News & Updates

This has been a busy week in markets with a wide range of economic data released as well as surprise interest rate increases from the Canadian and Australian central banks.

The Reserve Bank of Australia (RBA) increased interest rates by 0.25%, taking the headline rate to 4.1%, an 11-year high. There were further surprises in the week when the Bank of Canada raised their headline interest rate to 4.75%, a 22-year high. A senior official cited surprisingly strong household spending and high core inflation as key reasons for increasing rates. The increase in rates came after a four-month pause where rates had been held at 4.5%.

After very strong US labour data last week, this week has seen surprisingly weak data from the US, which makes it difficult when trying to determine the current health of the world’s largest economy. Monday’s ISM services index for May came in at 50.3, the lowest level this year. The ISM surveys services firms purchasing and supply executives. A reading above 50 indicates expansion, while below 50 is seen as a contraction. The 50.3 reading for the US shows that the services sector is barely expanding. On Thursday US jobless claims increased by 28,000 to 261,000. The data measures the number of Americans filing new claims for unemployment benefits and has risen to the highest level since October 2021. The US dollar fell on the news with investors pricing in a higher probability of the US Fed pausing their interest rate hikes next week.

While the focus of most developed markets is on stubbornly high inflation, China appears to be facing deflationary pressures. The Chinese producer price index (PPI) fell -4.6% (year-on-year), the biggest drop in seven years. PPI measures the prices domestic producers receive for their output. Headline inflation for China came in at 0.2% and will put further pressure on the central bank to cut rates in an effort to try to stimulate the economy.

Revised Q1 GDP figures for the Eurozone mean the area is in a technical recession, with negative growth in Q4 2022 and Q1 2023. High inflation has negatively impacted the consumer, while rising interest rates are also beginning to slow economic growth. Last year a recession was fully baked into the price of most European equities and as such the news, while headline grabbing, has not negatively impacted the stock market. In fact, European equities have actually been a bright spot in 2023, with the largest nation, Germany, seeing their domestic stock market hit all-time highs in May.

The Halifax house price index showed that UK home prices have fallen 1% over the last year, the first time this index has shown a yearly drop since 2012. The impact of higher interest rates has led to increased borrowing costs for homebuyers and has stifled demand. Mortgage rates are once again rising and one would expect further pain in the housing market, especially if interest rates remain elevated in the medium term.

The mixed messages from economic data continued this week, which can make asset allocation challenging. We think in this environment it is sensible to maintain diversification and take a slightly cautious stance. We also believe the ability to be nimble will be an advantage going forward, allowing one to exploit heightened volatility, which we are currently witnessing in bond markets. A quick glance to next week sees US inflation data released on Tuesday as well as the US Fed meeting and setting interest rates – the big question is whether the US Fed will pause, or continue to take rates higher.

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.

Five weeks ago, we spoke about the luxury brand Moet Hennessey Louis Vuitton (LVMH) becoming the first European brand to achieve the $500bn market cap value. However, the luxury goods market has been hit over the last two weeks. With the rally initially being driven by demand from China there has been a cooldown in sales, with LVMH shares falling -5.55% over the last month, down to a market cap value of $412bn.

House prices in the UK have fallen at their fastest annual pace in 14 years, as Nationwide reported a 3.4% drop in house prices in May. This fall in house prices is the largest (year-on-year) drop since July 2009, which will be welcomed by potential first time buyers, however rising mortgage rates are still a factor in play. With the UK’s inflation rate slowing less than expected to 8.7% and core inflation rising, the Bank of England are still expected to hold rates higher for longer and this in turn will drive up mortgage interest rates. For first time buyers or home owners whose fixed rate terms will be ending soon, a two-year fixed rate mortgage is around 5.49%, significantly greater than the 3.25% it was a year ago.

Wednesday was the last day of May with inflation results for many of European countries released. German inflation fell to 6.1%, its lowest level in over a year, with headline inflation also falling in France, Spain and Italy. With greater than expected falls in price growth, the next ECB meeting on 15^th June in Frankfurt will be interesting to watch as investors had hoped for greater caution on further rate hikes. On Thursday, ECB President Christine Lagarde, acknowledged rate hikes are working but as ever maintained a strong tone stating the hiking cycle needs to continue “until we are sufficiently confident inflation is back on track to return to target”, referring to the inflation target of 2%.

