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Weekly Notes

Weekly Note

The Week In Markets – 22 – 28 January

For the final weekly round-up of January, I could have very easily copied and pasted the first round-up of the month. The themes of a pickup in market volatility, concerns around inflation and the increased expectation of rising interest rates have plagued asset markets all month, and this week was no different.

The volatility in equity markets was apparent on Monday with UK and European indices ending the day sharply lower. The US market initially fell by around 4% on Monday morning but staged a remarkable recovery to actually end the day in positive territory and reverse severe losses. Despite this bounce back, US bourses have generally drifted lower throughout the week. By Tuesday, January had officially become the worst January on record for the US S&P 500, outpacing the falls we saw in January 2009.

Staying with the US, the Federal Reserve met on Wednesday and although they didn’t raise interest rates, they have signposted a likely first rate hike in March, while also referencing “historically tight labour markets”. We had positive GDP data for the US, showing the economy grew by 5.7% in 2021 – the fastest growth since 1984. Strong GDP growth for 2021 was a theme this week, with French GDP reported at 7%, the highest since 1969. Against a backdrop of strong global growth and rising inflation, it’s no wonder that central banks globally are in the process of raising rates from record lows.

Fears of a Russian invasion into Ukraine have increased this week as Russian demands to bar Ukraine from Nato were rejected. Any invasion is likely to be met with economic sanctions and could have big implications for energy markets. Russia produces over 10 million barrels of oil a day and sanctions could see global supplies fall. It’s no surprise that oil prices rose throughout the week, at one point reaching $90 a barrel for Brent Crude oil.

PMI data for UK and Europe this week was a mixed bag; UK services and manufacturing reports highlighted expansion, but was slightly below consensus, while the equivalent German data came in ahead of consensus.

Against a backdrop of volatile equity markets, it was pleasing to see Apple and Microsoft (the two largest companies in the US) both release strong Q4 earnings reports. Apple reported its highest-ever quarterly revenue, beating estimates, while CEO Tim Cook commented that the supply chain issues were improving. Microsoft also released stronger than expected earnings growth. These stellar results should help calm markets and help justify the lofty valuations assigned to some of these high-quality technology companies.

The final paragraph could also have been copied and pasted from previous weekly round-ups, with a reminder that we continue to focus on being long-term investors and aiming to seek balance and diversification within portfolios. It’s fair to say that pretty much anything can happen in markets over one month, but over five, ten or even twenty years we expect fundamentals to be the main driver of markets, and by focusing on this we can take advantage of moments when prices disconnect from fundamentals.

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. 

Weekly Note

The Week In Markets – 15 – 21 January

This week’s round-up starts with a brief history lesson. Studying the history of stock markets can be highly powerful and allow us to make more informed decisions, as opposed to reacting to emotions, which often get the better of us in times of market stress.

On Wednesday the US-focused, technology-heavy Nasdaq Index fell into correction territory – which is classified as a decline of more than 10% from its most recent peak (November 2021). This is obviously a painful experience, but it’s by no means the first time this has occurred, indeed since the index was launched in 1971 this is in fact the 66th time we have witnessed a correction. It also fell into correction territory in 2021 and twice in 2020. Looking all the way back to October 2008 and the financial crisis this is the 17th correction the index has experienced since then, in each of these instances the index has been higher 12 months after the correction (excluding the 2021 correction as we don’t yet have one year’s worth of data). While we cannot guarantee the index will again be higher in 12-months time, it does help provide a bit of balance to our natural emotions that focus on risk-aversion.

US earnings season posted a surprise this week with Netflix missing growth expectations. The stock was seen as a huge beneficiary of the pandemic as its subscriber base ballooned. However, with increased competition and a reopening of economies, new subscriptions have slowed. The share price fell close to 20% in after-hours trading. It’s another example of the reversion we are seeing in markets, out of previous winners, into more unloved areas of equity markets.

At a geopolitical level, the Russian-Ukrainian tensions continue to remain elevated. Comments from US President Biden this week did little to thaw the situation. The combination of geopolitical risk and inflationary concerns appeared to benefit gold, which has risen during the week.
Here in the UK the under-pressure Prime Minister announced that the Plan B measures that were put in place to tackle the Omicron variant would be withdrawn in England from 26th January and the guidance to work from home has ended.

