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Weekly Notes

The Week In Markets – 31st August – 6th September 2024

We are quite used to explaining how inflation, GDP or labour market data influences markets, however this week markets initially reacted to US manufacturing data.

Manufacturing Purchasing Managers’ Index (PMI) is a measure of the economic trends in the sector. Manufacturing in the US has been weak of late, but market expectations were that there would be a slight increase towards expansion in the sector, however this was not the case as the report came in at 47.2, lower than expected and indicated further contraction. This is the fifth straight month the manufacturing sector has remained in the contraction zone; albeit a bump up from July’s 46.8 reading, despite the decline in new orders and supplier costs rising. The data led to markets questioning the extent of the imminent US Fed interest rate cut, which would help to stimulate economic growth in sectors again. The S&P 500 and Nasdaq suffered big falls on the day, down 1.7% and 3% respectively. Nvidia seemingly took the biggest hit on the day as it closed down by 9.5%, erasing $278bn in market cap, the largest one-day company decline in history.

Regarding manufacturers, German car company Volkswagen (VW) is facing a dilemma. Over history, previous CEO’s have been fired for attempting to cut jobs, and current CEO Oliver Blume is facing the same test as he announced the potential closure of factories. There have been two specific factories earmarked to be closed as they are running significantly below capacity, however, thousands of employees are not happy and are expected to protest next week. VW’s global market share has been falling as electric and hybrid car demand expands and the “bloated monster” needs to cut costs.

Tesla has enjoyed a successful week in markets as they announced plans to launch their “full self-driving” (FSD) product in Europe and China. The full self-driving will be an upgrade to the Tesla autopilot that is currently available to drivers and if regulators can be convinced, this will be a significant boost to Tesla profit margins, charging customers an extra $12,000 on their purchase. Tesla shares have surged almost 10% for the week.

On Wednesday, we saw the Bank of Canada (BoC) continue their interest rate journey as they cut rates down to 4.25%. Their first-rate cut was in May where they lowered rates from a 20 year high of 5% and have since cut rates by 25bps (0.25%) each meeting. It seems they are not stopping there as BoC Governor Tiff Macklem, opened the door for further cuts stating, “if inflation continues to ease in line with forecasts, it is reasonable to expect further rate cuts”.

A new French prime minister has been appointed this week, two months following the snap election that caused a political shakeup. Michel Barnier was the European Union’s former Brexit negotiator and has now been tasked by French President Macron, to unify the government. Over his long career, Mr Barnier has been considered a centrist, however in his bid to become the president in 2022 he swayed towards the right side, hardening his stance on immigration. At the age of 73, he also becomes France’s oldest prime minister.

Readers may well have noticed lower fuel prices recently, driven by recent falls in the oil price. US Crude oil is now below $70 a barrel, on the back of strong supply and expectations of weakening demand as economies slow.

As is customary, US Non-Farm Payrolls data was released today, the First Friday of the new month. Following on from last month’s reading, the jobs data undershot expectations with 142,000 jobs created in August, strengthening the case for a 0.5% cut by the US Fed later this month. The underwhelming data led to bond markets rallying as yields dropped (prices rose) on the back of the news. We’ve written extensively about our comfort in holding government bonds in portfolios currently, and we continue to believe the asset class can help stabilise portfolios should economic growth disappoint.

September is historically a tricky month for equities, and so far this trend is continuing. While equities have pulled back, we have witnessed strength in government bonds. With key inflation data and central bank meetings to come this month, there is plenty of news flow that could impact markets in the short-term.

Nathan Amaning, Investment Analyst

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

The Week In Markets – 24th August – 30th August

Markets were on edge this week as they eagerly awaited “the world’s most important stock” Nvidia’s earnings report. Nvidia has been long labelled the Artificial Intelligence (AI) posterchild, momentarily becoming the world’s largest company in June, but investors have contemplated whether insatiable demand for their processor chips is sustainable.

On Wednesday, Nvidia announced they had comfortably beaten expectations with record revenues of $30bn, however by the end of US trading the stock had fallen by 6%. Investors were worried how sustainable the extraordinary levels of growth were and also picked up on the significant delay of their second-generation Blackwell AI chips. This drop in Nvidia’s share price has been a drag on US markets given the company is a large part of US indices. At the time of writing the US market is slightly down for the week.