Another hot topic this week has been the story of Artificial intelligence (AI). Nvidia are the world’s largest semiconductor company, who seemingly are the biggest winners of the AI boom as on Tuesday they briefly hit the $1trillion market cap mark. Nvidia are responsible for creating around 80% of the chips (graphic processing units) that power AI.  Only Apple, Alphabet (Google), Microsoft and Amazon have reached this $1trillion milestone, with Nvidia’s stock value tripling in under eight months reflecting the rush in interest. Despite the sky-high valuations, investors seem to believe Nvidia’s business has room for growth as AI is still in its early stages and has not yet seen mass adoption.

US Non-farm payrolls were released this afternoon, with a staggering 339k jobs added in May beating the market expectation of 190k. This is a rise to April’s revised figure of 294k. With the strong labour market and inflation in the country falling, the expectations of the US falling into a recession dampens, however it may prove that the next US Fed meeting is not the turning point for rates.

Early this week, Turkey’s president Mr Erdogan was re-elected, winning another five years in power in a decision that has split the country. President Erdogan, who has led the country for the last 20 years, secured 52% of votes in a narrow win, the closest the president has come to being unseated. Notoriously known for harsh levels of intimidation and jailing opposition politicians and journalists, the population are torn over the president’s use of state resources and control of media to influence the result.  With the dust settling, a spiralling economy, rampant inflation of 43% and significant Syrian migration commotion within the country are tasks the President will have to face immediately.

Continued signs of rate hikes, imminent recession fears and political unrest are just some of the issues challenging investors currently. Despite this we continue to focus on long-term opportunities, while ensuring there is sufficient diversification in portfolios to help protect against short term unease. To quote Simon Evan-Cook, who sits on our investment committee, with long-term investing it’s best to “keep your hands in the car at all times”.

 

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.

It has been a busy week in markets and for the team at Raymond James Barbican. On Thursday, the team participated in an industry wide football tournament that was organised to help raise funds for a cancer research trust, Sarcoma UK. After impressing in the group stages and winning the group the team were knocked out in the quarter finals on penalties.

One of the biggest shocks this week was the release of the UK’s inflation rate. Headline inflation (year-on-year) for April was 8.7%, the first time it has fallen below 10% since August 2022. However, the drop in inflation was less than anticipated and core inflation (excludes the price of food and energy) was the main cause of concern as it rose from the previous month to 6.8% in April. UK government bond prices have fallen (yields rise) on the back of the data with the 2yr government bond yield rising above 4.5% as investors are now expecting further interest rate rises from the Bank of England (BoE). Rising inflation is also a key worry for the Prime Minister Rishi Sunak, who promised to halve inflation by the end of this year, requiring it to fall to 5%. It may have been too great of a promise as the Conservative party have lost seats in local elections and are under pressure heading into the national election next year.

Rising bond yields (falling prices) have been a theme this week with US government bonds also suffering following the release of US Fed meeting minutes. While there was acknowledgement that the need for further interest rate rises “had become less certain” it also wasn’t ruled out and this was enough to cause a sell-off in bonds.

UK Retail sales surprised this morning, rising 0.5% in April (month-on-month). This is up from the -0.9% in March which the Office for National Statistics believe were hindered by unusually heavy rain, keeping shoppers at home. This rise certainly suggests there has been little impact from the surge in inflation at this moment in time. Pound sterling has risen against USD to 1.235 since the news, following weakness earlier in the week. Households have been resilient, however it’s evident the squeeze will begin as 1.5m households face an increase in mortgage interest payments this year.

Ryanair, Europe’s largest airline by passenger numbers, have released a report stating they expect 10% traffic growth this year as they posted better than expected net profits of €1.43bn. Robust demand for airlines tickets show travel has not been affected despite rising interest rates and Ryanair plan to operate almost 25% more flights than pre-Covid levels this summer. CEO Michael O’Leary had a bearish tone on the future, however, as he believes demand for European short haul flights could drop this winter and early 2024 as consumer spending becomes strained.

The German economy is the largest in Europe and the fourth largest in the world after the United States, China and Japan. However, after revised figures, GDP in the country fell by -0.3% in Q1 2023. This follows the -0.5% in Q4 2022 meaning they are in a technical recession. The warm winter weather eased the pain felt from their over reliance on Russian energy but even a rebound in industrial activity and the easing of supply side issues were not enough to help the Germans avoid recession. The German Chancellor, Mr Scholz, appeared to be more optimistic about future growth in the economy stating the massive expansion of clean energy “would unleash the strengths of the economy” coupled with investments in semiconductor and battery factories.