Bright spots this week continue to come from the UK stock market, with the UK large-cap index bucking the trend of global peers and showing positive gains for the calendar year so far. UK equities have felt a lonely place to be invested over recent years but a combination of low relative valuations and high exposure to sectors that typically benefit from inflation (financials, miners) have helped the equity market. It’s a timely reminder that being diversified not only through asset class, but geography and investment style is important and something we continue to focus on. History has shown this focus on diversification to be a prudent long-term strategy and as Mark Twain said in 1903 “History doesn’t repeat itself, but it often rhymes”.

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. 

Weekly Note

The Week In Markets – 8 January – 14 January

The third Monday of January, known as “Blue Monday”, is often regarded as the saddest day of the year. A combination of gloomy weather, Christmas credit card bills and waning New Year’s resolutions combine to leave people feeling low. One must wonder whether Boris Johnson experienced his own “Blue Monday” a little early this year, as he stood up in the House of Commons this week and admitted to attending the Downing Street party meeting on 20th May 2020. Pressure on the Prime Minister has increased dramatically and there is a genuine feeling that these alleged breaches of lockdown rules could topple him. This morning there have been further claims regarding two leaving parties held at 10 Downing Street on the eve of the Duke of Edinburgh’s funeral in April 2021. 

With the political turmoil dominating UK tabloids, you will have likely missed the more positive news that the UK economy surpassed pre-COVID levels in November on the back of stronger growth data. There was also consensus beating construction, industrial and manufacturing data released on Friday and helped insulate the UK market from some of the volatility being witnessed in asset markets currently. 

Comments from two US Fed Committee members this week provided mixed signals to markets. First, we had Fed Chair Jerome Powell speak on Tuesday, and his dovish language led to a sharp rebound in global equity markets. However, Lain Brainard stated on Thursday that fighting inflation was the Fed’s “most important task”. These comments, alongside inflation data coming in at 7% on Wednesday, led to another sell-off in equities. The areas of the market which continue to be hit hardest are the higher valued and speculative growth companies, many of which have experienced exceptional share price performance over the last few years. Tesla and Netflix fell 6.75% and 3.35% respectively on Thursday, dragging down US equity bourses. 

At a country level the UK market, having lagged US and European counterparts since 2016 has bucked the trend and had a strong relative start to 2022. The UK has meaningful exposure to sectors such as banks, energy and mining which tend to perform well in inflationary environments. High-growth areas such as information technology make up only a small part of the UK market, whereas they represent close to a third of the US S&P 500 benchmark. 

Commodity prices have been strong so far in 2022 and this week saw gold and oil push higher. They benefitted from a combination of inflationary pressures and a weaker US dollar, both of which typically support commodities. 

In what was a busy week for news flow, there were geopolitical issues for investors to contend with as well. Concerns over a Russia-Ukraine war have escalated, and talks appear to have done little to help with Russian officials rejecting Western efforts to ease tensions. 

Later today US Q4 earnings season will kick-off in earnest and will allow investors to focus on company fundamentals once more. Despite what has been a difficult 14 days for equity markets, there is consensus that the global economy will continue to grow and aggregate company earnings will also grow, which should support share prices. Over the short-term, there can be any number of factors that influence the daily moves in a company’s value, but if we take a longer-term time frame, fundamentals, such as a company’s earnings typically play a significant role in share price performance.

As always, we believe the best way to avoid feeling “blue” about markets is to take a long-term approach coupled with asset class diversification. In doing so you can even flip the mood on its head and see the recent asset market pullbacks as more attractive buying opportunities.

 

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. 

Weekly Note

The Week In Markets – 3 January – 7 January

The start of the year is often a time for new beginnings, with many of us setting resolutions for the year ahead. The history of this age-old ritual can be traced back some 4,000 years when the ancient Babylonians would make promises to their gods at the start of the new year (which was actually in March!). Today, these resolutions we make are not always to the gods, and evidence suggests we find it hard to stick to them, with most people giving up on their objectives within the first six weeks of the year.

The opening week in investment markets has been particularly volatile, and one must wonder what sort of New Year’s resolutions the US Fed made. The release of the Fed’s December meeting minutes highlighted that the members had become more concerned about the persistency and elevated levels of inflation and that “it may become warranted to increase the federal funds rate sooner or at a faster pace than participants had earlier anticipated”. The words were enough to send equity markets into a tailspin, with the US hit particularly hard this week. Markets such as the UK and Europe, which have lagged the US considerably over recent years, have outperformed this week. These markets have higher exposure to sectors such as energy, mining and financials which typically perform better in inflationary environments.