Last week markets were keen to hear from US Federal Reserve Chair, Jerome Powell, who spoke at the Jackson Hole Symposium on the trajectory of future rates. “The time has come for policy to adjust”, was the message as the Federal Open Market Committee (FOMC) digested softening employment data. Non-farm payrolls has slowed, and unemployment continues to accelerate beyond the 4% mark.

Bank of England (BoE) Governor Bailey was also present at Wyoming as he concluded that longer-term inflationary pressures had eased, however he was keen to state further interest rate cuts would not be rushed. At the beginning of this month interest rates were cut from the 16-year high of 5.25% to 5% but the BoE will remain cautious as “it’s too early to declare victory” on inflation.

Temu, the Chinese online marketplace company, has gained huge popularity since its launch at the end of 2022, breaking into the US, Canada and European markets. They gained their popularity off the wide range of products they sell at low prices, complemented by their aggressive social media campaigns and advertisements whilst also gamifying the shopping experience on their app. On Tuesday parent company, China PDD Holdings missed market estimates for Q2 revenues, and this was followed by stern comments from Co-CEO Chen Lei, which caused a one-day share meltdown wiping $55bn off the market cap. Chen Li explained that increasing challenges from competition and changing consumer demand have affected earnings with China’s domestic economy faltering.

Nigeria is a country we don’t often cover in the weekly but this week the “Giants of Africa” reported their economy grew 3.19% in Q2 (year-on-year) boosted by agriculture and the increase in crude oil output. There have been disruptions to agriculture driven by weather conditions, security and logistic issues however it was still the greatest contributor (22.61%) to growth. Crude production has grown to 1.4m barrels a day with the target of reaching 2m barrels a day by the end of 2024.

The US dollar has continued to weaken over recent days and is now at levels last seen in March 2022 against Sterling (£). A weakening US dollar is often associated with a risk-on sentiment in markets. Markets have definitely been in more optimistic spirits recently, bouncing back after an extremely rocky first few days in August.

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 – 17th August- 23rd August 2024

The annual Jackson Hole Symposium opened last night and gets going in earnest later this afternoon where it is expected US Fed Chair, Jerome Powell, will outline the central bank’s current view on monetary policy and the US economy. Investors will be looking for clues on the level and timing of potential rate cuts as well as assessing the US Fed’s current economic outlook.

As we head towards the month of September, when the US Fed will once again meet, markets are almost certain we will see the first interest rate cut as key economic data points have indicated a continued slowdown of the labour market and inflation has dropped below 3%. There still remains various key data points before the big decision; GDP, PCE inflation, Non-farm payrolls and July retail sales, which could all affect the level of interest rate cut. While a rate cut is nailed on for September, there is still a wide range of outcomes for the total amount of interest rate cuts for the remainder of 2024, with 0.75% of interest rate cuts the most likely outcome.

The imminent prospect of rate cuts has fuelled gold prices to rise to fresh all-time highs this week, pushing above $2,500 an ounce. To put that into perspective a standard gold bar (weighting 12kg) would now be worth more than $1 million.  Gold has provided excellent diversification to portfolios as well as stellar returns, rising over 22% in the last six months.

Peloton interactive has just reported its first sales increase in nine quarters, with shares closing up 35% on the news. During the pandemic and global lockdowns, high end home gyms were certainly in fashion as consumers had the disposable income to spend and couldn’t access traditional gyms. After over-earning during lockdown, Peloton sales suffered significantly with the share price tanking. A broad restructuring plan is still underway as the search for a permanent CEO is ongoing and global headcount is being cut by 15%.

Japanese equities continued to regain their poise after the significant falls at the start of the month. The index dropped over 20% in three days, however, it is now close to recent highs.

Purchasing Managers Index (PMI) data from UK, Europe and the US was released this week, with mixed results. The standout data came from the UK, where both manufacturing PMI and services PMI were higher than expected and in clear expansionary mode. It provides further evidence of a robust UK economy that continues to perform better than anticipated. The good news has led investors to question whether another interest rate cut is required in the short-term and it will be a close call as to whether another 0.25% cut is delivered at the next Bank of England (BoE) meeting.