The recent artificial intelligence (AI) excitement has led to a very narrow market rally, led by some of the mega-cap US growth stocks. Nvidia is one of the stocks that represents the AI rush. On Wednesday it released better-than-expected results and saw its share price rally around 25%, adding around $200bn to its market cap, which is now approaching $1 trillion. The company now trades at an eye-watering valuation and while the narrative is certainly compelling, we only need to look back a few years to see how it can be dangerous to get too carried away with powerful stories. During COVID-19, stocks such as Zoom and Peloton saw their share prices rise by significant amounts on the back of the work-from-home story, only to see falls of 80% or more since reaching highs.

The current market conditions have been challenging for portfolios this week, with bonds struggling while equity markets in general have also been weak. The bright spots have come from the technology sector and areas of Japan. We continue to be mindful around the lagged effects of rising interest rates and acknowledge the inflation and interest rate outlook could look very different in the coming months.

 

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.

Artificial Intelligence (AI) is likely to play an increasing role in the future. What exactly is AI? Simply put, it is a machines ability to perform traits of human intelligence, such as learning, problem solving and perception. Why is it the future? On Thursday, BT Group, Britain’s biggest broadband and mobile provider announced plans to cut up to 55,000 jobs by 2030 and adapt to new technologies such as AI. BT Group CEO, Phillip Jansen, believes after completing its fibre roll out and simplifying its structure with AI, the business will gain significant profits whilst delivering better customer service.

AI is certainly a concept investors are warming to but there are still concerns around the rules and guidelines it needs. CEO of Open AI, Mr Sam Altman, was called to Congress this week along with other top technology CEOs to touch on the risks AI could potentially pose to society, how it would affect the jobs market and why regulations for the technology was mandatory. “If this technology goes wrong, it can go quite wrong” were the words Altman shared before suggesting a federal agency be created in order to review AI programmes before they are released to the world. It is evident that AI may eliminate some jobs, but it is also likely we see job creation as training and education is introduced in the future.

On Wednesday we saw a slight rise in the unemployment rate to 3.9% from January to March, signalling weakening in the labour market. This is an indicator that the Bank of England (BoE) will consider before their next rate meeting on the 22^nd of June. There has been an increase in the amount of people that are looking to join the labour force again and this helped alter the unemployment figure. We must highlight that over 2.5m workers have been out of work due to poor health since the pandemic, with the blame pointed at record-long NHS waiting lists. UK Chancellor, Jeremy Hunt, has recently provided greater funding for childcare costs in an effort to encourage more workers to return to the labour force.

Businesses owned by Mr Elon Musk are rarely side-lined in the news and this week is no exception. Twitter, the social media platform, has a new CEO taking the place of Mr Musk, and this is Linda Yaccarino, who has developed the nickname “Velvet Hammer”. Having previously run NBCUniversal, the ad’s sales business, her main objective has been identified; to bring back advertisers to the business. Since the $44bn takeover by Mr Musk, ad sales have halved to $2.5bn as brands were conflicted with the significant moves made by the previous CEO. Will Mr Musk give Ms Yaccarino enough room to operate and convince brands that they can operate in a less controversial environment? This question can only be answered in time.

Japan’s headline inflation for April (year-on-year) was higher than expected at 3.5%, with core inflation (which excludes the cost of fuel and energy) rising to 3.4% from the previous 3.1%. This is now a fresh four-decade high of inflation in the world’s third largest economy and investors are increasingly wary that Bank Governor Uedo will stray from his previous dovish stance and tighten policy in order to reach the 2% inflation target. Japan’s GDP for the first quarter of 2023 was stronger than expected at 1.6%, driven mostly by increasing tourism and strong corporate earnings.

News in markets is ever flowing and can be perceived in good or bad light. In these times we as always maintain our message on diversification and ensuring portfolios are not overly exposed to market narratives. It is important to focus on the long-term opportunities that are created in 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 Month In Markets – April 2023

Last month’s concerns around the banking sector appeared to dissipate for much of April, leading to a relatively calm month in terms of news flow. The regular readers will note that the UK equity market was the best performer during the month, in complete contrast to last month where it was the worst.

We will start with the UK equity market, which rebounded after a difficult March. We’ve witnessed markets whipsaw month-to-month over the last year or so and this was another continuation of that theme. Oil and gas, led by Shell and BP, posted strong gains over the month, while banks such as Lloyds also had strong returns. These sectors had suffered in March.

