interest rate rises in the US and UK leading to further volatility across all asset classes.

After last week’s US inflation data surprised to the upside, all eyes were firmly on the US Fed’s meeting on Wednesday. In the run up to the meeting equities and bonds saw sharp price declines as markets digested the likelihood of a more hawkish approach. As expected, the US Fed raised interest rates by 0.75% – the highest single increase since 1994, taking US interest rates to 1.75%. There was an immediate relief rally following the meeting, although these gains were given up on Thursday’s trading session, with equities once again falling. The impact of higher interest rates is likely to cool the red-hot US housing market, with the popular 30-year fixed mortgage rate now above 6%, up from around 3.25% at the start of the year.

The Bank of England (BoE) followed suit on Thursday, increasing interest rates by 0.25%. This was the fifth consecutive interest rate rise by the BoE and takes rates to a 13-year high of 1.25%. The committee voted 6-3 in favour of a 0.25% rise, with three members voting for a 0.5% increase. With inflation already at 9%, the BoE have now raised their forecasts and predicted it will raise to 11% heading into winter. UK households are already bracing themselves for the projected increased energy prices. We’ve previously spoken about the surge in inflation being partly due to the continued Russia -Ukraine war, however there are domestic factors, including the tight labour market and the pricing strategies of firms. With UK unemployment falling to 3.8% and the number of vacancies rising to almost 1.3million, workers are demanding greater wages or moving to higher paid jobs. Employers are forced to pay bonuses to retain staff or hire new ones.

The impact of higher energy and food prices is a major headwind to consumers, and this was highlighted by a profit warning from ASOS, who said inflation is deterring consumers from purchases. The news sent the share tumbling by over 30%, leaving the stock price down over 60% in 2022.

The challenging environment of bonds and equities selling off together continued for much of the week. Bond markets experienced large moves with the US 10-yr Treasury yield reaching 3.49%, the highest level in over 10 years, before falling back later in the week. UK and European government bonds also saw large spikes in yields, providing further pain for bond holders. At an equity level, the US S&P 500 entered bear market territory, characterised as a drawdown of more than 20% from recent highs. To name a few stocks, PayPal has now tumbled almost 75% from its record high last July, Meta (Facebook) has fallen 57% from its 2021 high and Netflix remains the S&P’s worst performer down 72% year to date. These highly valued growth stocks have been badly punished as valuations have tumbled on the back of higher interest rates. In Netflix’s case they have also struggled to pass costs onto subscribers, with subscribers cancelling memberships at an alarming rate.

This has been a very difficult week to be invested in markets. As investors it can be challenging to not allow emotions to dominate decisions in times like this. It’s vital that we fall-back on our investment process and experience, while also maintaining a long-term investment time horizon. One only has to look back to March 2020; the world felt like a very gloomy place, yet it provided a great investment opportunity for investors.

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

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

The Week In Markets – 4th June – 10th June

June 10, 2022June 10, 2022

There is being fashionably late to the party and then there is the European Central Bank (ECB). Despite high levels of inflation and other central banks looking to tighten policy, the ECB had refrained from joining the party and until recently intimated that interest rates would not rise in 2022. On Thursday, however, Christine Lagarde, head of the ECB, signposted that they will raise rates in July, for the first time since 2011, and end its bond-buying stimulus program. This is being done in an effort to cool inflation, which is running at multi-decade highs in the Euro area.

The shift in approach from the ECB led to European equities falling and European government bond yields pushing higher. The yield on the 10-year German bund now stands at 1.43%, compared to this time last year when it was still in negative territory, yielding -0.25%.

Chinese equities have been somewhat of a bright spot over recent weeks, rallying strongly as COVID lockdown measures appeared to be easing. However, Shanghai and Beijing now look to be going back into a form of lockdown and mass-testing as the country’s dynamic zero-COVID policy is implemented. This news pulled down Chinese stocks and will create a headache for Chinese exporters once more, just as the Port of Shanghai was reporting numbers almost back to normal. The average waiting time for tankers at the port had fallen by almost 37 hours. This trend could reverse with lockdown measures returning.

Elsewhere in China there were rumours circulating this week that Ant Group’s failed initial public offering (IPO) may be revived. This would mark a sea change in China’s regulatory policy, which has been a headwind for sectors such as technology over the last 12-18 months. Chinese headline inflation data was reported at 2.1% on Friday, coming in slightly below consensus. With inflation seemingly under control in the world’s second largest economy, there is scope for interest rates to be cut further and stimulus measures to be implemented to help support the economy. We are beginning to witness this already, and it often boosts not just China but the global economy as well, albeit with a 10–12-month lag.