France also had positive PMI data. The economics of the Olympics is always interesting as Paris budgeted $8bn for the games and unlike previous hosts Brazil (Rio) and Japan (Tokyo) managed to stick to plan. Existing infrastructure has been key to this, and the French are already reaping the rewards. Services PMI rose to 55, the fastest pace in over two years, as tourists were prominent in restaurants, cafes, bars and sports arenas. This boost should also positively impact upcoming GDP figures by an estimated 30bps (0.3%) over the third quarter.

Next week has the potential for excitement with Nvidia releasing their Q2 results after hours on Wednesday. The results have set the tone for short-term market leadership and is seen as the bellwether of the artificial intelligence (AI) narrative. While we will be paying close attention to the results, our portfolios are designed to be well diversified and aim to reduce significant company specific risk, ensuring we are never de-railed by one individual stock.

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 – 10th August – 16th August

What a difference a week makes. Last week’s concerns around a potential US hard landing and recession have now been shelved following data that pointed towards lower inflation and modest growth, which was well received by equity markets.

The Japanese equity market, which suffered its second worst day in history last Monday, has continued to regain its poise this week. The main index finished the week very strongly and is close to 20% higher than the closing level on 5th August. While the equity market has recovered, the currency has once again weakened versus most major currencies, after a sharp rally that started in July. The Yen looks cheap on a wide range of metrics, but after the Bank of Japan stepped away from any further interest rate rises, the currency has weakened. GDP data for Japan was very strong this week, with the economy growing at an annualised 3.1% in Q2, boosted by consumption and this helped support the equity market.

Wednesday was a key day for data with both UK and US inflation data being released. UK inflation was slightly softer than expected, with headline inflation coming in at 2.2% vs an expected 2.3% figure. The same was true with the US – inflation was 2.9% against an expected 3% print. This was the first time in over three years that US inflation has been below 3% and likely cements an interest rate cut in September from the US Fed. Overall the data from the UK and US is pleasing; wage growth is now outpacing inflation, which should support consumption, while borrowing costs should begin to fall as interest rates are reduced, which will help businesses and consumers.

On Thursday the positive US jobs and retail sales data helped alleviate any concerns about a US recession and supported equity markets. Retail sales came in ahead of expectations, while unemployment claims were lower than anticipated. US equities posted a very strong Thursday, led by the small cap index, which rose nearly 3% on the news. Slow, but positive, economic growth, with falling inflation and interest rates is a positive cocktail for equities and this is the narrative supporting risk assets currently.

In the UK Q2 GDP and retail sales data was broadly in line with consensus and highlighted that the UK has now emerged from recession and is enjoying mild growth.

Fixed income markets sold off towards the end of the week, driven by strong economic data and the diminishing chances of aggressive rate cuts. At one-point last week there was the possibility of an emergency rate cut by the US Fed, and at least a 0.5% interest rate cut in September. Now the market is pricing in only a 0.25% cut in September and this negatively impacted government bond prices. However, the asset class has done its job recently in diversifying equity risk.

At a company level, Starbucks sacked their CEO after only a year in charge. The company has been struggling to maintain its market position and has suffered poor results over recent quarters, leading to a declining share price. Costs for Starbucks, particularly barista wages, have caused problems, while the ability to push pricing further appears limited, meaning profit margins have been impacted. The news of the immediate change of CEO led to the share price spiking around 25%, adding $20bn of market cap – clearly investors were thrilled with the leadership change.

Gold has been in a period of consolidation but made new highs once more this week, closing above $2,500 an ounce. The precious metal is in demand from areas such as China, with the central bank and consumers accumulating holdings in gold. Oil has nudged higher this week on the back of escalating geopolitical tensions. It may surprise many to read that the biggest oil producer in the world currently is the US, and last week they were producing a record breaking 13.4 million barrels of oil a day on average.

It’s been a positive week for risk assets, regaining their upward momentum following the Japanese flash crash last week. While short-sharp corrections can cause panic, it is important to stay objective and focus on the long-term during these bouts of volatility. Some of the most painful days in markets are quickly followed by some of the best, and that has been the case over the last two weeks.

