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Weekly Notes

The Week In Markets – 28th December 2024 – 3rd January 2025

Happy New Year! This week we transitioned into 2025, the year of the snake according to Chinese astrology, which is associated with growth and transformation. Although Chinese New Year doesn’t fall until the end of the month, investors will be hoping for strong growth and positive economic transformation throughout the year.

It has been a truncated week for most major markets, with exchanges being closed in observation of New Years Day. A late santa rally in the US failed to ignite this week, with equities falling throughout the week. Trading volumes are typically thin during holiday periods, and there was potentially an element of profit taking into year-end given the strong gains made during 2024.

Economic data from the US was very light this week. The Chicago PMI data was weak, however, there was more positive data with finalised manufacturing PMI data higher than expected, as well as better than expected weekly jobless data. Given the holiday period, the monthly non-farm payrolls data will be released next Friday, not the first Friday of the month, which is customary. US bond yields were stable this week, after a difficult December. It has been a strange time for government bonds, behaving very differently in this rate cutting cycle when compared to the past. Yields have been rising, despite the US Fed cutting rates by 1% since September; this is a phenomenon we haven’t really witnessed before. As a result of rising yields, mortgage rates have risen in Q4 and are around 1% higher over the period, with long-term mortgage rates back above 7%. This will continue to act as a headwind to the housing market, where transactions remain extremely low. Construction spending disappointed this week and could be a headwind to GDP growth this year.

UK monthly house price data from Halifax showed prices were up 0.7% for the month. Over the course of 2024, house prices rose 4.7% on average, according to Nationwide, with the average price of a home now £298,000. It is hoped that falling interest rates will provide support to the housing market in 2025, although stamp duty changes, which take effect from April, could be a headwind to pricing.

Sterling started the new year in particularly weak fashion, falling over 1% against the US Dollar and Japanese Yen on Thursday. The weaker currency did give a lift to UK large cap equities, with the headline index rising over 1% yesterday.

Chinese bond yields continued to fall this week, moving out of tandem with most major developed market government bonds. The yield on the 10-year Chinese government bond fell below 1.6% this week, for the first time in history. It has been driven by deflationary pressures and stalling economic growth within the world’s second largest economy. It will be interesting to see what policy measures are implemented this year in order to help kickstart the ailing economy.

Gold moved higher at the start of the year, with investors seemingly believing the strong performance in 2024 is likely to carry on. With elevated geopolitical risks, it is seen as a sensible portfolio hedge, something we wouldn’t disagree with. The oil price has nudged higher this week, with Brent Crude back above $75 a barrel. This is in line with where it traded 12 months ago, although a far cry from the $120 a barrel it reached at the peak of 2022.

After a quiet start to 2025 things will become busier with US non-farm payrolls, inflation data and Trump’s inauguration all coming up over the next few 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 – 14th December – 20th December 2024

The hope of a Santa Rally was brought to a complete standstill on Wednesday evening following the US Federal Reserve’s meeting. The 25bps (0.25%) rate cut was anticipated by markets; however it was the commentary from US Fed Chair Jerome Powell, that spooked markets.

Wednesday’s meeting marked the final US Fed meeting before Mr Trump’s arrival at the White House. The decision was made to bring interest rates down for the third consecutive meeting to 4.5%. Mr Powell spoke clearly about entering a “new phase”, in which greater caution would be taken regarding further rate cuts, signalling just two cuts in 2025. Discussions around the health of the US economy were positive but caution stemmed from the potential impact of proposed tariffs and policies by Mr Trump. The S&P 500 and Nasdaq fell -2.9% and -3.8%, respectively, on the day. Additionally, Mr Powell shut down talks of a national reserve for cryptocurrencies, triggering a fall in bitcoin, now down -5% for the week.  

It is fair to say the US economy has been resilient over the year, and US retail sales reflect this. In November, retail sales increased more than expected to 0.7%, with motor vehicles sales (2.6%) and online shopping (1.8%) leading the way. Black Friday sales provided the perfect opportunity for an online splurge, but strong retail sales have been underpinned by robust wage growth.

On our home turf, UK wage growth rose more than expected. In the three months to the end of October, average earnings rose by 5.2%. We also had inflation data released on Wednesday, which showed inflation had risen, as expected to 2.6% (year-on-year). The data was released before the Bank of England’s (BoE) meeting and had effectively extinguished any last hope of a pre-Christmas cut.