Tesla, one of the most heavily debated stocks in the investment community, caught the eye this week. It announced Q4 sales on Monday and beat expectations by around 40,000 vehicles. Interestingly the Tesla Model 3 was the second most popular new car in the UK last year, only to be outsold by the Vauxhall Corsa. The sales beat by Tesla was enough to send the share price up around 13% on the day, increasing Elon Musk’s net wealth by $32 billion on Monday. However, the auto-company was not immune from the week’s volatility, giving back most of Monday’s gains by Friday. 

It wasn’t just equities that have had a difficult start to 2022, with bonds also selling off on the back of the meeting minutes. Investors have now priced in interest rates moving up quicker than previously anticipated and bond yields have risen accordingly. As investors, we have been trained that government bonds act as good diversifiers to equities and while this is true over the long-term, there can be shorter-term periods where the correlations between these assets’ breakdown. 

Today’s US Non-Farm Payrolls data showed 199,000 jobs were added to the economy last month. The number was below expectations, with the rise of Omicron cases likely to have impacted the ability to hire in December. The US employment market remains healthy with job openings at elevated levels. Indeed, the US consumer enters 2022 in a very strong position, benefitting from high savings, strong house prices and rising wages. 

The big falls this week in equity markets have largely occurred in the companies that have performed very strongly over recent years. It’s a reminder that we shouldn’t simply chase last year’s winners. There are a variety of studies that have shown chasing performance rarely works, although it is hard to avoid the behavioural pitfalls that so often draw us to these names. For us it is about balance, ensuring our research process captures more than just past performance. We must also be willing to make some difficult decisions and invest in areas of the market that have been weak but may offer exceptional value going forward. Volatility, while unsettling at times, can present investment opportunities for long-term investors, which we must not overlook.

As we head through the year it will be interesting to see if the markets apparent New Year’s resolution of rotating out of previous winners will last longer than six weeks.

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. 

Weekly Note

The Week in Markets – 18 December – 25 December

The Santa Rally refers to the sometimes observed trend of equities rallying over the final weeks of December and into New Year. There are
various theories behind the drivers of this phenomenon; the investment of holiday bonuses, happiness on Wall St and the fact that institutional investors are often on holiday, meaning volumes are thin and retail investors dominate the market for the holiday period.

Whatever the drivers are, this December has been
disappointing, with hawkish central banks and the rise of Omicron leading to
increased volatility and lacklustre markets. The start to this week was bumpy
indeed, with equity markets selling off heavily on Monday, before bouncing back
strongly on Tuesday. This general whipsawing and lack of direction in equity bourses
has been witnessed over the course of December.

With a shortened week and the festive period approaching
economic data has been in short supply. On Monday we saw China cut its lending
benchmark loan prime rate, the first time it has done this since April 2020.
With Chinese economic growth slowing, the cut is aimed at spurring on the
economy and many strategists are predicting further cuts in 2022. This has
typically been a positive for both Chinese and global equities in general, with
the world’s second largest economy loosening conditions and likely improving
credit conditions.

The impact of rising cases of Omicron continues to be felt
both domestically and abroad. Rumours of further restrictions after Christmas
continue to gather pace which would cause increased pain for many businesses.
Rishi Sunak did announce a £1bn support package this week, which entitled
companies affected by Omicron to grants of up to £6,000.

With a handful of trading days remaining in 2021, there is
still chance for the Santa Rally to kick in and provide a positive end to what
has been a strong year for risk assets (equities). The drivers of equity returns
have predominantly been strong earnings growth, with valuations actually
falling in most developed markets. Many of the themes that occupied investors
thoughts in 2021 look like continuing into 2022, along with additional
considerations such as rising interest rates and tight labour markets. We will
continue to be nimble and agile in our approach, aiming to navigate some of the
challenges, while also aiming to exploit some of the undoubted opportunities
volatility will create.

We’d like to sign off by wishing you all a happy and healthy
festive period. Thank you to all our clients for supporting us since the launch
of Raymond James, Barbican. As a business, we’ve been truly humbled by the
support, and do not take it for granted. We all feel re-energised and very
excited about the future and look forward to seeing you all, hopefully in
person, in 2022.

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. 