Andy Triggs, Head of Investments

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

The Week In Markets – 3rd August – 9th August 2024

Any hopes of a quiet summer in markets were quickly abandoned as investors woke up on Monday morning to turmoil in the Japanese market, which soon spread globally. Monday’s fall of over 12% in the Japanese index meant it was the third worst day on record for Japanese equities, and when combined with the falls on the previous Friday, meant it was the worst two-day trading period ever for the Japanese main index.

It appears that the crash on Monday was not driven by fundamentals, but in fact by a huge unwind in positioning following the recent rapid appreciation of the Japanese Yen. The sharp decline in equities has occurred as the Japanese Yen has appreciated by over 10% versus most major currencies. This huge reversal has led to many quantitative strategies, hedge funds and algorithm traders having to cover their positioning, leading to the heightened volatility and drawdowns. Concerns that the Yen would further appreciate, and lead to continued drawdowns were soon abated by the Bank of Japan, who after an emergency meeting, stated “we will not raise rates when markets are unstable”. The news was enough to lead to a huge rebound on Tuesday – the Japanese index rising over 10% and finishing the week a little more than 2% down – quite the recovery!

The US market started the week on the back foot, with the events in Japan spreading globally, coupled with increasing concerns the US economy may be heading towards recession, following weaker jobs data last Friday. These recessionary fears were eased on Thursday when the initial jobless claims data was better than expected. US equities had their best day since November 2022 on Thursday and are now up for the week in sterling terms.  

The general trend across global equities was for weakness at the start of the week, before posting a recovery towards the end of the week. The reverse is true for government bonds. Concerns around US growth and the flash crash in Japan led to a rally in developed market government bonds. 10-year US and UK government bond yields fell below 4% (prices rising) as more interest rate cuts begun to be priced in. At one point on Monday the market was expecting the US to reduce interest rates by 1.25% before the end of the year. Yields have drifted higher, although the market is still expecting either a 0.25% or 0.5% interest rate cut from the US in September. Falling interest rates without a recession could be a powerful cocktail for equity markets.

Chinese inflation data came in higher than expected, at 0.5% year-on-year. The country has been battling deflation, so it was pleasing to see a positive inflation print. The world’s second largest economy is still challenged by a sluggish housing market and slowing growth. The Chinese authorities are attempting to stimulate the economy, however, it’s yet to be seen whether the measures implemented so far will be successful.

The week has been very light on key economic data, yet we have witnessed big swings in both equity and bond markets. Trading volumes are often thin in the summer months, with many market participants on holiday, and this amplified volatility this week. It was pleasing to see government bonds help offset some of the equity weakness on Monday. It’s a reminder that the asset class can diversify equity risk in times of growth concerns. The turnaround in Japanese equities from Monday to Tuesday was also a reminder about keeping calm when others are panicking. Those nervous sellers on Monday missed out on a 10% gain the following day.  For us, the focus remains on diversification, holding a range of assets that can perform in a range of outcomes, while leaning into areas where we have high conviction.

 

Andy Triggs, Head of Investments

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

The Week In Markets – 27th July – 2nd August 2024

This week we entered the month of August, with the Olympics up and running! Team GB have made a good start with 25 medals so far, including nine golds, and sit fourth in the medals table. In what has been a hectic week in markets it has been government bonds that have won the gold, with rate cuts and increasing concerns about a slowing global economy supporting the asset class.  

The US Federal Reserve and the Bank of England (BoE) both met in what would be a busy week for markets. Let’s start with the BoE who announced the first interest cut since March 2020. Governor Andrew Bailey and the eight other members were split on the decision of lowering interest rates, with five members voting for a cut, and four voting to hold rates. In the press conference Mr Bailey noted that “inflationary pressures have eased enough to cut rates”. Inflation fell to target of 2% in May and has remained there over the month of June, although market expectation is that inflation will spike to 2.75% due to energy prices before falling again to target in 2025.  The BoE has also upgraded economic growth expectations for the year from 0.5% to 1.25%, highlighting the resilience of the UK economy.

The US Fed met the day before the BoE, but the outcome was different as they decided to hold interest rates firm at 5.5%. Investors are however increasingly optimistic on the Fed cutting rates as soon as September with Fed Chair, Jerome Powell, stating “we are getting closer to the point”. US weekly jobless claims increased by 14,000 to 249,000 and exceeded market expectation of 236,000 suggesting some softening in the labour market. The Fed will certainly be cautious to ensure the labour market does not deteriorate from here.