It was Thursday afternoon when the BoE concluded their final meeting of the year. At the beginning of the year, markets expected four base rate cuts from the 16-year high rates of 5.25% but we have ended the year with just two cuts, leaving rates at 4.75%. Policymakers became more divided as three of the nine Monetary policy committee members – Deputy Governor Dave Ramsden, Swati Dhingra and Alan Taylor – voted for a 25bps (0.25%) rate cut. The BoE has been more cautious than US Fed and European Central Bank, and that cautious approach will not change heading into the new year. Governor Andrew Bailiey stated that the central bank will stick to a “gradual approach” following a recent pick-up in inflation and weakened economic growth. Markets responded negatively, with the FTSE 100 heading for its worst week of the year, down -3% and longer dated UK government bonds yields reaching levels not seen since 1998.

All year we have covered the political crisis that the French have been through, and President Macron has now appointed his fourth premier of the year. Mr François Bayrou, the leader of centralist party MoDem, compared the difficulty of his new role to “climbing the Himalayas”. The imminent task he faces include addressing the huge public debt problem and pushing a budget through that pleases all three divisions in parliament.

Until recently mergers and acquisitions in Japan have been muted, however, we have seen a big rise recently, in part driven by the government’s move to improve shareholder returns and force management teams to be more efficient with their balance sheets. The big news this week out of Japan was a potential merger between Nissan and Honda. Together, they would create the third-largest auto group, valued at $54billion behind Toyota and Volkswagen. The firms agreed on a collaboration in electric vehicle development earlier this year, but both have faced struggles. Nissan shares have risen almost 25% for the week while shares of Honda declined 3%.

December has so far been a tough month, with equities and bonds weakening. Volatility and pull backs are normal in markets, especially after a strong period, and we believe provide opportunities to add to favoured areas.

This is the last weekly round-up of 2024. We would like to wish everyone season’s greetings and a happy new year. We very much look forward to working with you through 2025.

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 – 7th December – 13th December 2024

Not so long-ago US Inflation was seemingly on the mend, as headline inflation fell to a two-year low of 2.4% in September. However, the latest data released on Wednesday showed an uptick to 2.7% in November, showing the battle against elevated inflation is not yet over.

US core inflation (year-on-year) remains stuck at 3.3% for the fourth consecutive month, a level that just won’t seem to budge. The US Federal Reserve will look at the data reports for positives and see that shelter (rent) and services inflation both rose at their slowest pace in almost three and a half years. Despite the increase in headline inflation, markets are almost certain we will see a 25bps (0.25%) rate cut next week from the US Fed but are forecasting fewer cuts in the new year as Trump takes power. 

Elon Musk, the richest man in the world, has become the first person in history to have a net worth of $400bn. Tesla shares have been on a tear since election day and closed at a record high of $424.77 on Wednesday. The upcoming appointment of Mr Musk to government has been quite powerful as investors believe his mission to cut down on regulatory practices ultimately benefits his businesses in the electronic vehicle (EV) sector (Tesla) and artificial intelligence (AI) sector through his companies SpaceX and Neuralink.

The Swiss National Bank responded to the country’s weak inflation data report and the backward step in economic growth with a surprise 50bps (0.5%) interest rate cut. This takes the base rate to 0.5%, the lowest level since November 2022 and surprised markets as they anticipated a 25bps cut. The Swiss Franc weakened against the Euro after the new Chairman, Mr Schlegel, left the door open for further cuts but ruled out the likelihood of negative rates in the future. The Bank of Canada also cut interest rates by 50bps on Wednesday.

Staying on the topic of central banks, the European Central Bank (ECB) cut rates on Thursday afternoon for the fourth time this year. Interest rates are now down from the 16-year- high of 4.5% in April to 3.15%. Commentary from central banks is highly analysed by markets for insights on the future rate path, and the removal of key reference “keeping rates sufficiently restrictive” seemingly indicates an appetite for further cuts in future meetings. This cut was expected, with recent services PMI data dropping below 50 and continued weakness in economic growth.

