Client Login 0204 502 4321

Weekly Notes

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

While western countries have battled with inflationary pressures China has been faced with a contrary issue. Persistent deflation has been a problem since October 2023 and there was no change this week, with inflation coming in at -0.8% (year-on-year), beyond market expectations of -0.5%. China has not seen these levels of deflation since September 2009.

China is facing three main problems; persistent disinflation/deflation that we mentioned above, the collapse of their stock market, which is down around 60% over three years and a falling property market. The world’s second largest economy has struggled to effectively stimulate the economy following the end of the COVID curbs in 2022 and the emphasis is really on the Chinese government to provide a solution.

Catherine Mann, a member of the UK Monetary Policy Committee (MPC) spoke this week and revealed her vote was to raise interest rates by 25bps (0.25%) to 5.5%. Her reasoning included the prospects of real incomes rising, continued tightness in the labour market and geopolitical events such as the attacks on the Red Sea trade route having the potential to raise UK inflation once again. The MPC is split over decisions on the base rate and investors have shifted views on the first rate cut to May 2024.

In the US, weekly jobless claims, the number of Americans filling for unemployment benefits, fell to 218,000, slightly below market expectations of 220,000. It’s interesting that high profile layoffs have not led to a surge in claims, likely meaning workers seem to be easily finding new jobs. Large tech companies such as TikTok, Amazon and Google have cut their working staff and most recently, Frontdesk, a US-based tech startup, fired 200 employees over a 2-minute Google meet call. Good news of sustained labour market strength weakens the case for the US Fed to cut rates in March, again moving expectations to May.

Uber Technologies is a brand that needs no introduction with its popular taxi service and food delivery service worldwide. Just this week Uber reported their first operating profits as a listed company, a pivotal moment for the company after their aggressive expansion plans paid off. The US firm reported $1.1bn profit in 2023 and we saw a 1% rise in the share price on Wednesday, now valuing the company at $147bn. Next week, Uber CFO is set to announce whether Uber will buy back shares or even pay out a dividend to investors.

The political elections continue this week as voters in Pakistan headed to the polls on Thursday. Strangely, the Ministry of Interior in Pakistan announced the suspension of mobile phone cellular services nationwide to “maintain the law-and-order situation”. Understandably this enraged the nation, with events described as an attempt by those in power to manipulate the election outcome. Former Prime Minister, Imran Khan, has already been jailed and barred from the ballot for corruption.

We have often said predicting the future is impossible and recent world events prove this. Diversification is as key as ever as we continue to shape portfolios. While we monitor and review markets on a daily basis, we prefer to focus on the long-term (multi-years) when it comes to strategic decision making.

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 – 27th January – 2nd February 2024

In January we covered surprisingly weak UK retail sales, so H&M’s disappointing results this week weren’t necessarily unexpected.  The Swedish clothing firm is popular in UK high streets and shopping centres but saw sales fall by 4% over December and January. This has led to CEO Helena Helmersson handing in her resignation, suggesting a change in leadership is required. H&M have struggled to compete with brands such as Zara and online fast fashion giant Shein, as they failed on profitability objectives resulting in closing stores and laying workers off.

The Bank of England met on Thursday afternoon, holding interest rates firm at 5.25%. It was expected that this first meeting of the year was too soon for any rate cuts to occur and only one Monetary Policy Committee member (MPC), Swati Dhingra opted for a cut. The voting was a three-way split as two members voted for a 25bps rise while the final six voted to keep rates stable. Governor Bailey mentioned there had been a “shift in the BoE’s thinking” towards inflation, unemployment and wage growth levels needed to be achieved before a pivot on policy; this led to investors pushing back expectations of a first rate cut to May.

The eurozone has narrowly avoided a recession with Q4 2023 growth coming in flat at 0%. Market expectations were that GDP would be negative at -0.1% and this was based on the two largest economies, Germany and France, contracting and posting no growth. The belief among investors is that the European Central Bank (ECB) will only cut rates at their next meeting if the US Fed cut rates over fears of devaluing the Euro. It seems evident that the ECB need to make a move in order to stimulate the eurozone. 

