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Weekly Notes

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.

The Week in Markets – 11th November – 17th November 2023

We began this week with unexpected news, the return of former Prime Minister, David Cameron to parliament. He resigned in 2016 after the UK voted to leave the EU as he had backed the remain campaign. Current Prime Minister, Rishi Sunak appointed him the new Foreign Secretary in a cabinet reshuffle on Monday.  His first meeting this week has been over in Kyiv to meet President Zelensky, confirming the continued support the UK aim to give the Ukrainians.

UK inflation figures were released on Wednesday, coming in below expectations as headline inflation for October dropped to 4.6% (year-on-year), down from 6.7% the previous month. This was the largest one month drop since April 1992 (2.1%) and this figure meant Mr Sunak has delivered on his promise to halve inflation before the year end. Core inflation (excludes energy and food) fell to 5.7% (year-on-year) from 6.1% in September. Last week we saw the UK economy stagnate with flat GDP data and further to the inflation figures, investors are almost certain we have seen the peak in interest rates. This is a far cry from the summer months when peak rates were expected to be 6.5%.

UK wages including bonuses slowed to 7.9% in the 3 months leading to September. This slowed from 8.2%, a previous record increase. Employment also rose by 54,000 jobs over the same time period, this was a slowdown from the 80,000 jobs created previously.  The data suggests the UK labour market is still tight with businesses struggling to hire new workers, helping to push up wage growth. While wage data is still strong, with unemployment broadly trending higher in 2023 it is unlikely the Bank of England (BoE) will increase rates at the next meeting. The days continue to tick down towards the 22nd of November, the date of the Autumn Statement, where the Chancellor says he aims to “get people back into work and deliver growth to the UK”.  We will have to wait and see whether the Chancellor pulls any rabbits out of the hat to support UK equity markets.

After a quiet period for mergers and acquisitions (M&A) in the UK the market sprung to life with two deals this week. The luxury chocolate company Hotel Chocolat was snapped up by Mars for £534m, a 170% premium to the previous days share price. This is a huge premium, although the price paid is still below what the company was valued at the start of 2022. It’s another sign of the value that still exists within UK equities. We also saw UK pub chain, Youngs agree to acquire City pubs in a deal that came with a 46% premium. With inflation appearing to be stabilising alongside interest rates, we may see a flurry of further M&A deals into year end.  

US inflation data was softer than expected on Tuesday and drove a rally in markets. US headline inflation for the month of October fell to 3.2% (year-on-year), with core inflation dropping to 4%. This data again gave investors greater confidence that the US Federal Reserve are not going to increase rates further, and markets are now pricing in four 25 bps Fed cuts next year. The Russell 2000 (small cap index) jumped 5.4% on Tuesday, with the S&P 500 rising 1.9% and the tech-heavy Nasdaq rising 2.4%, the largest daily percentage gains since April. Global equities also joined the rally with the mid-cap UK index rising 3.4%. In general, all assets have rallied this week, with bond yields falling (prices rising) and equities rising. The strong moves over the last three weeks are a timely reminder about the risks of moving out of markets on a short-term basis.

This Friday morning UK retail sales disappointed, falling by -0.3% (month-on-month) possibly pointing towards a more challenged consumer. The apparent bad news was treated as good news by the markets with the UK equity market advancing around 1% on Friday. Government bond yields fell, with the 10-year UK government bond yield now approaching 4%.

This was always going to be an eventful week, with key data releases occurring, resulting in a strong week in markets. It may be too early to call a Santa rally with markets still having to digest events and speeches next week. Our focus remains on diversification within portfolios across asset class, sectors, styles and regions.  The benefits of long-term investing have allowed us to take advantage of the short 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 – 4th November – 10th November 2023

While the pace of data releases almost returned to normal this week, following last week’s barrage of numbers, the information that was released was no less interesting.   UK GDP was released this morning and was flat (0%) over Q3. This was higher than the forecasted -0.1%, which means the UK will avoid a recession in 2023.

The UK economy is certainly weak at the moment as eyes are turning towards the Autumn statement on the 22nd of November when the Chancellor, Jeremy Hunt, is expected to announce growth measures for the UK. The pressure is mounting on the Conservative party as Mr Hunt noted, “The Autumn Statement will focus on how we get the economy growing healthily again”. The Bank of England (BoE) will certainly take note of the slight avoidance of a recession, however, there are data releases such as inflation that they will be keener to see; there’s an expectation of a sharp decline in headline inflation as we head into year end.