On domestic shores, it was once again Boris Johnson who stole the headlines, with the PM narrowly surviving a vote of no confidence on Monday. Despite remaining in leadership there are still question marks over how long he will last, with comparisons being drawn to Margaret Thatcher and Theresa May, who both resigned, even after coming through their own votes of no confidence.

Oil prices have been rising this week, in part due to China’s reopening and an expectation of a pick-up in demand. This has led to UK petrol prices rising, with the RAC group estimating that it would cost over £100 to fill up a 55-litre tank. Higher petrol prices act as a tax on the consumer and will negatively impact consumption in other parts of the economy.

Although the weather has certainly improved over the last week, the same cannot be said for flights around Europe. EasyJet have axed 72 flights today just as Britons were hoping for a summer break. British Airways have also cancelled almost 100 short haul flights from its main base London Heathrow. This has been caused by massive staff shortages. This follows news of rail strikes occurring from June 21^st to June 26^th. The Transport Salaried Staffs Association said its members on East and West Midlands trains were protesting over pay, conditions and job security.

The last piece of data this week, and one of the most important was US inflation, which showed inflation has yet to peak, coming in at 8.6%, a 40-year high. The elevated figure is likely to do little to deter the US Federal Reserve from raising interest rates by 0.5% at their next meeting.

The current backdrop continues to be challenging, with heightened volatility across equities and bonds. That being said, volatility does create opportunities, and we will look to pivot the portfolios as opportunities present themselves. At the moment that means making the portfolios increasingly diversified by adding to some of the defensive elements of the portfolios, at low valuations.

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

The Week In Markets – 21st May – 27th May

May 27, 2022May 27, 2022

“Upside Down” was a hit single for Diana Ross in 1980. There does seem to be parallels with the song and the current global economy, which was highlighted again this week through global central bank action.

Over the last 20 years or so inflation has been a problem for emerging markets, who have had to raise interest rates to contain inflation, while developed markets have typically experienced benign inflation. This year has been upside down and inside-out with developed markets plagued by high inflation and having to tighten policy, while emerging markets, having already begun hiking interest rates last year, have been in a much better position. The New Zealand central bank raised interest rates by 0.50% at the start of the week and indicated there was more to come. At the same time, the Russian central bank cut interest rates by 3%, citing a slowing inflation outlook and strong currency as the driver. Russia’s huge cut followed a surprise interest rate cut from China last week, a nation that is currently experiencing inflation levels of just over 2%.

Thankfully equity markets turned upside down this week, with the US equity market looking like ending an eight-week losing streak to end the week higher. Gains have extended across most regions this week with European equities on course for their best week in over two months. One of the major headwinds for global equities has been the inflation story and response from developed world central banks. It was interesting to see this week that Atlanta Fed President Raphael Bostic suggested a pause may be required in US interest rate rises in September. Investors are beginning to question whether the economy can withstand such aggressive Fed policy.

It wasn’t all rosy with the US equity market, as social media company Snap fell almost 40% after issuing a profit warning. The stock now trades below its IPO price in 2017. It’s another example of the market severely punishing companies for missing targets. We think this backdrop lends itself to active managers, who can carry out deep, fundamental research into a company’s financial statements and outlook.

In the UK the big news was saved for Thursday, with Chancellor Rishi Sunak announcing a windfall tax on energy firms, using this tax to help households with soaring living costs. Oil majors Shell and BP saw their share prices actually rise on the day, potentially driven by a 3% rise in the price of oil, which likely more than offsets their increased tax burden. The brent oil price pushed through $115 a barrel this week with continued concerns around supply. With sky high hydrocarbon prices and Europe’s desire to move away from Russian energy dependence there is a huge need for investment into renewable energy and this is likely to provide good investment opportunities going forward. Interestingly, some of the traditional energy companies are looking to utilise their high profit levels to pivot more into renewable energy. This was highlighted through Total’s proposed acquisition of the 5^th largest renewable player in the US on Wednesday.

Economic data has been mixed over the past seven days. There were bright spots in the UK, with retail sale rising month-on-month. Wage data showed that employers raised wages by around 4% over the three months to April. While this is higher compared to recent years, it is still below the current inflation levels. US Durable goods orders, which measures industrial activity and is used as an economic indicator by many investors, came in slightly below expectations. US Q1 GDP was revised down to -1.5%, showing the economy contracted slightly more than previously thought.