On a more positive note, German inflation eased more than expected to 2.9% after December’s anticipated anomaly rise. Germany is the largest energy consumer in the Eurozone with high energy prices burdening their manufacturing industry however the recent drop in energy prices contributed to the fall in inflation. There will be another inflation print before the ECB’s next meeting in March so a falling trend could spur the ECB to make their move.

Germany and France are alike in another matter as both countries are seeing protests from farmers. There is a phrase “no country riots quite like the French” and the farmers are no exception. French farmers blocked major highways around Paris over pay disputes. Inflationary pressures have raised the costs of major inputs such as energy, fertiliser and transport and this has now been added to by excessive regulation. This put immediate pressure on newly appointed PM, Gabriel Attal, and he announced the scrapping of diesel tax increases for farmers and extra steps to reduce red tape on farmers.

Earnings season continued in the US and we saw mixed results from the so-called ‘Magnificent Seven’. Meta (Facebook) and Amazon posted better than expected results, with Meta even initiating a dividend, which sent share prices soaring after-hours. Apple’s results were underwhelming with concerns around China leading to growth fears; shares in the $3 trillion company dropped over 2% in after-hours trading.

US Non-Farm Payrolls data has just been released and surprised to the upside as 353,000 jobs were added to the economy in January. This came in almost double market expectations of 180,000. The continued strength of the labour market highlights the current resilience of the US economy and caused investors to question whether the Fed will need to cut rates in the near term. We witnessed US government bonds sell-off on the news.

On Thursday Formula One driver Lewis Hamilton, announced his decision to leave Mercedes at the end of the 2024 season, joining rivals Ferrari. The announcement of the seven-time world title winner joining coupled with a positive earnings report sent Ferrari stock up 11%, reaching an all-time high. The right driver in the right team can be a very powerful combination and indeed reflects some of the qualities we look for when selecting fund managers for our portfolios. We believe the right investment team is important, but that team must also operate in the right business (culture) in order to maximise and sustain performance.

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 January – 26th January

Storm Isha and Storm Jocelyn battered the UK this week, with winds of up to 99mph being recorded. The storms brought disruption to travel, with much of the country operating under weather warnings. Investors in Chinese equities will have felt like they have been through a storm of late, however, there were signs of blue skies ahead after government intervention this week.

Chinese authorities stepped in this week with a raft of measures aimed at supporting the economy and improving stock market confidence. They cut the bank reserve rate by 0.5% in a move that should see around $140bn injected into the economy. The cut was the biggest in over two years. The Chinese regulator also sought to limit short-selling of Chinese stocks, as well as highlight future plans to support the real estate sector. There is an expectation that this change in tact from China could see further stimulus measures over the near-term. The announcements had the desired impact with Chinese and Hong Kong indices staging strong rallies in the second half of the week, lifting benchmarks from multi-year lows.

While the world’s second largest economy appears to be stalling the world’s largest economy, the US, reported stellar Q4 growth, exceeding expectations. The economy grew at an annualised pace of 3.3% in Q4. This strong growth rate, occurring at a time when inflation was falling, has helped further fuel the soft-landing narrative. US equity markets continued to advance this week, reaching new all-time highs, driven by the mega-cap names. The US small cap index remains well below highs; the strength of the US economy has the potential to lead to a recovery in smaller companies.

Staying with the US it looks as though it will be Trump vs Biden in the leadership race to be the next US President. We saw Ron DeSantis drop out of the presidential race and endorse Trump, who has also defeated Nikki Haley in the New Hampshire primaries.

At a company level we saw Q4 results from some of the large US companies. There were disappointing results from Tesla, whose stock price dropped over 10% on the news. While chipmaker Nvidia can seemingly do no wrong, others in the sector are not enjoying the same success – both Texas Instruments and Intel released underwhelming results with no expectation of a short-term turnaround.

The European Central Bank (ECB) maintained headline interest rates at 4.5% this week, which was expected.  ECB President Lagarde continues to push back on the prospects of a spring rate cut – all eyes will be on Eurozone inflation next week to help gauge whether an imminent rate cut is likely.

There was positive news from the UK with better-than-expected services and manufacturing PMI data. The UK economy has shown resilience over the last 12 months and continues to muddle through, despite the pressure of interest rates at 5.25%.