Weekly Note

The Week in Markets – 11 December – 17 December

The Bank of England (BoE) stole the headlines this week by modestly raising interest rates from 0.1% to 0.25%. It was the first rate increase in the UK for over three years and the BoE has become the first major central bank to act in an attempt to tackle rising inflation. For many this will feel like a big change and that the BoE are decoupling from the rest of the world, but when looking globally 2021 has been characterised by central banks increasing interest rates. Indeed, on Tuesday Chile increased its rates by 1.25%, which marked the 112th interest rate hike by global central banks this year.

Given the rise of Omicron and the expected short-term economic slowdown, the virus will cause the probability of the BoE’s move was only around 20%. As such we saw quite a reaction in both equity and currency markets, with bank shares rebounding and sterling strengthening against a basket of currencies on the back of the news. It’s clear the shift in policy by the BoE was driven by fears around inflation. This week we saw inflation hit a new 10-year high, reaching 5.1%, driven by fuel, energy and clothing. The BoE reported they expect the number to climb to 6% in the coming months, three times the official 2% target level. 

The US Federal Reserve had met earlier in the week and although they didn’t change their interest rates, they did indicate that they would end their bond purchase programme by March and potentially increase rates up to three times next year. With above-trend growth, strong consumer and corporate balance sheets and supply-side issues, it is clear central banks are worried about economies overheating and inflation spiralling out of control. 

The Omicron variant continues to spread rapidly with the UK recording a record number of cases throughout the week. Although positive cases are spiking, the booster programme roll-out has dramatically accelerated with over 745,000 boosters administered on Wednesday. The impact on global stock markets from the rise of Omicron has been largely muted, much different to the experience in Q1 2020. Markets believe a combination of vaccines, treatments, supportive government policy and healthy consumer balance sheets should support the economy in the short-term, a much different picture to all the uncertainty caused at the onset of the pandemic. 

Economic data took a back seat this week. Here in the UK, retail sales rose 1.4% month-on-month, higher than expected, while Eurozone construction output also came in ahead of consensus. 

Equity markets have generally lacked direction this week, with the rising threat of Omicron alongside higher inflation acting as a headwind. One asset that has recorded a better week is gold. It’s an asset we hold in portfolios, but which has been a frustration this year. It’s worth noting that it’s mainly held for its defensive characteristics and ability to diversify equity risk. However, if you study the drivers of the gold price, it typically performs well in a falling ‘real’ yield environment – something we have been experiencing for much of 2021, yet the gold price has barely reacted. We expect this to be a short-term breakdown in the trend as opposed to a fundamental change in the drivers of the precious metal and it will continue to be held in portfolios as a diversifying real asset. 

While it was opportune to cover gold this week, we don’t expect anything to be happening in the week ahead that will mean myrrh or frankincense grab the headlines.

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. 

Weekly Note

The Week in Markets – 4th December to 10th December

News from the UK dominated headlines this week, with Prime Minister Boris Johnson taking up column inches on a daily basis, covering suspected Christmas parties, the birth of another child and further restrictions placed on the country.

The apparent Christmas party scandal from 2020, which has only made its way to the public’s attention over the last week appears to have seriously dented the credibility of the Prime Minister and looks like a genuine threat to his position. This week saw Allegra Stratton, former Government adviser, resign following a leaked video. By Friday, the director of communications, Jack Doyle, was in the crosshairs, with rumours of his participation in the alleged Christmas party putting his job at risk. All in all, the incident(s) have done little for the stability of the Conservative Party and could potentially leave investors nervous about their UK allocations given the current fragility.

Alongside this scandal, the PM announced further restrictions on the country, given the growing concerns about the transmissibility of the Omicron variant. Despite the increase in restrictions, markets were robust, perhaps looking through the likely short-term nature of the measures. Indeed, the UK large cap equity index has risen around 2.5% this week, despite the challenges highlighted above. There was positive news for UK homeowners with Halifax house price data showing prices had increased at the fastest pace for 15 years over the past three months. Over three months to the end of November house prices had risen 3.4% and were 8.2% higher than 12 months ago. A robust housing market typically spills over into increasing consumer confidence and consumer spending, which benefits the real economy.  A busy week for the UK was wrapped up on Friday with weaker than expected industrial and manufacturing production, which grew less than economists predicted.

When COVID-19 first emerged in 2020 it had a profound impact on the oil price, which fell significantly during the first few months of the year. However, the oil price is set for its best week since August with rises of around 7% over the last seven days. This is despite the rise of Omicron and the increase in restrictions that governments are placing on society. Sentiment has been buoyed by early indications that the severity of Omicron may be weaker than the Delta variant, while the longevity of measures, as this stage, is expected to be short. Investors are also mindful that OPEC+ will cut supply should Omicron concerns heighten.