Alongside a rebound in some of the larger UK listed equities, we also witnessed a pick-up in mergers and acquisitions (M&A) activity. We have heard many of the UK fund managers we meet reference the fact that the UK equity market is cheap and a likely consequence of this would be increased M&A activity. One of the trends of the M&A activity this year has seen foreign private equity firms bid for UK assets. A combination of a weak UK currency and low valuations make our assets very attractive to foreign buyers. Private equity in general is still awash with cash and eager to deploy this. It’s not just private equity firms buying assets, as we saw Deutsche Bank bid for Numis, at a 72% premium. There is a clear short-term benefit, with share prices rising strongly on bid news. However, longer-term the benefits are less clear, with the UK losing some market leading businesses and investors missing out on future earnings and dividends.

UK inflation data released during April (March data) showed inflation at 10.1%, higher than expected. The news that inflation is not coming down as quickly as expected created a headwind for UK fixed income assets. The likely implication of higher inflation is that the Bank of England (BoE) will continue to raise interest rates. The expectation is now for another 0.25% increase at the next meeting in May.

UK inflation is currently an outlier, with inflation falling at a much faster pace in other developed economies. Inflation data for the US came in at 5%. The expectation is for inflation to continue to fall as components such as shelter (rents) begin to fall. Euro area inflation currently stands at 7%, having peaked at 10.6% in October 2022. While these figures are all still considerably above target, the market continues to expect inflation to fall this year. This should allow central banks to pause their interest rate hikes in the coming months and the market is even expecting rate cuts by the end of 2023.

Although not covered in the performance charts, we have continued to see US dollar weakness over April. The USD weakened by around 2% against GBP in April, and is now around 12% weaker since the 30th September 2022. Currency movements are notoriously hard to predict, but it is likely a combination of a stronger than expected UK economy (remember everyone was expecting a recession already), combined with the US banking woes, which will likely lead to lower growth and lower terminal interest rates, resulted in the weakening.

The US labour market has been exceptionally strong over the past 12 months. Over this period the jobs data continually surprised to the upside, exceeding economists’ predictions. The labour data in April, while still showing over 200,000 jobs added to the economy, did come in lower than expected. Whether this is a turning point remains to be seen. The jobs market is expected to cool throughout the year as the impact of higher interest rates should temper demand for goods and services.

Staying with the US, April saw many of the largest companies report their Q1 results. The banking behemoths, JP Morgan and Citi posted stellar results. It’s clear they are benefiting from the regional banking crisis and have seen a large inflow into their deposits as customers appear to have moved funds from the smaller banks into these large banks.

Emerging markets and Asia were some of the weaker markets during April. China, which is the largest country in both benchmarks posted mixed economic data during the month. Their post-COVID recovery appears lopsided, with their manufacturing sector falling back into contraction, while areas such as travel and shopping continue to do well. Since re-opening the economy towards the end of 2022, it’s clear consumers are keen to spend on experiences and services as opposed to purely goods.

Portfolio activity during the month was minimal, with one change occurring in the fixed income element of portfolios. We modestly increased interest rate sensitivity in the portfolios with the introduction of a UK gilt fund, and this was funded via the sale of a short-dated corporate bond holding. Following one of the most difficult years ever for government bonds, we believe opportunities have now been created for long-term investors and have therefore increased exposure. We also believe there is an additional portfolio diversification benefit and that government bonds will act as a good hedge to equities in the event of an economic downturn.

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. 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.

Andy Triggs

Head of Investments, Raymond James, Barbican

Heading into this week UK investors were focused on the outcome of the Bank of England’s meeting. Following the 25bps (0.25%) moves made by the US Fed and European Central Bank (ECB) last week there was a strong feeling that UK policymakers would mirror their counterparts.  

The BoE meeting took place on Thursday morning and concluded with a 25bps rise, setting interest rates at 4.5 %. This is now the 12^th consecutive rate hike with rates reaching a level last seen in 2008. Analysing the MPC votes, 7 out of 9 of the committee voted for a hike with only two members voting for no change. The strength in belief of the decision falls hand in hand with Governor Andrew Bailey’s comments, stating “We must stay the course to make sure inflation falls back to the 2% target”. It is unclear whether this will be the peak in interest rates as UK inflation still remains high, driven by rising food prices and a resilient labour market, factors the BoE consider before decisions. Will we reach the 5% mark before the end of the year? We will have to wait and see. Following the meeting the BoE released their growth forecasts for the UK. After a very bleak outlook at their February 2023 meeting, UK growth was significantly upgraded by the BoE in what Governor Bailey said, “may be the biggest upgrade we’ve ever done”. Despite the outlook for the UK not looking great, the news that the country is expected to avoid recession is positive.