US Fed Chair, Jerome Powell, spoke twice this week following the decision to hold rates stable at the last Monetary Policy Committee meeting. On his second time addressing the International Monetary Fund, climate activists stormed the stage positioning for the end of fossil finance. Mr Powell was able to continue his speech minutes later claiming a balance was needed as the Fed weigh up “the risk inflation could reignite versus the central bank causing unnecessary economic damage”. Investors are bullish about another pause in interest rate hikes with the US Fed scheduled to meet once more before the year end.

Oil this week has slid to the price of $76.34 at the time of writing, and on Tuesday fell 4%, the lowest since late July. Rising OPEC crude exports helped ease fears about a tightening market as we are seeing an extra one million barrels per day of supply since their August lows. US crude oil stocks rose by almost 12 million barrels last week. This is a good sign for the US as falling prices help to reduce inflation, helping them get closer to the 2% target. Investors, however, will remain on alert as the current geo-political conflicts could threaten supply.  

Inflation figures for China were released on Thursday at -0.2% (year-on-year) as their economy dropped into deflation. It appears weak demand remains a challenge for Chinese policymakers as exports and factory activity contracted. Beijing have already ramped up measures to support the broader economy, such as one trillion-yuan of sovereign bond issuance, but there are calls for further supportive measures in order to prevent the economy falling further and threatening business and household spending.

WeWork is a company that provides flexible office space for workers, becoming the largest tenant of office space in New York and London over the last few years. This week saw the company file for bankruptcy. When WeWork was founded in 2010, the conditions were perfect as commercial property had been emptied out following the global financial crisis. However, securing long term office leases in prime locations around the world and then finding enough short-term tenants, whilst making a profit, just became too large of a task. The fall from grace of WeWork has been stark – in 2019 the company was valued at $47bn. Wecrashed, a show on Apple TV, is a remake of the true events and certainly provides more insight into the demise of the business.

After last week’s fireworks in equity and bond markets, this week has been a little more subdued. Hawkish rhetoric from US central bankers helped push equities and bonds lower at the end of the week. As we approach peak interest rates, with the possibility of rate cuts in the not too distant future, we have taken the opportunity to step-out of some short-term money market holdings, into short and mid maturity government bonds, effectively locking in attractive nominal yields, while making portfolios slightly more robust in positioning.

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 – 28th October – 3rd November 2023

This week we transitioned from October to November, leaving behind a very difficult month in markets, with the first few days of November proving very strong for equity and bond investors. We are just two days away from Guy Fawkes night, the conspirator who attempted to blow up the Houses of Parliament in 1605. November has certainly started with a bang as we have had multiple data releases and events causing fireworks in markets.

Arguably the most anticipated news of the week was the US Federal Reserve meeting on Wednesday. The base rate of 5.5% is a 22-year high and this went unchanged as the Fed opted to pause once more, following on from the previous meeting where rates were held steady. Market expectation was that the Fed would continue the pause to further see the impact higher rates were having on the economy. We have seen the US economy stand resilient despite the steepest rate rises in four decades, just last week we reported US GDP at 4.9% in the third quarter. Fed Chair, Jerome Powell was hawkish with his commentary as he stands firm on achieving the target inflation rate of 2%, however markets are convinced we have now seen the peak in rates, estimating only a small chance of an increase in the December meeting.

The Bank of England met on Thursday and followed suit as they also held rates steady at 5.25%. There was a change in the voting dynamic as Sarah Breeden succeeded Sir Jon Cunliffe on the monetary policy committee (MPC), and she was one of six to vote for rates to remain unchanged. Inflation played a vital role in the decision as it fell steeply in the month of July before staying sticky in the following months. It is estimated that inflation will drop further to 4.25% by the end of 2023. UK GDP projections for Q4 have weakened to 0.1% so the MPC must consider if this is now the peak in rates, as they do not want to overtighten policy, which could tip the UK into recession. There has been a huge change in UK rate expectations over the last 6 months, with the market believing in July that interest rates would be close to 7% by Q1 2024, which has now slipped to 5.25%.

Inflation in Germany has fallen to 3.8% in October (year-on-year), down from 4.5% in September. This is positive for the Euro zone as rates across Europe fall towards the 2% target, with the European Central Bank making it three out of three central banks to pause rates. The German economy however is still being weighed down as GDP fell by -0.1% for Q3. It has only grown twice over the last six quarters. There are concerns that the current geopolitical uncertainty will add further pressure to the economy as Germany still suffers from elevated energy prices since the war in Ukraine started.