US Non-farm payrolls are in this Friday afternoon as 114,000 jobs were created in July. Market expectation was 175,000, much greater than the result and will certainly drive worries about the current health of the economy following May and June’s strong results. Unemployment rate has also come in above forecasts of 4.1%, rising to 4.3%.

The Bank of Japan (BoJ) surprised markets with their second rate-hike of the year and suggested they may go further later in the year. The hawkish rhetoric from the BoJ continued to support the currency, which has strengthened significantly against the USD over the last fortnight. The big rotation in the currency has impacted the stock market, with the index suffering big falls over the last 48 hours.

UK junior doctors have striked for a total of 44 days since they first began in March 2023. They have been holding out for a 35% pay rise but this week have been offered a compromise of 22.3%. The union has agreed to present the deal to the tens of thousands of doctors and if accepted the strikes will cease.  These strikes have hurt the NHS significantly and are estimated to have cost around £1.7bn of taxpayer money with the postponements of appointments, procedures and operations.

UK Chancellor Rachel Reeves spoke this week and announced she will deliver her first Budget on 30th October. She outlined that certain taxes would have to rise given the uncovering of a £22bn black hole in the public finances. She also announced the scrapping of a range of infrastructure projects as well as making the winter fuel allowance for pensioners means tested.

Eurozone inflation for the month of July has surprised to the upside with headline inflation (year-on-year) rising from 2.5% to 2.6%, whilst market expectations were for a fall to 2.4%. Core inflation (excludes energy and food prices) stayed firm at 2.9%. At the start of June, the ECB cut benchmark rates to 4.25% and paused in July as they acknowledged there would be a “bumpy road” to bringing inflation down to target whilst also maintaining economic growth. Investors maintain the belief that further rate cuts will happen in September and possibly December.

It has been a week of two halves in equity markets. There was strength at the start of the week with the UK large cap index approaching new all-time highs while other bourses rose globally. However, equity markets came under pressure in the second half of the week, most likely driven by concerns of a slowing economy following weak data out of the US. Nvidia’s recent volatility continued throughout the week. The company lost nearly $1 trillion in value in a month, before rebounding on Wednesday by around 10%. Elsewhere in the tech/artificial intelligence space there were positive results from Meta (Facebook) while Microsoft’s results showed disappointing cloud growth. 

While equities have struggled government bonds have rallied significantly on the hopes of interest rate cuts from the US and Europe. It’s been pleasing to see the non-equity part of the portfolio perform well as equities have faded and highlights the benefit of diversification.

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 – 20th July – 26th July 2024

Whether you regard Sunday as the beginning or end of the week, huge news broke on Sunday that President Biden would be stepping down in the presidential race and endorsed Vice-President Kamala Harris to be his successor. He has been under mounting pressure following a detrimental debate against Trump and wrongly referring to Ukraine President, Zelenskyy as “Putin”, and he now believes it is time for fresh voices to unite the nation.

The equity market rotation, which began a couple of weeks ago, continued throughout the week. The US market has been dominated by a handful of mega cap technology/artificial intelligence companies which have propelled the market, while many other stocks have lagged, particularly small caps. Over the last two weeks we have seen a big reversal, with the US small cap index rallying, while the mega cap stocks have languished. The US small cap index has outperformed the tech-heavy NASDAQ 100 index by over 15% since 10th July! The question investors are asking is whether this rotation will last, or whether normal service will be resumed and tech stocks will lead the market once more; only time will tell. There have been a range of factors driving the rotation – weaker inflation and economic data has got the market excited once more around interest rate cuts, which typically favour smaller companies. We have also seen some less than perfect earnings data from some of the “Magnificent Seven” companies, coupled with concerns around the elevated levels of investment, and whether it will be able to generate a meaningful return for investors. Tesla and Alphabet are the first of the magnificent seven to post earnings and disappointed. Tesla reported a 45% slump in Q2 profits, resulting in their shares falling 13% on the day, while Alphabet admitted they were overspending on AI infrastructure rather than advertising, but CEO Sundar Pichai, spoke about the opportunity costs – “the risk of underinvesting is dramatically greater than the risk of overinvesting”.