In what has been a busy week we have seen Japanese inflation fall below target (2%), reaching two-year lows. This is despite interest rates still being held in negative territory in Japan. With little inflationary pressure, there is a diminishing likelihood of tightening of policy by the Bank of Japan.

The mixed start to the year for equity markets continues with regions such as Japan and the US performing very well, while China and Europe (including the UK) have been weaker. Bond markets in general have come under pressure as inflation and economic data have led investors recanting on the probability of rate cuts in the spring. Markets continue to be very short-term focused, with each data point or quarterly earnings report leading to volatility and shifts in sentiment. We continue to believe this short-term trend creates fantastic opportunities for long-term investors, who are willing to extend their time horizon.

 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 – 13th January – 19th January 2024

The Artificial Intelligence (AI) theme was a key driver of performance in 2023 with firms such as Microsoft and Nvidia battling to be the market leader of the technology. Both firms have greatly benefitted from the AI “bubble” and this week Microsoft overtook Apple as the world’s largest company by market capitalisation. Currently standing at a valuation of $2.9 trillion, the firm is the largest investor in the popular ChatGPT application and have been adding AI into Microsoft products such as Bing search engine.

UK inflation has been on a sharp decline from its high of 10.4% in February 2023, however for December 2023 (data released on Wednesday) we saw headline inflation rise for the first time in 10 months. Surprising economists, CPI rose to 4% from 3.9% and was higher than the expectation of 3.8%. Core inflation (excludes food and energy prices) froze at 5.1%. Following the last Autumn statement, there was a rise in tobacco duty at the end of November and this has been reported as the key driver of inflation, adding 0.1%. Intriguingly, only 12.9% of the UK population (aged 18 and above) smoked cigarettes over the past year, a record low proportion as the UK Government continue to tackle smoking prevalence.

Finalised inflation data from the Eurozone was released late Wednesday morning. Headline inflation as expected rose from November’s 2.4% to 2.9%. Core inflation fell in line with market expectation to 3.4%. The European Central Bank (ECB) stood firm on their decision to pause interest rates as they did not expect inflation to fall as quick as investors had hoped. Wages in the eurozone have now been singled out as the largest risk to the fight against inflation as market expectations for 2024 are 4.3%. As wages increase, costs for firms increase and this cost is then passed through to the price of goods and services, hence pushing up inflation.

Germany are leading exporters of machinery and vehicles however prevalent inflation, high energy prices and falling global demand has led to the economy contracting -0.3% over 2023. Europe’s largest economy did manage to avoid a recession as GDP over Q4 2023 was flat, recovering from the negative print in Q3. Economists do not have an optimistic tone on 2024 for the country as they estimate energy prices will have to halve in order for the country to regain competitiveness, something that is seen as unlikely to happen.

UK retail sales were released just this morning and the falls were alarming. Retail sales (year-on-year) for December fell -2.4%, a large deviation from investor expectations of 1.1%. Month-on-month, for December, they fell -3.2%, well below expectations of -0.5%. This is the worst monthly drop (excluding the pandemic) since 2008 and again the fear of a recession in the UK has risen as we await Q4 2023 figures. British luxury brand, Burberry, have announced a fall in operating profits amid slowing luxury demand – further signs of consumers pulling back on non-essential goods. The sharp drop in figures is likely to be taken as good news to investors, sales are dwindling due to the restrictive monetary policy, and this makes the chances of interest rates cuts occurring more likely.

If we look across the Atlantic to the US, retail sales tell another story as sales rose in December (month-on-month) 0.6%, above forecasts of 0.4%. This was boosted by increases in car sales and online purchases. The US economy is still strong, unemployment remains low, and wages are now rising above inflation. All this has made investors question whether the expectation of interest rate cuts starting in March 2024 was a little premature. As a result of this, we have seen weakness in the US bond market along with small cap equities, which are often the most interest rate sensitive parts of the market. Fed Governor, Christopher Waller, said the US Fed would be “moving carefully and methodically”, not giving away any indications on monetary policy.