A weekly round-up wouldn’t be complete without reference to inflation and the big news was saved for Friday afternoon; US inflation data came in at 6.8% year-on-year, a 39-year high. Breaking down the figures showed prices were rising across the board, including gas, food, new and used cars and housing (rents). The news will likely cement views that the US will raise interest rates in 2022 to attempt to keep inflation contained.

At a portfolio level, inflation can be tricky; high inflation is usually bad for traditional bonds, while it can negatively impact valuations of certain equity styles. We have tried to include assets in the portfolios that could, in theory, benefit, or at least not be worse off in inflationary times. Assets such as infrastructure, a physical asset, whose income streams are often inflation-linked, can perform well, while other real assets such as gold can be a store of value – both assets are held within our portfolios. While inflation seems to be in the spotlight now, we are aware of deflationary pressures that still exist, such as technology and demographics and factor this into our portfolio construction process as well, as always attempting to balance and mitigate risks.

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. 

Weekly Note

The Week In Markets – 27 November – 3 December

This week saw the start of a new month, but it very much felt like the same old story, with COVID-19 fears escalating through the new Omicron variant and inflation data once again exceeding expectations. 

The biggest market-moving noise this week was driven by news flow surrounding the Omicron variant. Market volatility has been elevated with equity indices whipsawing on conflicting reports of the efficacy of vaccines, the severity of the symptoms and the likely impact on hospital capacity. It appears we simply do not have enough data to yet tell, but governments have acted quicker than previously, closing borders and reintroducing certain restrictions and rules. 

Eurozone data published on Tuesday showed inflation had risen to 4.9% in November on a year-on-year basis, which is a record high since the single currency was formed. We find ourselves in a unique position with inflation hitting decade or even multi-decade highs in various countries, yet interest rates remain near all-time lows, two things you would not expect to see occur at the same time. The most common explanation for this is that inflation is transitory and will pass through over the next 12-24months without the need to raise interest rates (too significantly at least) to control inflation. The transitory nature took on a new dynamic this week with US Fed Chair Jerome Powell stepping back from his transitory narrative and acknowledging “Inflation has been more persistent and higher than we’ve expected”. This has cleared the way for a potential speed up in US tapering and accelerated views that US interest rates may rise next year. On the back of Powell’s comments, we saw the US dollar strengthen, bond yields rise (therefore prices fall) and equities fall. 

The oil price has been hit particularly hard over the past week or so on fears over potential lockdowns due to Omicron and the impact this would have on oil demand. A meeting this week with OPEC and other nations was therefore very timely, with many expecting the group, known as OPEC+, not to increase production. However, they agreed to raise production by 400,000 barrels a day from January, but also announced they would consider cutting production should further restrictions be put in place. This caveat to the increase seemed to do the trick, with oil prices actually ending higher by the close of business, despite the headline increase to production. 

The first Friday of the new month sees the release of US Non-Farm Payroll (NFP) data. It showed an additional 210,000 jobs added to the workforce in November, however, this was considerably below the consensus of 550,000. The unemployment rate fell from 4.6% to 4.2% and average hourly earnings nudged up 0.3%. 

It’s been a slow start for equities in December, a month that is typically strong for stocks. While equity markets have been weak, we’ve seen other asset classes such as government bonds and gold start to perform a little better in this heightened risk environment. We continue to blend asset classes in portfolios to diversify risk(s) and smooth the overall return profile. 

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. 

Weekly Note

The Week In Markets – 20 – 26 November

If I had written this round-up yesterday my opening paragraph would have referenced a relatively benign week in markets, with minimal volatility in asset class prices. Fast forward to this morning and we can now delete that opening sentence.

News broke yesterday evening of a new potential variant of COVID-19, which potentially is immune to prior infection and vaccinations. The epicentre for this new variant appears to be South Africa and governments are already ‘red listing’ countries that appear to have cases. It is still very early in the assessment of the mutated strain, with the World Health Organisation (WHO) meeting today to examine it further. On Friday morning it was clear that equity markets would not wait for more data and there was a severe sell-off across global bourses, with markets such as the UK opening down around 3%. Stocks expected to struggle more in a potential lockdown bore the brunt of the sharp falls with British Airways falling around 10% and cinema operator Cineworld off 5%.