Despite what appears to be disappointing data, the US equity market has been strong this week, and hints to what was alluded to in last week’s note – that bad news may actually be good news – that it prevents central banks from tightening policy too much or too quickly and allows the global economy to operate in a low-rate environment for longer.

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

The Week In Markets – 14th May – 20th May

May 20, 2022May 20, 2022

As the old Chinese curse goes (paraphrased slightly); may you comment on interesting markets. Accordingly, having drummed my fingers on a weekly basis through the dead calm of last summer, I’m now looking back on those beige days with teary-eyed nostalgia.

Because this week has – so far- been brutal. At least it was if you’re looking at a global stock market index: down about four percent with a day left to play.

As I’m sure you’re aware, this isn’t the first grim week of the year. Far from it; the market news flow has a distinctly slow and grinding feel to it. This stands it apart from other recent negative episodes, such as the pandemic sell-off in 2020, which were sharp, but relatively short-lived.

But look deeper within the market data, and you’ll find other “interesting” titbits that make this week’s movements stand out.

In stark contrast to much of this year, and most of the last fifteen years too, this week’s nosedive was led by the US: Up until Thursday at least, American shares were down by almost five per cent for the week. But everywhere else, including the UK? Not so bad – generally off by a per cent or two, and they’re erasing much of that in Friday’s early trading (UK equities are still positive for the year, amazingly).

This is bordering on weird. If US equities tumble, European and Asian shares usually follow suit, and with more gusto too. But not this time. Has the long run of US market exceptionalism come to an end?

Another change was that America’s sell off was truly inclusive (and not in a good way). For most of the year it’s been tech and other growth shares getting walloped, but this week everything joined in, including previously immune ‘value’ shares.

Commentators are putting this down to investors beginning to worry not just about inflation and interest rate rises (which growth stocks hate like cats hate swimming), but also an economic slowdown, which isn’t great for anything – including value stocks.

Is this a start of a new trend, or just a blip? Absent a crystal ball, only time will tell.

I don’t want to leave you on a note of bad news, so how about a bad-news-might-be-good-news vibe instead?

We heard this week that global fund managers had raised cash to their highest levels since soon after the 9/11 attacks. Ominous as it sounds, you’ll note that they didn’t raise cash to their highest levels just before 9/11 (it would have been mighty suspicious if they had), just as they hadn’t raised cash to their highest levels before this year’s sell-off – which would have been useful given what we’ve just seen.

So, this is something – jumping in and out of the market – they’re clearly not good at (dirty secret: nobody is). Perhaps, even, it’s a contrarian indicator that news has got as bad as it’s going to get? Well, let’s see what next week brings.

In the meantime, have a great weekend,

Simon Evan-Cook

(On Behalf of Raymond James, Barbican)

The Week In Markets – 7th May – 13th May

May 13, 2022May 13, 2022

The heightened volatility that has plagued markets over recent weeks continued over the past five days. A theme for this year has been the positive correlation between equities and bonds, which has proved challenging. However, this week, despite seeing weakness in equity markets, bond prices (at the time of writing) are higher.

Starting with the UK, we received weaker than expected GDP data, which showed the economy contracted by 0.1% during March. With low consumer confidence and high inflation, demand was weaker than anticipated. Higher household energy prices from April will likely cause a drag on next month’s GDP figures and we could see a further contraction in the economy. April’s retail sales figures were weak, as the cost-of-living squeeze impacted spending. However, spending on travel and international holiday bookings has surged above pre-pandemic levels, with people keen to travel abroad once more. Spending on hotels, accommodation and resorts was 16% higher compared with April 2019. At a market level, UK equities have struggled this week, although equities are rebounding at the time of writing. Government bond yields have fallen this week (prices rise) as investors have become increasingly nervous about the economic outlook for the UK following poor GDP data.

US inflation data on Wednesday provided mixed messages. Inflation came in at 8.3%, which was lower than the previous month’s 8.5% figure. However, core inflation, which strips out volatile items such as energy and food, was up 0.6% month-on-month, versus March’s figure of 0.3%. US equities ended Wednesday in negative territory once more, with the tech-heavy Nasdaq index down over 3%. US government bond yields have fallen below 3% this week as investors begin to question whether the central bank will be able to engineer a ‘soft’ landing – that is cooling inflation without stalling the economy. Rising bond yields have proved a headwind for equity markets, and there is the potential for the recent fall in bond yields to begin to provide some support to US equities. At a business level US companies continue to trade well, with high levels of earnings and revenue ‘beats’ for Q1 2022 earnings season so far.