Data from China this week showed their recovery from COVID-19 continues to be bumpy. While the economy grew by 5.3% in 2023, growth in Q4 was very lacklustre, as the effects of the re-opening of the Chinese economy wain. The COVID-19 bounce is well and truly over, which could lead to limited growth in 2024 for the world’s second largest economy. Youth unemployment data, which hasn’t been shared for six months was now reported and showed youth unemployment at a little over 14%, lower than the high of 21% in June 2023. While China’s outlook is more precarious than it has been in many years, the stock market has heavily discounted this, with equity markets down over 50% for the last three years.

The bumpy start to 2024 continued this week with a mix of data helping to muddle views about inflation and interest rates. Focusing on single data points can be limiting; it is often better to focus on the trend. We continue to see the trend in inflation as lower, and this should be supportive for a wide range of asset classes in 2024.  

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 – 2nd January – 5th January 2024

Happy New Year and welcome to the first weekly note of the year. The current high interest rate environment looks to have led to people trading down as discount grocery stores Aldi and Lidl ran up their best ever trading day on Friday 22nd December. It is estimated that half a million shoppers switched permanently from the mainstream Tesco and Sainsbury to the discount stores. Tesco are set to release reports on how they fared over the Christmas period.

It is difficult to sit at the start of the year and forecast what is going to happen. However, that doesn’t stop us from making predictions and planning for a variety of different outcomes. Will inflation remain sticky or fall to the 2% target? Will central banks cut rates more than expected? Will we see the long and variable lags of monetary policy? Will we avoid a recession? Will potential elections influence markets? All valid questions that only time will answer.

On Thursday afternoon, labour leader, Sir Kier Starmer gave his first speech of the year. In his speech “Project Hope” he set out five main missions which include getting Britain building houses again, to decarbonise UK energy by 2030 and getting the NHS back on its feet.  Election years can have significant impact on investor sentiment so it will be important to stay on top of the political landscape this year.

Halifax bank reported UK house prices (year-on-year) rose for the first time in eight months as prices were 1.7% higher than the previous December. This has been due to a tight sellers’ market with not as many houses up for sale. In this higher interest rate environment mortgage rates have surged, and activity has fallen. However, as we have seen the pause in interest rates and investors flirting with the idea rates will be cut soon, buyers and sellers have begun to return to the market. The feeling is that as more people come to market, house prices could fall within the 2% to 4% mark and with mortgage rates continuing to drop, buyer confidence should increase, seeing more movement in the housing market.

US job openings was the first insight of the year into the labour market, with openings falling to 8.79m in November. This will be encouraging for the US Federal Reserve as a sign that the labour market is cooling and strengthen investor expectations of rate cuts later this year. Another positive sign for the US Fed is that the number of people quitting their jobs fell to 3.47m, the lowest level since February 2021. With less people quitting and job-hopping this should help ease wage growth.

We then received mixed market messages this afternoon as December US Non-Farm Payrolls data was released and surprised as 216,000 jobs were added to the economy. This came in largely above market expectations of 170,000. The strength of the number of jobs added to the economy should keep pressure on wages and bonds yields rose on the back of the data as investors mulled over whether an expected six interest rate cuts in 2024 was too optimistic.

The Eurozone may be in bigger trouble than first anticipated as business activity contracted in December. Purchasing Managers Index (PMI) is an index that indicates the direction a sector is heading (whether contractionary or expansionary), and the services PMI is currently still in the contractionary zone at 48.8. This could point towards a recessionary period as growth struggles continue; Q4 2023 GDP data could be negative as it was in Q3 2023.

Eurozone inflation as predicted by ECB President, Christine Lagarde, rebounded to 2.9% (year-on-year) in December. It was anticipated that the rise would occur due to the change in the energy price base, but core inflation (excluding food and energy) dropped to 3.4% in December from 3.6% the previous month. This strengthens the ECB’s decision to continue to hold rates firm.

The Santa Rally certainly delivered in the closing month of 2023, however, the first week of 2024 has been subdued. The tech-heavy NASDAQ 100 has just seen five back-to-back days closing down. The last time this event occurred was in December 2022, and following this the NASDAQ 100 went on to post stellar gains in 2023. We continue to stand by our beliefs on diversification within portfolios, allowing us not to be caught out by short term volatility. After such a strong end to the year, it is natural that there is an element of profit taking and rotation of out last year’s winners. We continue to see great value in many areas of the equity and fixed income markets and believe the backdrop of declining inflation, mild growth and an end to high interest rates should be supportive for asset markets.