The UK market has seemingly stalled since the Labour government took power and there was another blow to the London Stock Exchange (LSE) as equipment rental company, Ashtead, announced plans to shift their primary listing to New York. Ashtead, founded in 1984, has been listed on the LSE for the last 38 years but declared the main reason for the move was due to the US being a more natural home for the company, given that 98% of its profits are derived from the US. Shareholders are set to be consulted, and the final decision will be put to a vote, but the intent certainly highlights concerns over how attractive the UK is to investors.

UK GDP figures for October have been released this Friday morning and for the second straight month GDP shrank by -0.1%. The weak economic growth potentially stems from uncertainty over the Labour government’s Autumn budget, as the services sector flatlined and the manufacturing sector continued to decline. Chancellor Rachel Reeves admitted the GDP figures were “disappointing” but maintained the view that Labour has put policies in place “to deliver long term economic growth”.

Markets will certainly not take their Christmas break early as both the US Fed and Bank of England meet next week. We continue to emphasise the importance of diversification within portfolios, as this allows us to avoid being caught out by short term volatility and benefit from long term opportunities.

 

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 Month In Markets – November 2024

The Month In Markets – November 2024

November may have been the most important month of the year, as on the 5th, US voters chose between Republican Donald Trump and Democrat Kamala Harris for the presidency. Ultimately, Trump won, amassing 77 million votes the second-highest tally in American history.

Term two of Trump’s presidency could be unpredictable, as he declared he pulled off “the greatest political movement of all time”. The presidential inauguration will be held on 20th January 2025. However, Trump got straight to work nominating cabinet picks for the Senate and appointing White House advisors. A high-profile selection is hedge fund manager Scott Bessent, who will serve as Treasury Secretary and execute his 3-3-3 plan: cutting the budget deficit to 3% of GDP, boosting GDP growth to 3% through deregulation, and increasing US energy production by 3 million barrels of oil a day. Later in the month, Trump set markets on alert as he stated his intention to impose 25% tariffs on Mexico and Canada as well as additional tariffs on China. Markets believe this strong stance is a ploy to prioritise America in trade talks but if imposed the tariffs will likely have inflationary impacts.

While the US election took centre stage, there was a raft of economic and corporate data during November. The US Federal Reserve’s preferred measure of inflation, personal consumption expenditure (PCE) increased 0.2% (month-on-month) and rose to 2.3% (year-on-year). Core PCE (excludes food and energy costs) showed an even stronger reading at 2.8% (year-on-year). Inflation is still within reach of the 2% target and as such, bets are still on that the US Fed will continue its rate-cutting path when they meet for the final time this year in December.

It was corporate earnings season as Nvidia, the world’s largest company, showcased impressive growth. They announced record revenues of $35bn and net profit margins of 55%, up 7.9% from the previous year. The continued strong performance highlights Nvidia’s dominance in artificial intelligence (AI). However, markets were slightly concerned with the delayed timing and performance of their new Blackwell GPU chips, which were rumoured to be overheating. The company quickly addressed these worries, stating all design issues had been resolved and that demand for the chips has exceeded their expectations.

In the UK, the Bank of England (BoE) cut interest rates by 25bps (0.25%) to 4.75%, marking its second cut of the year. The decision was almost unanimous among policymakers with an 8-1 vote in favour of the cut. The decision was driven by the positive fall in inflation to 1.7% in September. Inflation figures for the previous month revealed an expected spike to 2.3% following the increase in the energy price cap by 10% to £1,717 on average. Given the recent pickup in inflation and the expected inflationary impact of the Autumn Budget, the market is not anticipating a rate cut at the next BoE meeting.  

The Labour governments budget was announced on the 30th of October, but the effects were felt before and after as speculation over which taxes would be increased led to UK businesses and consumers to hold back on spending. UK businesses will bear the brunt of increased national insurance tax. Retail sales suffered in the build up to the budget as they fell to -0.7%, however we can expect to see a rebound as consumers took advantage of Black Friday shopping on the last Friday of the month.

Over the month, Japan’s economy showed signs of a modest recovery. Q3 GDP was positive at 0.2%, the second consecutive positive quarter and inflation fell to 2.3% (year-on-year). The Japanese government also announced a significant stimulus package worth $140bn which includes energy & fuel subsidies in addition to cash handouts for low-income households. Japan’s Prime Minister, Mr Shigeru Ishiba, who has only been in power since 1st October, has made a bold promise to spend 10 trillion yen through to 2030 to boost Japan’s semiconductor and artificial intelligence sectors, helping the nation regain its technology edge.