Alphabet (owner of Google) has been unsuccessful in the acquisition of Wiz, a cyber security firm for £18bn. This would have been Alphabet’s largest ever acquisition as they continue to rival Microsoft and Amazon in the cloud services market. Wiz decided against the deal with the target to reach $1bn annual revenue before a potential IPO.

US personal consumption expenditure (PCE) data was released this afternoon. It differs from regular core inflation data as it only measures goods and services targeted towards and consumed by individuals. Core PCE remained at 2.6% while headline PCE fell in line with market expectations to 2.5%. This will be an encouraging print for the US Fed and could encourage them to cuts rates shortly.

US GDP for Q2 rose by 2.8%, hugely surprising markets as only 2% was expected. Economic growth has remained resilient this year despite elevated interest rates. GDP is a lagging indicator however the data will make for happy reading for the US Fed as the data supports claims that the economy is heading for a soft-landing and is yet to rollover due to high interest rates. With slowing inflation, it is widely expected the US Fed will be able to cut rates in the coming weeks and months, supporting the consumer and economy further.

Netflix has recently added a number of great series and films with Baby Reindeer and Bridgerton topping the charts, however they added their fewest number of subscribers over Q2 24 following their password sharing crackdown. This hasn’t impacted earnings as they reported a 23% rise in net profit margins and their lower priced ads subscription tier appears to have aided revenues. The benefit of the plan is not expected to be long term and Netflix has stated the search for new growth drivers will continue.

The Bank of Canada (BoC) has not been afraid to diverge away from the US Fed as on Wednesday they cut interest rates for the second consecutive meeting, down to 4.5%. BoC Governor, Tiff Macklem, is aware that the economy is weak, and growth needs to pick up in order for inflation not to fall beyond target. There is optimism for a recovery in household spending as borrowing costs ease as households are currently cutting back on non-necessities in order to deleverage.

The UK equity market made the headlines this week with claims we are witnessing a “turning of tide” for the unloved market. Asset managers Blackrock and Allianz joined other fund houses in increasing exposure to UK equities. Flow data showed that since May institutional customers are now net buyers of UK equities, reversing a long-standing trend of being net sellers. Money flowing back into UK equities could be very powerful and help close the valuation gap between UK equities and the rest of the world. Relative political stability has been cited as one of the reasons investors are turning more positive on the UK.

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 – 13th July- 19th July 2024

A busy week in markets was made even busier by the news over the weekend regarding the attempted assassination of Donald Trump. The incident appeared to galvanise the Republican party and have increased Trump’s chances of returning to the White House. President Biden has recently been taken ill with COVID and there are rumours circulating that he may imminently drop out and be replaced as the Democrat candidate.

Taylor Swift and Burna Boy are musicians that have come to the UK over the month of June and have been cited as reasons for UK inflation coming in slightly higher than expected. The concerts have boosted demand for hotels and restaurants, leading to an increase in prices. For the restaurants and hotels and of course the Swifties there is more good news – Taylor Swift will be in London in August!

Markets had been optimistic about the UK’s inflation print for June with 1.9% forecasted, however headline inflation remained at 2%. Core inflation (excludes food and energy prices) was unchanged at 3.5%. With the Bank of England’s (BoE) target rate set at 2%, inflation is now in line with target, however investors have reduced bets on the BoE cutting interest rates in their August meeting. Services inflation is a key component that the monetary policy committee members are keen to see fall, and it also remained strong at 5.7%, despite market forecasts of a slight fall to 5.6%.

Later in the week, UK unemployment for May stayed firm at 4.4%, however wage growth for May (including bonuses) fell slightly to 5.7%, in line with market expectations. The BoE have spoken and want to see wages moderate, and the labour market continue to cool before they entertain an interest rate cut and it seems May’s figures were not significant enough to sway this vote.

We’ve had a busy week on the inflation front as the Eurozone figures for June were finalised. Core inflation (year-on-year) was unmoved at 2.9% and headline inflation slightly dropped to 2.5%. The Eurozone’s road to the 2% target could take some time, with investors not expecting it to be reached until late 2025.   