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 December – 21st December 2023

There are just four days to Christmas Day, but celebrations have begun early as markets have continued to soar. Falling inflation within the Eurozone and UK has continued to spur markets on.

UK inflation was released on Wednesday, falling to 2-year lows. Headline inflation for November (year-on-year) fell to 3.9%, down from 4.6% the previous month. Core inflation (excludes food and energy prices) fell to 5.1%, beating expectations of 5.6% and October’s previous 5.7%. This strengthens the case for interest rate cuts by the Bank of England (BoE) next year and investors have begun to price rate cuts by the beginning of Q2 2024. UK government bonds, which have been unloved for much of the year, have performed very well over the last six weeks, and this week was no different. The yield on the 10-year UK government bond fell to 3.5%, after reaching 4.7% only weeks ago, as investors reacted to lower inflation and the expectation of rate cuts in early 2024.

Eurozone inflation for November was released on Tuesday, showing inflation is now only just above the 2% target. 2.4% was the final figure (year-on-year) which was in line with market expectations and a fall from the previous month’s 2.9%. European Central Bank (ECB) President, Christine Lagarde, has warned against investors celebrating too soon and pushed back on early interest rate cuts. However, the market has so far dismissed her comments, believing the ECB will be forced to cut rates early in 2024. The yield on the 10-year German Bund dropped below 2% this week.

Assessing Eurozone inflation at a country level, it is tough not to be optimistic with regards to inflation. Year-on-year inflation dropped in 21 of the EU’s member states and remained the same in three more. In the case of Italy, headline inflation (year-on-year) has dropped off a cliff since September, falling from 5.3% to 0.6% in November, again largely driven by energy. It appears that for certain nations, deflation could soon be more of a risk than elevated inflation.

US home sales have risen in November by 0.8% (month-on-month), breaking five consecutive monthly falls. The popular US 30-year fixed rate mortgage rose to a 23 year high of 7.8% in late October but has since dropped off to 6.6% as US treasury yields have fallen. The market expectation that interest rates will be cut in 2024 has also fuelled the housing market, however two thirds of home owners are currently locked into mortgages under 4%. This will mean mortgage rates will have to continue to fall before we see significant shifts in the housing market. US equities have continued to advance this week and bond yields fall, with the US 10-year yield now falling through 4%. The market is now pricing in six interest rate cuts in 2024.  

In the US, two of Hollywood’s big five studios, Warner Bros and Paramount, have held discussions for a possible merger. The main motivation behind the deal is to combine the streaming services, Paramount Plus and Max (formerly HBO) in order to better rival Netflix and Disney Plus, who are dominating the streaming space. Netflix has recently cracked down on account password sharing, leading to more account openings and are up to 247.2m subscribers. The combination of Paramount Plus and Max subscribers would still be under 160m.

The strong moves in December have been pleasing to see, helping push portfolios to their highest levels in 2023. With plenty of cash still on the sidelines, M&A activity picking up and interest rate cuts potentially around the corner there is reason to believe this rally can continue into 2024.

This will be our last weekly round-up of 2023 and we would like to thank everyone for their support over the year.

 

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 December -15th December 2023

It looks like the Santa Rally well and truly arrived this week, with big moves upwards in both equities and bonds. The key driver seems to be the belief that central banks have now come to the end of the rate hiking cycle and will “pivot” very shortly, beginning interest rates cuts in 2024. There has been a big shift in market narrative from the summer months when “higher-for-longer” was the clear message.

It was a busy week for central banks, however, before they met we did receive US inflation data on Tuesday, which came in at 3.1% (year-on-year), in line with expectations. This was a slight drop from the previous month’s figure of 3.2%. The data cemented the US Fed’s decision to hold interest rates. While this was expected, it was Fed Chair Powell’s statement that led to asset markets bouncing. It’s clear that the US Fed are now willing to cut rates in 2024, even if the economy is not in a recession, with the US Fed currently expecting to cut interest rates three times next year. The market went further than this, and after hearing the speech from Powell, quickly priced in six rate cuts in 2024. The expectation of lower rates, which will support both consumers and corporates sent the Russell 2000 (US small cap index) up over 3% on Wednesday, with a similar return on Thursday. The index is now at a 52-week high, having been at its 52-week low only 48 days ago! Nearly all equity markets joined the party, with the tech-heavy NASDAQ index reaching all-time highs, and the S&P 500 fast approaching its all-time high, which occurred on 2nd January 2022. Lower rates acted as support for bond markets; the US 10-year government bond yield dropped below 4% this week, having hit a 16 year high of 5% only weeks ago. In such a risk-on environment, coupled with lower interest rate expectations, we have seen the USD weaken against a basket of currencies, including Sterling, which is approaching 1.28.