Bitcoin made the most remarkable move over the month, gaining nearly 40% and closing at highs of $99,000. The rally was kickstarted by Trump’s strong views on deregulation and also his comments on potentially creating a bitcoin reserve. A new DOGE team has been created, not the cryptocurrency but the Department of Government Efficiency, led by the richest man in the world, Elon Musk. The primary goals are to reduce wasteful government spending and eliminate unnecessary regulations.

To summarise the month of November there was a range of political and economic developments that shifted markets. US equity markets benefitted the most as Russell 2000 (US Small Cap) rose almost 11%. The US Federal Reserve and Bank of England both cut rates, but markets are split on whether both central banks (or just one) will make the final rate cut of the year in December.

Nathan Amaning

Investment Analyst, Raymond James, Barbican

 

Appendix

5-year performance chart

Risk warning: With investing, your capital is at risk. Opinions constitute our judgement as of this date and are subject to change without warning. Past performance is not a reliable indicator of future results and forecasts are not a reliable indicator of future performance. This article is intended for informational purposes only and no action should be taken or refrained from being taken as a consequence without consulting a suitably qualified and regulated person.

The Week In Markets – 30th November – 6th December 2024

The countdown to Christmas has begun as we entered the final month of the year. The Santa rally has taken off early as the S&P 500 has now notched its 50th all-time high of 2024.

British house prices rose by 3.7% in November (year-on-year) reflecting the largest rise in exactly two years. The Bank of England (BoE) also reported the most mortgage approvals by lenders in the last month since August 2022. The increased housing activity stems from the Labour party’s decision to end stamp-duty reliefs at the beginning of the new tax year in April 2025, bringing forward house buyers purchases and hence boosting house prices in the short term.

In just twelve days, the BoE will meet again for the final time this year to decide whether a pause is needed in their rate-cutting path. Inflation figures for November will be released the day before the meeting, and the BoE will fully consider other leading indicators. Firms are reacting to the national insurance tax rises and may raise prices instead of cutting jobs, which would be inflationary. BoE Governor Andrew Bailey remained coy on their next move stating there was still “distance to travel” to control inflation.

The European Central Bank will meet next Thursday and has already cut interest rates three times since June. Finnish policymaker Olli Rehn has spoken ahead of the meeting, explaining the increased justification he sees for cuts. He pointed out weakening economic growth around the Eurozone and rising inflation, which is still within touching distance of the 2% target.

After the debacle over the French budget last week, it was expected that Premier Michel Barnier would be forced out of parliament. On Wednesday, 331 French members of parliament voted no confidence, forcing Barnier’s resignation. His tenure, beginning only four months ago is the shortest of any premier in 66 years. President Macron must act quickly in his search for a new prime minister, one strong enough to push a new 2025 budget through a deeply divided government.

Across the Atlantic ocean, US services sector PMI’s slowed to 52.1 for November following strong results over the previous months of September and October. A figure above 50 means the sector remains in the expansionary zone, which is certainly a positive reflection on the US economy. On Wednesday the US Fed released the last beige book for the year, which provides insight into economic conditions across the twelve federal districts. The takeaway from the report is that economic growth was stable and growing across most districts; however, businesses were uneasy about the incoming tax and regulation that will be implemented in the New Year as Trump takes the hot seat. 

US non-farm payrolls was released this Friday afternoon with 227,000 jobs added in November. This shows a rebound from the 36,000 jobs in the previous month which was heavily affected by the strikes and hurricane Milton that passed over Florida.

We’ve previously written about the artificial intelligence company Super Micro Computer, as they are late in filing their annual and quarterly earnings reports. Their previous auditors Ernst & Young, resigned in October following this however a special committee announced this week “no findings of fraud or misconduct”. This news led the share price rally of almost 25% over the week, however the company is not out of the woods yet. Super Micro’s new auditor, BDO has yet to certify the company’s earnings, and the company is on the timer to deliver their financial reports or face being delisted from the Nasdaq.

We expect next week to be as busy as this week, with inflation reports from the US and Germany, UK GDP and central bank decisions from the European Central Bank and Canada. A given possibility may be the continued rise of Bitcoin as it breached the $100,000 mark on Thursday, up almost 3% for the week.