Following the inflation data, the European Central Bank (ECB) met for the fifth time this year and the conclusion of the meeting was no surprise to markets, interest rates were held firm at 4.25%. The ECB cut rates by 25bps in the June meeting and the bank seem to be cautious on making any “rushed” decisions given the stalling disinflation. “What we do in September is wide open” said President Christine Lagarde, but it is tough to estimate what will occur as an abundance of economic data, two monthly inflation prints and quarterly figures on GDP and wages will be released before policymakers meet again. Investors however have begun to price in two further rate cuts for the year. 

In the US, retail sales for June (month-on-month) were flat at 0%, following May’s figure being revised to 0.3%. Subsequent to the strong start to the year for retail sales, they have now significantly cooled as households continue to feel the pinch of stubborn inflation and elevated interest rates. PepsiCo, the drinks manufacturer, announced they have seen a trend in lower income households seeking alternatives which affected their second quarter revenue results. 

UK retail sales disappointed this morning, declining by -1.2% month-on-month. Wet weather in June could have been a contributory factor, along with high interest rates. As time goes by more consumers will be re-mortgaging to higher levels and this will naturally curb consumer spending in other areas of the economy.

It has been a fascinating week in markets, with big rotations occurring in equities. The first real concerns around the artificial intelligence (AI) theme surfaced this week. On the back of concerns around user application, future revenues and possible Trump tariffs we witnessed big reversals in previous market leaders. Dutch chip equipment maker ASML fell over 12% on Wednesday, while other AI darlings such as Nvidia fell over 6% on the day. 

The summer months are historically quiet in markets, with the holiday period leading to low trading volumes and limited activity. However, the current period feels anything but quiet, and with interest rate cuts appearing imminent it is unlikely to quieten down anytime soon! We will be keeping a close eye on events, aiming to ensure portfolios are well placed to blossom over the summer months.

Nathan Amaning, Investment Analyst

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

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

It has been a busy week in markets, alongside an exciting week in sport. On Wednesday evening England left it late to beat the Netherlands to reach the Euro 24 men’s football final. The England men’s cricket team are taking on the West Indies in what will be James Anderson’s last test match. He steps back as the leading wicket taker in test history for a fast bowler. For the sporting enthusiasts there is a jam-packed weekend ahead with England taking on Spain in the men’s Euro 24 final, followed by the Copa America final between Argentina and Colombia. We will also have the Wimbledon Tennis finals to enjoy.

Rachel Reeves is the UK’s first female Chancellor of the Exchequer and in her first speech she got straight to business, asking officials for an assessment of the UK’s public spending capabilities. The assessment will come before an Autumn budget which is set to be announced before the end of the month. Another bold move that was made almost immediately was the removal of the de facto ban on onshore wind farms that was put in place in 2015, paving the way for labour to set up “Great British Energy”.

Onto economic data, in the UK GDP figures for May were released and pleasantly surprised. Year-on-year, GDP was 1.4%, exceeding market expectations of 1.2%. This figure has come as a boost for the Labour party & Prime Minister Kier Starmer who aims to increase economic stability and growth in the UK. We must remember good news can be bad news (for markets) and although we take the positives from the current economic strength, estimates on the Bank of England (BoE) cutting rates has been pushed back due to the underlying strength of the economy.   

Earlier this week, Carlsberg agreed a deal to purchase Britvic, the soft drinks company, for £3.3bn after previous failed bids last month. Britvic will be more commonly known as the home to drinks such as Robinsons, J2O and Lipton Iced Tea. This deal allows Carlsberg to expand their presence in the non-alcoholic market and enhance their geographic footprint.

Dyson are known for their vacuum cleaners and hair dryers, but the plug has been pulled on 1,000 jobs in the UK as part of a cost cutting restructure. Although the headquarters were moved to Singapore in 2019 there are still three sites in the UK responsible for the designs and research and development (R&D). The cuts have been made as the company aims to be more agile. Dyson are still pushing their R&D spend, aiming to make waves in the robotics sector.

In the US, inflation figures for June were announced on Thursday leading to huge swings in markets. Headline inflation fell from 3.3% to 3%, beyond market expectations of 3.1%. Core inflation (excludes food and energy prices) dropped to 3.3%, beating market forecasts of 3.4%. The general trend of US inflation is falling following the slight rebound we experienced at the beginning of the year. Following the inflation data there was a huge reversal in market leadership, with the much written about “magnificent seven” stocks, which have been leading the market, dropping over 4% on average, while the US small cap index rose over 3.5%. Small cap stocks are seen as being more interest rate sensitive; the weaker inflation data led to an increased expectation of imminent rate cuts in the US, boosting the small cap index, along with other rate sensitive sectors such as utilities. Government bond yields, in the US and UK, fell on the inflation data.  