Both the Bank of England (BoE) and European Central Bank (ECB) followed suit and held rates steady. However, there was a difference in commentary with both Andrew Bailey (BoE) and Christine Lagarde (ECB) stating they are yet to consider interest rate cuts. It appears the market isn’t convinced of this and are pricing in cuts starting next year. Weaker than expected UK GDP data on Monday highlighted that the lagged effects of higher rates are beginning to bite and supports the view that the BoE will be forced to cut rates to support the economy as we look into 2024. Much like the US, we saw bonds rally, with the UK 10-year government bond yield dropping as low as 3.7% this week. Equities advanced, with the more domestic focussed UK mid-cap index benefitting the most, rising over 3% on Thursday. In general, small and mid-cap equities are seen as more interest rate sensitive and therefore stand to benefit the most from lower rates going forward. While positioning here has been painful at times, it’s pleasing to see the recovery over the last six weeks.

It wasn’t just bonds and equities that performed well this week, we saw gold rebound after a lacklustre start to the week. The prospect of inflation with lower rates (falling real yields), coupled with a weaker dollar boosted the precious metal, with the price per ounce moving back above $2,000. Commodities such as copper also performed well on the back of a weaker dollar and the expectation of more supportive policy from developed market central banks.

Purchasing Managers’ Index (PMI) from Europe and the UK, released this morning, highlighted that most countries were seeing contraction in manufacturing and services sectors, once again pointing towards a slowing global economy. This will do little to dampen the views that interest rates will need to drop next year to help ease the strain on economies and support economic growth.

After months of oscillating markets, there has been a shift since the start of November, with the consensus now firmly pointing towards a peak in interest rates, with cuts just round the corner. In terms of inflation, the narrative is that the battle is largely won, the white flag has been waived, and we will approach the 2% target in 2024/2025. Indeed, Eurozone inflation is already at 2.4%, a whisker away from target. The positive correlation we have seen between bonds and equities has now worked in investors favour (as opposed to 2022), with both asset classes rising together. Within portfolios it’s been pleasing to see a broadening out of equity market participation with some of the small and mid-cap funds performing well. While it hasn’t always felt comfortable to be invested in 2023, portfolios are now at their highest levels for the calendar year.

Andy Triggs, Head of Investment & 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 – 2nd December – 8th December 2023

As we delve deeper into December, it’s always interesting to learn facts about Christmas spending. Over the Christmas period, Brits eat approximately 175 million mince pies. The UK also uses over 220,000 miles of wrapping paper per year. Despite the cost-of-living crisis, spending is expected to rise to a total of £27.6bn fuelled by credit cards transactions.

In the UK, Nationwide house price data showed prices have surprisingly risen for the third month in a row. House prices in the UK surged over the Covid period as the pandemic led to more households looking for greater living space and moving homes. This was also fuelled by government tax incentives and (at the time) low interest rates. Fast forward to today and with mortgage rates considerably higher than two years ago, affordability has become tougher. 

In the US, Spotify, the music streaming company, have announced further cuts to the workforce. They plan to lay off around 1,500 employees, this follows cuts of 600 employees in January and 200 in June. CEO Daniel Elk, admitted to over hiring over the past three years with the firm now expecting an operating loss over Q4. Spotify have big ambitions to reach one billion users by 2030 and part of the strategy included hefty podcast contracts for A-List celebrities such as Michelle Obama, Megan Markle and Prince Harry. Two major podcasts – “Heavyweight” and “Stolen” have already been told their contracts would not be renewed. Spotify users can almost certainly expect a price hike for streaming services!