Take a moment to guess what the Netherlands inflation rate for October was. Just two months ago it was 3% and preliminary results for the month of October came in at -0.4% (year-on-year). We can attribute this steep fall to the change in energy prices as gas and electricity peaked in October 2022. However, with a major European economy falling into deflation, it is a reminder how quickly outlooks can change.

The US Fed will have felt vindicated in their decision to pause, with US Non-Farm Payrolls data coming in weaker than expected on Friday. 150,000 jobs were added to the economy, against an expectation of 180,000. The slowdown in hiring is an indication that interest rates are continuing to bite, and the US economy is likely slowing as a result. 

It has been a very strong week in markets, with confirmation of central banks holding rates steady, coupled with a weakening in data, leading investors to believe that the headwind of rising interest rates may now be behind us. By the close of play yesterday the UK mid-cap equity index had risen 5.8% during the week, and at the time of writing is up another 1% today. The US S&P 500 index was up around 4.5% and again has nudged higher today. These weekly returns from equity markets are similar to the one year returns available on cash at the moment; it’s a reminder about the dangers of attempting to time markets. It wasn’t just equities that performed well, with bond yields falling (therefore prices rising). We wrote about the US 10-year Treasury yield reaching 5% last week; that has now fallen to 4.5%, providing significant capital uplift this 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 – 14th October – 20th October 2023

Many of our readers will have likely noticed the recently rising prices at the petrol pumps. The impact of increasing oil prices in recent months fed through into UK inflation data this week, where headline inflation remained at 6.7%. While this is still the lowest level of inflation since February 2022, it was higher than expected, which was in part driven by oil prices, that have recently marched up to nearly $100 a barrel.

The UK’s inflation rate does remain an outlier when compared to most other developed market countries (USA, Germany, France), with energy and services once again leading the charge. The services sector includes rent prices, and this has consistently been a leading contributor to inflation. The Bank of England (BoE) paused on interest rate hikes at their last meeting, buying themselves time to assess the impact higher rates are having. Slightly higher inflation may encourage the BoE to hike rates in November, although it is still expected that inflation rates will fall as we head towards the end of the year.

UK wage growth data was released on Tuesday at 7.8% (excluding bonuses), meaning wages are growing at a faster rate than inflation for the first time since 2021. Chancellor, Jeremy Hunt, was very proud of this stating “It’s good to see inflation falling and real wages growing, so people have more money in their pockets”. However, future expectations for wage growth could see a slowdown as UK companies are becoming more reluctant to hire new staff; there was a slowdown in job vacancies to 43,000 in September hinting at a declining jobs market.

US Retail sales for the month of September was up 0.7% (month-on-month), smashing the market expectation of 0.3% as US households stepped up the purchases of motor vehicles and spent more at restaurants and bars. Any talks of a potential US recession is certainly over for now as the economy continues to show its strength. Despite the strong data, investors are more confident the US Fed will avoid another interest rate hike in their November meeting. The question remains, is the economy getting used to interest rates being “higher for longer”?

Sustained momentum in the US economy was also fuelled by a decline in the weekly jobless claims to 198,000. The number of Americans filing claims for unemployment benefits for the first time is now at a nine-month low showing the labour market is resilient as we head towards the end of October. This data is fantastic news for the economy, but we’ve seen that good news can be bad news for markets. The currently strong US economy helps fuel the “higher for longer” narrative, and as a result of this we have seen US bond yields continue their recent weakness. The yield on the 10-year US government bond reached new 16 year- highs, rising as high as 4.99% on Thursday. Concerns around US fiscal deficits have also led to rising bond yields. It will be interesting to see if the bond vigilantes lead to a change in fiscal approach in the US, similar to the situation 12 months ago in the UK following Liz Truss’ unfunded spending plans.  

“There are a million ways to make a million dollars in markets”, was once stated by industry expert, Jack Schwager. This statement is completely true and there are several approaches to investing, however we are consistent with our specific approach. We stress the importance of diversification within portfolios across asset class, sectors, styles and regions. This week has proved painful for investors as most asset classes have struggled, although there have been bright spots, such as gold and alternative strategies, including trend-following. Geo-political risks remain at the forefront of investor minds in the short-term. Concerns around potential oil embargos have led to increasing inflation expectations, which has hurt government bonds (which are typically a safe haven asset). Energy equities have outperformed the market and gold has been the asset of choice for safe-haven searching investors.