Russian tensions with western Europe looked like escalating on Friday with Finland’s leaders stating that their country should join Nato. The immediate retaliation from Russia is likely to be the switching off of Russian gas supplies to the country, pushing European gas prices higher. Rising energy prices have put pressure on governments in Europe and the UK to provide some form of assistance. Spain have looked to tackle this with plans announced for a price cap that limits gas prices used to produce electricity. It will be interesting to see if other nations follow suit.

Crypto markets were sent into a tailspin this week with the popular Luna coin losing over 98%. The estimated losses stand at around $15bn. The incredible decline highlights some of the risks of this immature asset class and is why we do not yet consider it as an investable asset.

The last month or so has been a particularly challenging period with price declines across the board. Economic data is beginning to indicate that US inflation may be peaking, and this could provide support for all asset classes. We continue to tread a path of diversification across geography and asset class, while seeking out long-term investment opportunities. One area we currently like is infrastructure. Not only does infrastructure offer an element of inflation protection, while also historically providing better downside protection than equities, we think the sector will benefit from two long-term structural tailwinds; the energy transition and energy security.

Andy Triggs | Head of Investments, Raymond James, Barbican

The Week In Markets – 30th April – 6th May

May 6, 2022May 6, 2022

This week saw volatility pick up across major asset classes as US and UK central banks raised interest rates. The moves in markets were extreme, in many cases to levels we haven’t seen in years. I will apologise in advance for the frequent use of phrases such as “the highest since…” or “the largest since…”.

All eyes were focused on the US and UK central banks who both met this week to set their key interest rates. Following a two-day meeting, the US Federal Reserve raised interest rates by 0.5%. Ahead of the raise, US equity markets sold off heavily on Tuesday, however, this fall was reversed on Wednesday as investors responded positively to comments from Fed Chair Powell who said the US Fed were not contemplating raising rates by 0.75% at the next meeting. By Thursday, the US market rolled over once more, falling over 3%, with the tech-heavy Nasdaq index falling over 5%, its largest daily fall since 2020. The move coincided with a big sell off in fixed income markets, with yields on the 10-year US government bond rising above 3%, at one point touching 3.1% on Thursday, the highest since 2018. The moves in US equities have largely been driven by falls in valuations, as opposed to concerns about earnings. At both a consumer and housing market level, the indicators are very strong, with consumer bank accounts flush with cash (at an aggregate level) and house prices reaching new highs.

The Bank of England (BoE) followed the US’s lead and increased interest rates, although only by 0.25%, taking the rate back up to 1%, the highest level since 2009. Accompanying the rise was commentary from the BoE which said UK inflation could hit 10% this year. There were downgrades to economic growth forecasts and acknowledgement that consumer confidence was falling as real incomes were being squeezed. The biggest loser on the news was sterling (GBP), which fell versus most major currencies, including dropping over 2% against USD, reaching the lowest levels since July 2020.

China’s zero-Covid policy has exacerbated the current supply constraints and has caused concern among foreign companies operating in China. The EU Chamber of Commerce in China published their most recent survey which showed twice as many European companies compared to the start of the year were considering moving investment out of China. The lack of a roadmap for how to manage with COVID in China was causing increased uncertainty for businesses. Staying with China, the services sector PMI data was weak as the lockdowns in Shanghai, the financial hub of China, acted as a major drag.

Oil prices moved higher once again this week, as reports of the EU phasing in bans on Russian oil imports intensified. The EU imports 2.5 million barrels of oil a day from Russia and any ban will lead to a supply squeeze as the EU has to buy the oil elsewhere. The higher commodity environment has benefited oil and gas companies, with Shell posting bumper results this week. At a portfolio level our allocation to a resources fund continues to be a strong contributor this year, with the fund rising this week, bucking the general trend in equity markets.

As is customary, the first Friday of the month saw the release of US Non-Farm Payrolls jobs data. The US economy added 428,000 jobs in April, comfortably ahead of consensus, and highlighting the continued strength in the labour market. US wage growth was 5.5% year-on-year, still below current inflation levels, but strong wage growth nonetheless when compared to history.

The challenges facing multi-asset investors continued this week with equities and bonds selling off. At times like this it can be difficult to insulate portfolios from the market volatility. However, recent changes to portfolios have helped, including our recent increase to USD exposure.

Andy Triggs | Head of Investments, 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

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