Nathan Amaning, Investment Analyst

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

The Week In Markets – 23rd November – 29th November 2024

On Thursday the US celebrated Thanksgiving where it was estimated $983m would be spent on Turkeys alone, slightly down from the $1.2bn spent in 2023. Thanksgiving, combined with Black Friday shopping, should lead to strong consumer spending in November.

Starting the week in the UK, Bank of England (BoE) Deputy governor, Clare Lombardelli made her first speech since joining the committee in July. With UK inflation rising to 2.3% in October, Ms Lombardelli appeared most concerned that inflation may continue to rise above expectations due to the spike in services inflation and persistently strong wage growth. Judging by her commentary it would be hard to see her backing a further rate cut at the next policy meeting. The impact on the economy of imminent Trump tariffs is also set to be discussed during the next meeting.

There was a blow to the London stock exchange with Just Eats’ latest announcement to delist from the exchange at the end of the year and trade in Amsterdam only. They stated their reasons for delisting due to “administrative burden, complexity, and costs” but more worryingly were concerned by “low trading volumes and liquidity”. This is undoubtedly a setback in the Labour government’s attempts to repair UK’s reputation as a business hub. Recent M&A activity has seen a reduction in the number of UK listed companies and this week saw a resurgence in M&A activity. Aviva had a bid rejected for Direct line, while yet another US private equity firm bid for a UK business, offering £338m for Loungers. The bid activity was not over there, with Australia’s Macquerie bidding for UK listed waste firm Renewi. It seems foreign buyers are taking advantage of the recent weakness in sterling, which makes UK companies more attractive, coupled with already depressed valuations.  

Stellantis is a global car manufacturer owning companies such as Alfa Romeo, Peugeot, Fiat and Vauxhall. Vauxhall is set for a reshuffle as they are set to close their Luton factory putting 1,100 jobs at risk. There is also set to be a consolidation at their Ellesmere site, just one hour away from the Luton site, as Stellantis are investing £50m into an electric vehicle (EV) hub. They are currently under pressure to speed up their transition to EVs as 22% of car sales must be purely electric or risk a regulatory fine.

German headline inflation has risen in November from 2% to 2.2%. Core inflation (excludes energy and food prices) also rose to 3% adding pressure to Europe’s largest economy. German Chancellor, Olaf Scholz, has officially been named as the Social Democrat’s candidate ahead of German elections next February following the collapse of the coalition with the Greens and Democrats earlier this month. He has his work cut out to bring down high energy prices and modernise Germany’s manufacturing heavy economy.

In France, the government coalition is on the brink of collapse as Prime Minister Barnier has suffered blowback from his latest budget proposal. Barnier aimed to rein in the country’s public debt deficit by €60bn through spending cuts and tax hikes but has since backtracked, removing a proposed tax increase on electricity. Marine Le Pen, leader of the far-right National Party is expected to vote for a motion of no confidence which would cause the government to collapse. French equity markets have reacted negatively to the news, down -1.5% for the week.

US PCE is a slightly different measure of inflation and is highly regarded as the US Federal Reserves preferred measure. On Wednesday US PCE (year-on-year) rose to 2.3% for October, reflecting an increase in inflation away from the 2% target. Incoming President Donald Trump spoke earlier this week and spooked markets with his strong vow to implement a 25% tariff on all Mexican and Canadian products followed by an additional tariff on Chinese products. The US Federal Reserve are still expected to deliver a further 25bps (0.25%) cut in their December meeting, but a pause may be on the cards in 2025 in order to assess Mr Trump’s policies.

Next week, we will receive US non-farm payrolls which is expected to bounce back following the surprisingly low 12,000 jobs created in October. In a controversial move, Australia have passed a bill that bans children under 16 from social media apps such as Facebook, Instagram and TikTok with concerns around mental health of young people. It will be interesting to see if any other countries follow Australia’s lead, and what, if any, impact it has on the social media companies revenues.

Nathan Amaning, Investment Analyst

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

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

Heading into the week, market predictions were that UK inflation would rise to 2.2% from its current level of 1.7%. Fast forward to Wednesday and UK inflation rose beyond predictions to 2.3%, an unexpected surprise.