Data from China this morning showed their exports grew 8.6% year-on-year, leading to a record trade surplus. The import picture was much less positive, highlighting the weakness in domestic consumption, with imports down -2.3% year-on-year. China’s reliance on exports could lead to problems if a potential Trump-led US administration begin to impose further tariffs on their exports.

At a currency level the softer US inflation data led to the USD weakening against a wide range of currencies. The Pound is now at highs against the USD not seen since July 2023. The Japanese yen, which has been exceptionally weak in 2024, staged a mini recovery on Thursday afternoon, with rumours of intervention from the Bank of Japan.

Despite huge swings in markets on Thursday, it was pleasing to see that portfolios were largely immune from the volatility. This was driven by our diversified approach which is not overly focused on one sector, currency or country.

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 – 29th June – 5th July 2024

The fourth of July is a special day for the US every year, as they celebrate their independence. This year it was also a key date in the UK calendar with the UK General Election taking place. The Labour Party, led by Sir Kier Starmer, had long been touted as favourites to win, and this was confirmed by Friday morning, with Labour securing a landslide victory to claim an absolute majority with 412 seats.

It has been 14 years since Labour were last in power, under Gordon Brown, and their turnaround from a poor showing in the 2019 election has been profound. Many high-profile Tory MPs lost seats, including Liz Truss and Jacob Rees-Mogg. Labour has campaigned on change, and is focusing on providing economic stability, improving the NHS and creating “Great British Energy” with the aim of reducing bills and making Britain a clean energy superpower.

The reaction from UK markets has been largely positive to the news. The outcome was widely expected and much of Labour’s rhetoric has been seen as pro-growth and pro-business. Mid-cap, more domestically focused equities have had a strong week and this continued, rising over 1% on the election news. Interestingly government bond yields dropped this morning (prices rose), which highlights that Labour are not seen as a fiscally irresponsible party. Sterling nudged higher versus the USD, potentially on the prospect of political stability.

In France, the snap election that President Macron called for has not been so smooth as Le Pen’s National Rally (NR) party won the first round. This coming Sunday will be the final round of voting, and we have seen over 200 candidates drop out from the local polls to stop the NR achieving an outright majority.  The French are known to protest, and this time is no different, as thousands gathered in Paris calling for voters to block the rise of the far right. The uncertainty has rocked French markets as bond yields have risen and the equity market is down -3% over a month, although it has rebounded this week. The expectation now is that the NR will not be able to secure an outright majority and that helped soothe markets.

We have spoken about the Swiss National Bank (SNB) in recent weeks, noting that they have cut interest rates twice this year. There was a pleasant surprise, when on Thursday, June’s inflation (year-on-year) fell beyond market forecast to 1.3% and inflation (month-on-month) came in flat at 0%. The reaction to falling inflation has been positive and there are expectations that the SNB will look to continue the cutting cycle in September.

US equity markets are steadily continuing their climb as the main market closed at its 32nd record high of 2024. The tech-heavy NASDAQ has risen over 2% for the week with huge contributions from the Magnificent 7 stocks. Tesla reported better than expected car sales for Q2 24 and their share price has rallied over 25% for the week. Microsoft and Apple have raced back ahead of Nvidia in terms of market cap with extremely strong performance this week.

US Non-farm Payrolls are in and remain strong once again as 206,000 jobs were created in June, beating market expectations of 190,000. The previous month’s figure of 272,000 has been revised down to 218,000. Wages (year-on-year) have slightly eased to 3.9%, in line with market expectations. US Fed Chair Powell spoke earlier this week at a conference in Portugal, emphasising the need to see more data which will provide an accurate picture of the economy.

While the UK General Election has passed with little disruption to markets, both the French and US elections could create more volatility, with the outcomes less certain. As a result, it is prudent to ensure portfolios are well diversified and not overly concentrated by sector or country.

Nathan Amaning, Investment Analyst

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

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