The BoE’s comments on UK GDP looked a little foolish this morning, as GDP data came in showing the UK unexpectedly declined by 0.3% in March, lower than expectations.

US inflation data was released on Wednesday, coming in at 4.9% (year-on-year) for April, slightly below the 5% in March. Month-on-month inflation was 0.4%, in line with forecasts. Inflation has remained persistently high and although this is the 10^th consecutive month inflation has dropped, it is still running over double the 2% target the US Fed have set. Shelter (rent) once again was the key contributor to the monthly increase. Despite inflation being above target, there is a lag between policy action and effect, which is acknowledged by the US Fed. Therefore, there is potential for the Fed to pause rate rises and assess the impact on the economy.

Inflation continues to dominate the weekly as German inflation for April was also released on Wednesday. Headline inflation was 7.2%, falling slightly from the 7.4% in March. Food price inflation was the major driver of German inflation, it remains elevated but has slowed from 22.3% to 17.2% this month.

China has been an under discussed topic this week as investor minds were elsewhere, however economic activity in the country seems to be slowing. Imports in April (year-on-year) collapsed by -7.9%, a sharp fall from the previous month of -1.4%. This data came as a surprise given the recent re-opening of China and pent-up demand and excess savings of consumers. Exports slowed to 8.5% (year-on-year) from 14.8% in March. Higher interest rates and recession risks for many of China’s global trading partners have a part to play showing that the post pandemic recovery will be slower than expected. Market expectations for China’s GDP growth of around 5.5% – 6% will certainly be revised.

Apple, the world’s largest company has decided to delve deeper into the emerging markets (EM) and has announced the opening of their first online store in Vietnam. The company most known for the iPhone has focused on driving growth in other EM countries with first stores opened in Mumbai and Delhi amid the slowing sales in China.  Younger populations, scope for better infrastructure and less product competition are just a few reasons Apple are betting on the EM space.

To round up the weekly, I am going to echo the words of Governor Andrew Bailey. “We must stay the course” is a leading approach and this is consistent with our internal investment philosophy and process. We identify exceptional fund managers that can operate in a variety of market environments, while maintaining a long-term approach.

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.

This week we entered the fifth month of the year. It has already been a significant start to the month with various data releases including the conclusions of the US Fed and European Central Bank (ECB) meetings. Both policymakers decided to increase base rates by 25 bps, despite differences in opinions from investors. We will discuss this in more detail shortly.

Firstly, it’s important we cover First Republic, which is the latest US regional bank to collapse, and it was slightly larger than Silicon Valley Bank (SVB), which made the headlines in March. On Monday, US regulators seized First Republic bank and JPMorgan were successful in the government auction, acquiring the bank.  First Republic was subject to the same doom as SVB, as interest rates rose, the large loans on First Republic’s books dropped in value. They also planned to sell off unprofitable assets such as low interest mortgages that were provided to clients, as well as plans to lay off up to a quarter of its workforce but this proved to be too little too late. Once SVB went under and knocked confidence in the regional banking system, clients pulled over $100bn of deposits from First Republic in a few days with ease via the use of mobile devices. The US Fed stressed that the resolution of First Republic was “an important step to drawing a line” under a period of stress in the banking system.

On Wednesday the US Federal Reserve took further steps to battle inflation and raised rates by 25bps to 5.25%. There were many investor whispers before this was announced that the US Fed were considering a pause, however commentary from Fed Chair Jerome Powell has proved this was not even an option considered. “We are prepared to do more” is a strong tone that indicates the Fed are hell bent on reaching their inflation target of 2%. The next policy decision will be in June. Many investors consider the US Fed to have now finished their interest rate hiking cycle, however stronger than expected US Non-Fam Payroll data, released this afternoon, points to resilience in the labour market. This will likely keep upward pressure on wage inflation and consumer spending and may mean the US Fed continue in raising interest rates.

Eurozone inflation on Tuesday was a mixed bag of results as headline inflation (year-on-year) increased to 7%, however core inflation (excludes food and energy prices) fell to 5.6%. This was a big talking point ahead of the ECB meeting as external policy makers, including French central bank chiefs, suggested a more measured move was needed to allow European economies to adjust to the effect of previous hikes.