With UK headline inflation at 2.3% (year-on-year) for October and core inflation (excludes food and energy prices) rising to 3.3%, inflation rose back to a six-month high and puts the Bank of England (BoE) on alert. The rise from energy prices had been expected with the quarterly energy price cap rising 10% to £1,717 on average and to add to the “triple dose of bad news”, services inflation rose to 5%. Since Labour’s budget the market has become more concerned about inflation, estimating that it will drift higher to end the year. It’s been 15 days since the BoE cut interest rates to 4.75% and the probability of a further cut in the month of December has fallen to 16%.

UK retail sales for October have been released early this Friday morning and again disappointed beyond market expectations. Month-on-month sales were predicted to fall 0.3% but came in at -0.7% and the year-on-year figure falling to 2.4% from the previous 3.2%. In the build-up to last month’s budget and speculation over which taxes may be increased, consumer confidence was certainly affected, and shoppers were more reluctant to spend. Weather conditions have taken a turn this week with extreme colds and snow in parts of the country however we can expect a rebound in retail sales to end the year with Black Friday approaching next week and Christmas spending to begin in December.

Similar to the UK, Eurozone inflation has been on the rise in the last month. Headline inflation rose to 2%, which is in line with the European Central Bank’s (ECB) target. When the ECB met in October, they maintained the belief of a short-term inflationary uptick before a gradual decline in 2025, so we may see a pause in their current interest rate cutting cycle at their next meeting. ECB Vice President, Luis de Guindos is awaiting to hear if incoming US President Trump will impose any tariffs on Europe but has said he expects tariffs to hurt economic growth within Europe rather than be inflationary.

Rising geopolitical activity between Russia and Ukraine has led Gold to have its best weekly gain in over a year. Oil is also back up to $70 a barrel rising 5% for the week as the Euro vs Dollar fell to $1.04, its lowest level since December 2022.

Over in the US, it was expected that 220,000 people would file for unemployment benefits last week however that figure came in at 213,000, a seven-month low. The impact of Hurricane Milton in Florida and strikes certainly distorted job growth figures in October so we are seeing that rebound in hiring activity.

It was Nvidia’s earnings report day on Wednesday as the world’s largest company reported revenue of $35.08bn for Q3, beating expectations of $33.15bn. The company also projected that revenue was set to increase by 70% in the next quarter. The bar has been set extremely high for Nvidia to consistently beat expectations and Nvidia’s outlook on AI chip supply timing and capacity initially disappointed investors. There has since been a mini recovery, and the share price is up 1.2% for the week.

It has been a positive week in markets with equities having a strong end to the week, most notably US small cap. European markets were impacted by political instability in Germany in addition to slower recovery projections for the manufacturing sector. The importance of diversification across regions, asset classes and sectors cannot be overstated as we aim to enhance the resilience of portfolios whilst capturing long term opportunities.

Nathan Amaning, Investment Analyst

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

The Week In Markets – 9th November – 15th November 2024

With the US election and key central bank meetings out the way, this week still had a raft of economic data for investors to sink their teeth into.

Following on from the US Federal Reserve cutting interest rates last week, a range of US inflation data was released this week. Headline inflation picked up from 2.4% to 2.6%, which was in line with expectations. Housing costs (rent), air fares and used cars all contributed to inflation, while gasoline prices dropped. Core inflation (excludes food and energy prices) remained steady at 3.3% and will no doubt cause concern for the US Fed, given its elevated level. The combination of inflation data, coupled with words from Fed Chair Jerome Powell led to markets lowering the probability of an interest rate cut in December from 80% to 60%. US government bonds have been weak over the last six weeks and the inflation data did little to reverse this trend. The yield on the 10-year US treasury bond is now approaching 4.5%, as investors grow concerned around the inflation outlook for the US, coupled with significant fiscal spending. The trend has not been unique to the US, with UK government bonds also having a soft patch in recent weeks. Government bonds have continued to exhibit high levels of volatility since 2022, yet at current yield levels, offer the prospect of inflation beating returns.

The UK was in the spotlight this week with Chancellor Rachel Reeves speaking in her Mansion House address, her first speech to prominent business leaders and financiers. It is clear that Reeves is keen on removing some of the regulation and red tape that has potentially held back investment and growth. She stated, “The UK has been regulating for risk, but not regulating for growth”. She also announced considerable pension reform, aiming to create less, but much larger pools of pension capital which can be deployed into infrastructure and private markets. While there was limited mention about public market reform, this could be announced in 2025, with the aim of stemming outflows from UK equities.