On a final note, for the England rugby fans, miracles can happen, although we think it unlikely we will be discussing an England win against South Africa in the semi-finals. Fingers crossed.

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 October- 13th October 2023

The week in markets has resembled a see- saw; equities and bonds have been up and down all week. Short-term data and news flow continues to dominate investor thinking, leading to significant daily volatility. We will attempt to unpack the data releases below.

UK GDP data showed an improvement, with month-on-month GDP (for August) increasing by 0.2%. This follows a surprise contraction of -0.6% in July. There was weakness in the manufacturing and construction sector, although this was offset by the services sector. Housing data from RICS showed the housing market continues to struggle, as higher interest rates continue to act as a drag on activity and pricing. This week we heard from two of the Bank of England (BoE) Monetary Policy Committee members, Swati Dhingra and Huw Pill. Huw Pill stated it was “finely balanced” when discussing whether UK interest rates would be increased further. It was only a few months ago that markets believed UK rates could peak close to 7%. Now with rates at 5.25%, we may already be at the peak. The week has once again seen UK mid and small cap stocks underperform UK large cap stocks. This trend has been in place for most of the last two years, and we note with interest that the UK mid-cap index would need to rise over 40% to get back to September 2021 levels.

US inflation data for September was released on Thursday afternoon, as headline inflation came in at 3.7%, slightly higher than the forecasted 3.6%. Inflation (month-on-month) was 0.4%, again above the forecasted figure of 0.3%. Despite inflation coming in slightly above expectations, it is unlikely to be enough for the US Fed to raise interest rates in November; much like the UK we may be at, or at least very close to peak interest rates. The US market reacted badly to the inflation data however, with bond yields rising sharply (prices falling) and equities selling off, with the US mid-caps bearing the brunt of the pain.  

It appears that we have now seen the peak of German inflation, as inflation continues to fall steadily. September figures were released at 4.5% (year-on-year) which was in line with forecasts and a drop from 6.1% in August. Mr Joachim Nagel, president of the German federal reserve (Bundesbank) is convinced that the 10 previous interest rate hikes are helping tame inflation.

One country that is bucking the inflation trend is China. Data released on Friday morning showed year-on-year inflation to be 0%. Factory gate producer prices dropped by 2.5%, indicating that future inflation data is likely to be muted. Weak domestic demand continues to act as a headwind to China and may lead to further stimulus to support the ailing economy.

By Friday morning bond yields had fallen once again (prices rise), reversing much of the pain from Thursday. The price of gold has also risen over 2% on Friday (at the time of writing) to end the week higher. One of the standout equity markets this week was Japan, with the main index rising over 4%. The Japanese Yen continues to be very weak, which is helping to support the large exporters in the country.

The choppy nature of markets continues to be a frustration in the short-term. However, we need to try and take a step back, and focus on the bigger picture. Despite a slight month-on-month pick up in US inflation, the overall trend is clear, inflation is slowing. This should take the pressure off central banks to remain so restrictive in their monetary policy, which should help support markets. Next week we will receive the latest UK inflation data, which should continue to slow into the year end.

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

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

The Week in Markets – 30th September – 6th October 2023

We have now entered the tenth month of the year, October and it’s certainly now tradition to educate on history of the month. The Anglo-Saxon’s name for October was Winterfylleth, meaning winter and full moon. It’s certainly beginning to feel like winter after record high temperatures just three months ago.

The beginning of the week saw members of the US Fed come out and speak on the future of rates as Fed Governor, Michelle Bowman, confirmed she would be in favour of future rate hikes if “progress of inflation had stalled”. The main reason behind the pause in US rates during the September meeting, was for the Fed to assess the impact of the rate cycle. Investors now believe the door is still open for a further rate hike before the end of the year and the market narrative “higher for longer” has dominated markets.

US jobless claims data was released on Thursday afternoon, coming in at 207k, just under forecasted 210k. This points towards still-tight labour market conditions which will not be welcome news for the Fed. News has fed through to US treasury bond yields as we have seen huge daily moves this week. On Thursday we saw the US 10YR treasury set a 16 year high at 4.88%.

US Non-Farm Payroll (NFP) was released this Friday afternoon with 336,000 jobs created, smashing market expectations of a 170k increase, further indicating the strength of the US labour market. This is the largest monthly increase since February 2023.