November US Non-Farm Payrolls data was released this afternoon with 199,000 jobs added to the economy, coming in above market expectation of 180,000. This is a jump up from October’s figure of 150,000 and goes against the previous trend of a slowdown in hiring. The US labour market strength continues to surprise.

As we mentioned in the monthly note for November, consensus for developed markets have clearly shifted and this is becoming more evident as we saw the S&P 500 index close at a 12-month high level on 1st December, just shy of 4600. This is under 5% away from the all-time peak set in December 2021 and has been driven by the expectation we have seen the peak in rates, with potential cuts next year. We saw the US 10YR treasury hit 5% in October and since then the yield has dropped to 4.17%.

Euro zone inflation has followed the trend and tumbled down to 2.4% following ten straight interest rate hikes from the European Central Bank (ECB). This week ECB board member, Isabel Schnabel, gave a dovish speech, stating further interest rate hikes should be off the table. Just a month ago she had a different tune, with the view that one last hike was an option to tackle the last part of the inflation fight, but she has since switched her stance following the greater than expected drop in inflation figures. Bond yields have fallen reflecting this view as the Germany 10YR Bund fell to 2.16%, the lowest level in 6 months.

As we round up the weekly, it’s important to point out Gold reached an all-time high of $2,137, driven by a weakening dollar. Next week looks to be a busy week as US inflation and UK GDP data prints will be followed by the US Fed and Bank of England’s last policy meetings of the year. We continue to consider a wide range of asset classes to reduce portfolio volatility and capture investment opportunities. Diversification in asset class, style and management is key in order to navigate the markets.

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 – 25th November – 1st December 2023

Today we enter December, the last month of the year. The origin of the name December can be traced back to the Latin term “Decem”, which means ten, because it was the tenth month of the original Roman Calendar. For investors December has historically been a profitable month, with the so called “Santa Rally” pushing asset prices higher; many will be hoping for Santa to deliver once again.

The festive period seems to be a long way away for Bank of England (BoE) Governor Andrew Bailey, as he spoke earlier this week. Inflation in the UK is currently at 4.6% after a considerable drop in October, however, Mr Bailey has conceded getting inflation to the target of 2% from this point will be “hard work”. A large part of inflation falling has been due to the decline in energy prices, lowering prices at the pump and also importantly household energy bills. However, there are still inflationary pressures in the system which could be difficult for the BoE to crack without negatively impacting the economy and labour market. The impact of higher interest rates continues to bite on households, but market expectation is that we will see rates stay in a restrictive zone until a potential cut in rates early next year.

Rail worker strikes have been a prominent feature this year but are they finally coming to an end? Members of the RMT union have agreed a pay deal, ending an 18- month row.  Workers were not just protesting for an increase in wages but for further job security and improved working conditions. Guarantees have been included into the agreement and this may be the catalyst for other train unions to agree deals.

The latest update to Q3 US GDP was released on Wednesday and showed the economy had grown more than initially reported, coming in at 5.2%, boosted by business investment and spending. This is the fastest pace of expansion since Q4 2021, despite the pressure of higher interest rates. The US Federal reserve will certainly look at the results before their next monetary policy meeting this month and may be concerned about “an economy that keeps on rolling”. Despite this, investor odds for a rate cut before May 2024 have increased to 77.1%. 

The November Beige book by the US Federal reserve provides an economic outlook on the US economy. The main takeaways from the latest entries were consistent with what we have been seeing in markets. The labour market remains tight, especially for skilled labour, households are displaying greater price sensitivity with the higher interest rate environment, the looming risk of a recession remains, and geopolitical instability remains a key concern.

Last week we reported on the postponement of the OPEC meeting and this Thursday, Saudi Arabia, Russia and other members of OPEC agreed to voluntary oil cuts totalling 2.2 million barrels per day for 2024.  The organisation, now in unison, are focused on lowering supply with concerns over weaker global economic growth in 2024 in order to avoid a supply surplus. Brazil will also be the latest country to join the organisation in the new year. Staying with commodity markets, gold is set to remain on track for its second monthly gain, with the price getting very close to its all-time high.