There was disappointing news for the Chancellor to wake up to on Friday morning with UK GDP data underwhelming. For the third quarter of 2024 the UK economy only grew by 0.1%, with GDP falling by -0.1% for the month of September. The data was below expectations, with the uncertainty created by the autumn budget deemed as a significant reason for the lacklustre growth. Despite the data, the market is still viewing an interest rate cut in December as unlikely, with the likelihood of the next cut being delivered in February 2025.

Staying with the UK, employment and wage data was also released this week. Average earnings index, which tracks the change in prices businesses and governments pay for labour, including bonuses, rose more than expected to 4.3%. This level of wage growth is above current inflation levels and should help support consumption in the economy. Despite wages rising faster than expected, the unemployment rate surprisingly jumped to 4.3%, from 4.1%.

After a strong run, gold has stumbled this week, falling below $2,600 an ounce, a likely unwind of pre-election hedges. It’s not the only weak commodity, with brent crude oil slipping to $72 a barrel this week.

At a currency level the recent trend of US dollar strength prevailed throughout the week. The USD:Yen rate is back above 155, while sterling dipped below 1.27 against the greenback on Friday, its lowest level in over three months.

The “Trump Trade” has gotten into its swing as Bitcoin has hit a historic high of $88,000, rallying almost 30% since election day. This has been fuelled by investors anticipating a more favourable regulatory environment for cryptocurrencies. Tesla shares have risen almost 25% in the same period as CEO, Elon Musk, was announced head of a new department, Department of Government Efficiency. The acronym “DOGE” is already raising eyebrows but his role entails slashing excess regulations, cutting wasteful government expenditure and restricting federal agencies.

Looking ahead to next week, UK inflation data will be one to watch. Headline inflation is expected to rise to 2.2%, from the current level of 1.7%, in part due to the increase in the energy price cap at the start of October.

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 – 2nd November – 8th November 2024

Fireworks were not simply contained to bonfire night this week, with a big bang in equities, bonds and currencies, following the US election result. If that wasn’t enough, we had interest rate cuts from two prominent central banks on Thursday to cap off a busy week!

The main event this week was the US election. In what was expected to be a very closely run election, Republican Donald Trump won the presidential election, including the popular vote, securing nearly five million more votes than Kamala Harris. The Republicans also secured a majority in the senate. It’s still not finalised who will control the House of Representatives, although there is the chance for the Republicans to secure a clean sweep. There were big moves in markets, particularly the US on Wednesday as the results poured in. The biggest winner was the US equity market, with small cap equities performing particularly well, rising over 5% on the day. While equities rallied, US government bonds sold off aggressively. This was likely driven by the view that some of Trump’s policies, such as tariffs, could be inflationary, which would potentially delay interest rate cuts. The US dollar advanced against most major currencies, strengthening by around 1.5% against sterling. Commodities were under pressure, potentially due to concerns about China on the back of Trump tariffs. Equity returns outside of the US were muted on Wednesday. After an initial surge in early trading, European and UK markets gave up most of their returns in the afternoon session.

Yesterday the Bank of England (BoE) met for the first time since Labour’s first budget. As expected, the BoE carried on their interest rate cutting journey, reducing rates by 0.25% to 4.75%. Eight of the nine voting members supported the cut. The accompanying statement by the BoE pointed towards a “gradual approach” to reducing interest rates going forward.

By Thursday evening the US Fed had joined the BoE in reducing rates by 0.25%, following on from their bumper 0.5% cut in September. Governor Powell’s follow up comments to the cut appeared very hawkish, and it’s clear the US Fed will be data dependant and currently don’t see the need for deep cuts going forward. The interest rate cuts will favour some small businesses who typically have floating rate debt and therefore immediately feel the benefit of lower interest rates. 

There were unscheduled political events in Germany this week. Chancellor Scholz fired the finance minister, after which two colleagues resigned, leading to the effective breakdown of the German coalition government. There is likely to be snap elections in the New Year in Germany now, which adds a level of uncertainty to Europe’s largest economy. The country is far from firing on all cylinders, with the economy predicted to have zero growth in 2024, while the IMF expects Germany to grow by only 0.8% in 2025. Increased energy costs since Russia’s invasion of Ukraine, coupled with China weakness has hit the manufacturing hub in Germany very hard.