German-based company, Birkenstock, the luxury sandals brand is planning its IPO next week on the New York Stock Exchange. The sandals brand has become extremely popular over the past couple of years in line with the comeback of the Crocs brand. Birkenstock has the backing of heavyweights as the Louis Vuitton private equity firm, L Catterton, will own approx. 83% of the brand after the offering. This is another example of companies choosing not to list in their native country and rather make the switch to the US!

UK Prime Minister, Rishi Sunak, this week was accused of the most “damaging U-turn in the history of UK infrastructure” as he announced the scrapping of the northern leg of the high-speed train (HS2) project. The train was planned to run from Birmingham to Manchester, cutting travel time to approx. an hour and there was hope for it to become a vital connection between the South and the North. The decision was announced with several other new policies such as the scrapping of A-level qualifications to create a new “Advanced British Standard” and a tax-free bonus for new teachers up to £30,000. Certainly, bold decisions to make before the election in 2024.

A new month certainly does not mean any changes to our investment philosophy. The message of diversification is as key as ever with the moves we have seen in the bond markets. This also reiterates the importance of long- term investing as opportunities are created by short term moves.

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 September – 29th September 2023

After a poor start to the week in markets there was a welcome rally towards the end of the week. There was positive news specifically around job creation in the UK, with the approval of the Rosebank offshore development. Rosebank is in the northernmost region of the UK and is currently the most untapped oil field, estimated to contain 300m barrels of oil. Development of this is set to create approximately 1,600 jobs but most importantly for the UK government, will reduce the overreliance on external supply.

Staying on the environmental path, the UK has seemingly lost its “Climate Crown” as earlier this week, Prime Minister Rishi Sunak, pushed back several climate change targets from 2030 to 2050. The most prominent was the pushback on the sale of petrol and diesel cars. Sunak claimed he remained “committed” to the legally binding target of 2050 and announced the UK could afford to make slower progress due to being “so far ahead of every other country in the world”.

US data points are the most anticipated releases, and it can be quite tough to predict how markets will react. On Thursday we saw US GDP for Q2 come in as expected at 2.1%. The economy remains resilient as Q1 data was revised at 2.2%, this can be seen as ammunition for the US Fed to keep rates “higher for longer”. Initial jobless claims came in at 204,000, lower than the expected 215,000 as the US labour market remains resilient. Strangely enough we saw huge moves in the bonds markets this week before the data releases as yields rose further Wednesday with the US 10-year yield reaching 16-year highs.

Amazon has now played their hand in the Artificial Intelligence (AI) space as this week they announced investment of up to $4bn in a high-profile start up, Anthropic. Anthropic is an AI research and development company and amazon is hoping this investment can be their biggest challenge to Nvidia and Microsoft who have led the way in developing AI. Amazon customers and employees are set to gain early access to Anthropic features such as customising their AI when using the service.

German inflation well and truly may have seen its peak as it fell to 4.5% (year-on-year) for the month of September. This is a significant fall since the 6.1% reading in August and is the lowest level of inflation since Russia invaded Ukraine. While falling inflation rates is pleasing, the effects of rising interest rates within the country is still yet to be fully felt, and investment and consumption is already slowing. We have recently seen downgrades for German GDP for 2023, reflecting the recent slowdown in the economy.

As an investment team here at Raymond James Barbican, we maintain our key message of diversification within portfolios and long-term investment opportunities. Bond market volatility has picked up this week, showing the importance of considering a wide range of equity diversifiers, including cash and alternative assets. That being said we continue to identify considerable opportunities in the bond market space; short term commotion can certainly create opportunities in the long run.

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 September – 22nd September 2023

Central bankers were firmly in the spotlight this week, with the US Fed and Bank of England (BoE) meeting to set interest rates. Investors focused on both the interest rate decisions and the accompanying statements, to help determine the future path of interest rate policy.

On Wednesday the US Fed held interest rates steady in the US, referred to as a “pause”. While it is possible that we have reached the terminal (maximum) level of US rates in this cycle, the guidance given by US Fed Chair Powell, intimated at one further rate hike in 2023. The US Fed upgraded their economic growth expectations for 2023 and 2024 and with it they expected to keep rates higher for longer in the face of a stronger economy, which is able to tolerate higher rates. Despite not raising interest rates both US equities and bonds sold off on the news. The tech-heavy Nasdaq index, which has been a standout performer this year, bore the brunt of the pain, falling over 1% on Wednesday and Thursday. The US 10-year government bond yield touched 4.5% on Thursday, its highest level since 2007 as investors braced for higher interest rates and inflation over the medium term. The underlying strength of the US economy has been reflected in a rally in the USD against a broad basket of currencies.