The ECB finalised a 25bps rate hike, which is a slowdown from previous 75bps and 50bps hikes since July 2022. The headline interest rate is now 3.75%, and this is likely to increase further with President Lagarde stating, “We know we have more ground to cover”. This ruthless tone shows the dedication the ECB has towards the 2% target it has set for inflation. The Bank of England is next up in line next Thursday, and if I was a betting man, I would back a 25bps hike from the current level of 4.25%.

In the UK, some headway was made with the Government and NHS coming to an agreement on a 5% pay increase for NHS staff. This move was agreed by health union GMB who have accepted the government’s “take it or leave it” offer, however this could split unions as health union Unite, rejected the deal with workers set to continue strikes. Tens of thousands of nurses are expected to stage a 28-hour strike from Sunday evening, even after being presented with a deal of a one-off payment of £1,250 – £2000, on top of a £1,400 rise in basic pay. However, unions are still concerned the pay increase is not significant enough as inflation remains high, outstripping the proposed wage increases.

In such complicated times it’s important to maintain a long-term approach to investing. Being invested doesn’t necessarily exclude you from the dangerous waters but a long-term approach and added diversification in portfolios certainly allows investors to face up to them with more success. Valuations across most equity markets continue to look compelling, while yields on fixed income assets have rarely been higher over the last decade.

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.

In this month’s Market Commentary, our European Strategist, Jeremy Batstone-Carr, discusses how the financial markets have proved to be resilient despite the push and pull of market forces, fast-moving geopolitics, and other pressures.

This week has seen Moet Hennessy Louis Vuitton (LVMH) market cap exceed $500bn. It is the first European name to achieve this, taking a place in the top 10 companies in the world by market value, a list dominated by US and Saudi Arabian names. This milestone also sees founder, Bernard Arnault, take the title of the world’s wealthiest man. LVMH have most recently benefited from the improving economic outlook in China, as consumers have propelled spending after the removal of the Covid restrictions.

Over the past year, the UK has been touted as a key spot for M&A, with some of the most active sectors including technology, healthcare, and consumer goods. Increased M&A can be a good thing as it helps identify how other countries view our economy and the opportunities that exist. Medica group is the latest to be snapped up by a private equity firm resulting in a share price surge of 33%. This is a company we have exposure to through our UK Smaller companies position.

We are still in earnings season and Barclays have announced stronger than expected first quarter profits at £2.6 billion. This is a 16% profit jump from this time a year ago, as its results prove that it has not been hindered by the US regional banking crisis, despite Barclays expanding its investment and retail banking overseas. Performance was driven mainly by its credit card business, rising by 47% to £1.3bn, a sign that consumers are beginning to feel the pinch of elevated inflation.

Economists this week have been trying to predict the future and envisage what the ECB are likely to do ahead of next weeks meeting. It is almost certain that we will see a 25bps rise to take the base rate to 3.25%, as inflation reports around the Euro zone are still greater than the 2% target set. ECB President, Christine Lagarde, maintains the message that the central bank “still has a way to go” with monetary policy, as core inflation appears to be more stubborn than anticipated, pushing back the timeline for the rate pause.

In the US, President Joe Biden launched his re-election bid promising to protect Americans from “extremists” connected to former president Donald Trump. It is very likely that he will face Trump again in the November 2024 election as he started his campaign video with imagery from the 6^th of January 2021 attack on the US Capitol by Trump supporters. The American population have concerns over the age of Mr Biden, 80, who would be 86 by the end of a potential second term. However, his triumphs during his reign have included billions of dollars in federal funds tackling the Covid pandemic, signing a $1.2 billion infrastructure bill into law and overseeing the lowest levels of unemployment since 1969.

US GDP figures for the first quarter were released on Thursday at 1.1%, coming in lower than the forecasted 2%. There was an acceleration in consumer spending which accounts for over two-thirds of US GDP, with increased purchases of motor vehicles, visiting restaurants and hotels. This, however, was offset by falling business confidence leading to smaller inventories held in anticipation of weaker demand. The US Fed is also expected to meet next week, with investors predicting that another 25bps hike is on the cards. It is still to early to predict whether this will be the last hike of the fastest monetary policy tightening in over 40 years.

We as always maintain our message on diversification, ensuring portfolios are not overly exposed to shifts in market narratives.  It is important to focus on the long-term opportunities that are created by the short-term volatility in 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.