After a strong week, Nvidia once again became the world’s largest company, with its market capitalisation rising above $3.4 trillion. Big technology companies in general saw strong share price movements in the wake of the election. However, given Trump’s previous comments around increased regulation in the technology sector and the sector’s bias against conservatives there is certainly a risk to this sector under a Trump regime.

The passing of the UK Budget and US Election means we are now through two events that created a great deal of uncertainty. Regardless of the results and outcomes, markets can now begin to price the risks and hopefully move forward. At a portfolio level we work hard on trying to spread risk, and typically try to avoid binary events having big impacts on portfolios.

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 – 26th October – 1st November 2024

Today is the first day of November, an important month that will determine the US presidency with the election taking place next week. This week in the UK there was a significant event that most will have closely followed, the Autumn Budget 2024, where Chancellor Rachel Reeves became the first female in history to deliver the budget.

There was a lot to digest in the budget with larger than anticipated tax rises, spending and borrowing being announced in Labour’s first budget in over 14 years. There were increases to national insurance contributions for employers, hikes to capital gains tax rates and changes to inheritance tax treatment of pensions and farmland. The national living wage was raised, while there is going to be increased spending on education and the NHS, amongst other things. The Labour government has pushed the growth agenda although the picture painted by the Office for Budget Responsibility (OBR) suggests growth will be largely unchanged over the five-year period following the budget announcement. Reaction in UK markets will be slightly concerning for the Chancellor. The yield on government bonds rose towards the latter part of the week. This was likely due to the OBR’s expectation that the budget will increase inflation, while issuance of government bonds will need to increase to finance the budget. Sterling weakened on Thursday, falling below 1.29 against the USD and moving to 1.18 versus the Euro. It’s worth stressing that these moves in bond and currency markets are much more muted than immediately after Liz Truss’ mini budget.

Eurozone inflation figures were released on Thursday with headline inflation rising 30bps (0.3%) to 2% and core inflation (excludes food and energy prices) rising 10bps (0.1%) to 2.7%. European Central Bank (ECB) President Ms Lagarde was vocal on the importance of caution when deciding further interest rate cuts and with services inflation at 3.9% the ECB may pause their rate cutting journey. The Eurozone’s labour market also remains tight with unemployment still at all-time lows of 6.3% in September.

There has been a “sign of life” for Germany’s economy as GDP rose in Q3 by 0.2%, meaning they narrowly escaped a recession. Economic growth was driven by government spending and resilient retail sales growth that stood firm at 1.2% for the month of September. Germany has been battling high energy costs for households and businesses and weakened demand for exports. Inflation in Germany rose in the month of October to 2% and reiterates the ECB’s case for caution in order to avoid a re-acceleration in inflation.

US Personal Consumption Expenditure (PCE) is the US Federal Reserve’s preferred measure of inflation and for the month of September PCE was 2.1%, down from 2.3% in the previous month. With inflation close to the US Fed’s target, we may well see another 25bps (0.25%) rate cut this month, however markets are worried about the potential rise in inflation that we could see at the end of the year caused by the US election.

US Non-farm payrolls are released at the beginning of every month and October’s data, released today, disappointed. Market expectations were that 133,000 jobs would be created however we have now seen this number come in at 12,000. It is extremely likely that hurricane Milton caused severe disruptions to the survey, with many workers temporarily off payrolls. Unemployment stayed firm at 4.1% and wage growth remained strong at 4%.

Supermicro is a US firm that designs and builds servers and storage systems for AI data centres. The company was firmly on the AI gravy train with their share price reaching a high of $114 in March 2024, however it has all seemed to unwind very fast. This week Ernst & Young, the audit firm who were hired just months ago, have resigned as they were “unwilling to be associated with the financial statements prepared by management”. There is often no smoke without fire as Supermicro are still yet to release any financial statements and are now reportedly under federal investigation. Shares fell on Wednesday by 33% on the news.

The US election is likely to dominate news flow next week with the potential for volatility across asset markets. History has shown that markets can perform well over the long-term, regardless which political party is in the White House.

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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