Warren Buffet’s right-hand man, Charlie Munger passed away this week. Once described by Bill Gates as the “broadest thinker I have ever encountered”, the Berkshire Hathaway vice president helped build the conglomerate into the giant it is today. One of his most famous quotes came from the annual meeting in 2017 – “A life properly lived is just learn, learn, learn” as mistakes are vital to becoming a success. He was well respected among his peers and is certainly an investing icon to study.

Temperatures have dropped however our optimism for markets hasn’t as we continue to see data releases strengthen the case for interest rate cuts in the new year. As always we maintain the necessity for diversification within portfolios in order to benefit from market moves, while also aiming to protect portfolios from heightened volatility.

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 – 18th November – 24th November 2023

We start this weekly covering the Autumn Statement, delivered by Chancellor Jeremy Hunt. Mr Hunt has been Chancellor for 13 months and if you remember back to his appointment under then Prime Minister Liz Truss, his first acts were to shred her disastrous economic plans.

“Autumn statement for growth” was the main theme as Mr Hunt announced the key measures of the 110 policies. Arguably the greatest change was the reduction to National Insurance contributions from 12% to 10%. This is set to be implemented from the beginning of 2024 affecting 28 million people, an average saving of £450. Prime Minister Rishi Sunak, sat to the right of Mr Hunt, was acknowledged by the Chancellor for delivering on his promise to the UK to halve inflation in 2023. Further promises were made to grow the UK economy and the OBR have adjusted forecasts for GDP from shrinking by 0.2% to growing by 0.6% in 2023. As pre-announced, the national living wage is also set to rise to £11.44 from April 2024. The increase is aimed at easing some of the cost-of-living burden people are facing.

On Thursday it was announced that UK energy regulator, Ofgem, will raise the price cap by 5% in January 2023. While energy prices are lower than 12 months ago, it’s worth remembering that households were given around £400 in support for energy bills last winter – this time there are no equivalent measures. The Labour party has discussed further windfall taxes on oil and gas companies as a way to help with energy bill support.  

Oil prices have trended lower from the spike we saw in early October when brent crude rose to $96 a barrel, and we saw a 4% dip on Wednesday as OPEC (Organisation of Petroleum Exporting Countries) postponed their output policy meeting. The meeting has been pushed back to next week Thursday as producers around the world struggled to agree on output levels heading into 2024. It is rumoured that African countries such as Nigeria and Angola have pushed against consensus for greater oil output. We also saw inventory data released from the US which showed a much higher level of oil inventory than anticipated, potentially signalling softer oil demand.

Sam Altman, the CEO of Open AI, has had a tense week as he was fired and rehired from the firm in just five days. The developer of ChatGPT was fired last Friday over concerns the artificial intelligence (AI) development was too rapid, lacking the safety required. Mr Altman is certainly a popular figure as over 80% of his 750 strong workforce threatened to resign if his reinstatement was not imminent. Microsoft, Open AI’s largest investors also intervened as they hired Altman on Monday in a de facto role. The possibilities of AI are incredible, and it is key there is stability within the management teams developing it.

Nvidia released their Q3 results this week and once again delivered stellar revenue and earnings growth. However, there was some cautionary messaging from the company around Chinese restrictions, which would be a headwind to 2024 growth. The share price has been exceptional in 2023, however, despite the very strong Q3 numbers the China news held the shares back. While Nvidia is currently a clear market leader in GPU chips for artificial intelligence, it will be interesting to see how the competitive landscape evolves over the coming years as more competitors enter the market place.

In a week light of economic data there were some positives to be taken from manufacturing and services PMIs which came in above estimates in Europe and the UK. US jobless initial claims data was lower than expected, another positive sign for the labour market. While the global economy is far from firing on all cylinders, it is yet to show any major signs of cracking, despite what economists predicted 12 months ago.

There was much excitement heading into the Autumn Statement, although this quickly fizzled out as the Chancellor played with a straight bat. Nevertheless, there are some policy measures which should help ease some of the burden on consumers, while also stimulating investment from businesses. The reaction from markets to the statement were fairly muted, with bonds and equities broadly trading sideways this week. Trading volumes have been thin in the US, with the market shut for Thanksgiving yesterday. Next Friday sees us move into December, with many investors hoping that the Santa Rally, which appears to have begun a little early this year, can continue.

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.

Loading...