The beneficiaries of the short-term risk-off environment were traditional defensive assets, such as government bonds and gold. While these asset classes have struggled for much of 2021, they rallied strongly on Friday morning with the gold price up over 1% and government bond yields steeply falling (and therefore prices rising). It’s moments like this that remind us of the need for diversification in portfolios. In isolation, we, as an investment committee, are not particularly positive on the outlook for developed market government bonds as a stand-alone asset class, but we do value their diversification properties and their ability to perform in times of equity market stress. Today is a timely reminder of that.

Oil markets have been in the news this week with US President Biden aiming to lower the price of black gold, which has been on the rise this year. His failed attempts to get OPEC to pump more oil have led the US to release 50 million barrels from their reserves onto the market. This level of reserve release is unprecedented and nearly twice as large as any previous US inventory release. Despite the extra supply hitting the market, oil prices actually rose at the start of the week. Biden’s wish for lower prices did appear to be granted on Friday morning however with COVID-19 induced fears driving the price down by around 6%. 

Economic data was mixed this week with strong manufacturing data in the US and UK offset by slightly weaker durable goods orders in the US. The strong manufacturing data did fuel inflation and growth expectations and we witnessed US government bond yields rise during the start of the week to reflect this. 

Next week ushers in the start of December, a month that is typically positive for equity markets, known by many as the “Santa rally”. The backdrop for this seemed set, until this new potential variant emerged. 

Our investment approach and portfolio construction aim to ensure that there is a diverse blend of assets held in portfolios, some of which act as a type of portfolio insurance on difficult days like today. Our long-term investment time horizon also allows us to potentially look at days like today with a level of optimism, as there could be short-term mispricing which creates opportunities for long-term investors. 

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. 

Weekly Note

The Week In Markets – 13 – 19 November

Over recent years many of us have become accustomed to “Black Friday’” – the day after Thanksgiving where retailers offer discounts to mark the start of the Christmas shopping period. Although we are still a week away from this event, it seems the Friday before is now becoming “early Black Friday” with many discounted prices already appearing today. 

It seems fitting then that we start this week’s round-up with the consumer. Here in the UK data published today showed that consumer confidence rose in November, despite the headwind of rising inflation. This was coupled with retail sales growing by 0.8% month-on-month, bucking the trend of recent declines. Retailers have reported that Christmas trading has begun early and could be a signal of bumper spending by the UK consumer over the period. A strong consumer normally translates into strong GDP for a country, given that around two-thirds of developed-world GDP is derived from consumption. 

Staying with the UK, we once again need to mention inflation. The consumer price index (CPI) rose by 4.2% in October from a year ago, reaching a 10-year high. This figure, like the US inflation print last week, came in ahead of analyst expectations. With the Bank of England Monetary Policy Committee holding fire on raising rates at their previous meeting, attention is now turning to the December meeting where there is a rising expectation that UK interest rates may increase. However, this is not guaranteed, and it is fair to say that at least some of the inflation we are experiencing is due to pent-up demand in pockets of the economy, which will likely abate. We also need to be aware of the presence of base effects; comparing data to October 2020 when the economy was very fragile.

COVID-19 cases continue to rise in Europe, which now once again becomes the epicentre for the virus. Austria has announced a full national lockdown starting from Monday, which will run for a maximum of 20 days. Germany has announced further restrictions for the unvaccinated as infection rates hit record highs. European stock markets have proved resilient this week to the news, with investors looking through the short-term measures.

It’s been a while since we covered the Japanese economy in the weekly round-up. Japan has been a laggard this year when compared to its developed market peers from both an economic and investment returns standpoint. Mindful of the sluggish growth, benign inflation and low consumer confidence, the supposed fiscally prudent Prime Minister Kishida has announced a huge $488bn stimulus package to help offset the damage caused by COVID-19. At a time when other nations are slowly pegging back stimulus measures, Japan appears to be bucking the trend. This additional fiscal stimulus could boost prospects for the country; while we have exposure to Japanese equities in the portfolio, the Investment Committee will continue to ensure the level of exposure is suitable. 

Having recently increased US allocations in client portfolios it is pleasing to see the US market continuing to grind higher, hitting new all-time highs this week. Stellar results from chipmaker Nvidia and upbeat news from retailers helped push the US bourses to new highs. While US equities are currently a core of our equity component in portfolios, we continue to diversify across geographical regions and sectors, blending active managers with passive strategies. 

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. 

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