Following the pause in the US, the BoE followed suit on Thursday, keeping rates steady at 5.25%. This was a slightly unexpected decision, although the odds of a pause did increase after inflation data was released on Wednesday. Headline inflation in the UK was 6.7%, marking the sixth straight month that inflation has fallen. Core inflation, which strips out energy and food, was reported at 6.2%, considerably below the expectation of 6.8%. While inflation is still clearly an issue, there is now growing evidence that it is moving closer to target and should continue to throughout 2023. This is despite rising oil prices, which have been putting upwards pressure on inflation. It was a split decision for the BoE, with five members voting to keep interest rates at 5.25%, while four members voted for an increase to 5.5%.

Wednesday’s inflation data led to a big jump in UK equities, led by the more domestically facing mid-cap index. Government bond yields also fell (prices rose) as investors lowered interest rate expectations. We also witnessed the pound dip below 1.23 versus the USD this week.

On Friday morning Purchasing Managers’ Index data for Europe and the UK largely disappointed. There was a larger than expected contraction in the UK services sector, which will make the BoE feel vindicated in their decision not to tighten policy any further.

It’s been a mixed week in markets as investors digested the key interest rate decisions. Once again diversification has been important, with unloved UK government bonds outperforming the US this week, while UK equities have also fared better than most – this has been a reversal of 2023 trends to date. Economic data continues to be mixed and we are mindful of the long and variable lags of tighter monetary policy, which leads us to take a diversified and cautious approach to portfolio construction.

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 – 9th September – 15th September 2023

Today marks the 15th anniversary since Lehmann Brothers filed for bankruptcy. The news of Lehmann Brothers going under, an institution many deemed too big to fail, led to global equities falling around 5% on the day. Thankfully, today, and this week, equity markets have been a lot kinder to investors.

We will start with the UK where equities posted around a 2% rise on Thursday, with the large cap index up close to 1% on Friday morning. We received mixed data this week from the UK, with record high wage growth reported alongside rising unemployment (4.3%) and GDP contracting on a month-on-month basis. In aggregate it appears the UK economy is now slowing under the weight of higher interest rates, and the Bank of England are unlikely to continue much further with their rate hiking strategy. Over the summer months terminal UK rates were expected to be north of 6.5%, that number is now closer to 5.5%. The lower growth and lower interest rate expectations led to sterling falling against the USD to 1.24, a three-month low. While the expectation of lower rates helped UK equities, there was another kicker for sectors such as mining as China announced new stimulus measures to help their flagging economy. Anglo American rose over 7% on Thursday, while companies such as Glencore also posted strong returns.

US headline inflation rose to 3.7% on a yearly basis, the second consecutive month inflation has nudged higher. The recent pickup in oil prices is seen as one of the drivers of the acceleration in inflation. Despite the elevated inflation number, the US Fed is still expected to pause at their meeting next week and not raise interest rates any further. The prospect of an end to the rate hikes buoyed US equities and led to bond yields declining.

On Thursday China’s central bank lowered banks reserve requirements in an effort to increase liquidity and stimulate growth. This is the second time this year that reserve requirements have been cut. After months of poor economic data both retail sales and industrial production in China came in above expectations. This may be an early sign that prior policy measures are beginning to kick in and support the world’s second largest economy.

Oil prices have continued to rise this week driven by supply cuts from Saudi Arabia and Russia. Brent crude rose above $92 a barrel for the first time this year. Central banks will be watching the oil price closely given its impact on inflation.

British chipmaker Arm, which is based in Cambridge, listed on the Nasdaq this week in the biggest initial public offering (IPO) since 2021. The stock listed at $51 a share, valuing Arm at $60billion, however by the end of the day the stock had risen by 25%. The decision of Arm to not list in the UK was a bitter disappointment to many in the UK government and may lead to reforms to aim to encourage companies to list in the UK.

As investors it is important to study history and see if there are any lessons that can be learnt. 15 years ago, it felt like a very difficult time to invest, and yet those investors who were able to look through the short-term issues and take advantage of panicked sellers and cheap valuations went on to make highly attractive returns over the next 15 years. While Lehmann Brothers going bust didn’t signify the very bottom of the market (this was March 2009), it was a fantastic long-term entry point, nonetheless. Timing the markets is notoriously hard, yet buying when others are fearful, is often a sensible strategy.

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.

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