News & Updates

Last week we saw the successful launch of a satellite to Jupiter. On Thursday, Space X – run by Elon Musk, attempted to launch their Starship but to less triumph. Only four minutes into the launch, the rocket exploded. Despite the setback, Mr Musk was very positive about the event, stating “success comes from what we learn”. This is certainly a powerful quote to keep in mind.

On Thursday we received UK inflation data. Headline inflation for March was 10.1% (year-on-year), higher than the forecasted 9.8%. Core inflation (which excludes food and energy prices) came in at 6.2%, similar to the previous month of February and 20bps greater than forecast. The UK is now the only western European nation with inflation remaining in the double digits in March. The market is now pricing in higher terminal interest rates for the UK and has not ruled out the Bank of England (BoE) having to increase rates by 0.5% at the next meeting. High inflation is not only an issue for the BoE but the government also, as earlier this year Prime Minister Rishi Sunak promised to halve inflation, which would require it to fall to approximately 5% by December.

The UK unemployment rate for February was released this Tuesday, coming in at 3.8%, this is 0.1% higher than the forecasted figure and previous month. The number of job vacancies also fell for the ninth consecutive month, although it remains high at 1.1 million as companies struggle to hire staff.  Firms are being encouraged to find new ways to develop talent and boost productivity, with emphasis on increased worker training, more flexible working and the expanded use of apprenticeships. The average wage growth (excluding bonuses) was 6.6% despite the rise in unemployment and decline in vacancies, however this is still being eaten into by elevated prices.

Earnings season this week in the US has got off to a strong start with 90% of companies beating expectations. The general consensus in markets is that although 90% of companies are beating expectations, the bar set to beat is low, given the uncertain outlook and recent earnings revisions. Netflix beat their earnings expectations, reporting $2.88 earnings per share over the first quarter. The company delayed plans to crack down on password sharing to Q2 and have plans to adopt a new ad-supported service in order to accelerate growth in revenue and profit. Netflix are less reliant on subscriber growth as they shift to a more advertising focused business model, but they did add 1.75m new subscribers from January to March.

China GDP for Q1 was released earlier this week at 4.5%, beating expectations of 4%. Retail sales largely drove this rise in GDP as they jumped 10.6% in March (year-on-year) as consumers are on a spending spree after three years of the zero-Covid policy was lifted. With the increase in consumer confidence and pent-up demand, there still seems to be room to run. Last year China GDP was 3%, missing the official growth target of 5.5%, however the International Monetary Fund believe this year China can get closer to the target and grow 5.2%. The resurgence of China not only benefits the domestic economy but has helped other regions and companies. China’s demand for luxury goods has benefited European listed LVMH, which has seen its share price rise around 40% since China re-opened.

As an investment team we are continually engaging with industry professionals, aiming to gain insight and challenge our own views and thoughts. During one such meeting this week we were reminded of a quote from Thomas Rowe Price Jr – “Change is the investor’s only certainty”. For us, this means being willing to accept the world can look very different in the future and ensure that portfolios are well diversified and not concentrated around one single narrow viewpoint.

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.

April is certainly a month full of history as the 60th anniversary of the first Ford Mustang looms. Another piece of history was created this afternoon as the European Space Agency successfully launched a satellite from French Guiana destined for Jupiter. The spacecraft is on an 8-year journey with its mission clear, to explore whether Jupiter’s Ocean bearing moons can support life!

After the UK’s third bank holiday on Monday, tens of thousands of junior doctors began a four-day strike. The strike is a continuation of various public sector strikes over the past 11 months, with workers continuing to fight for pay rises in line with inflation. Over 350,000 healthcare appointments over the four days have been rescheduled adding considerable disruption to the NHS system.

On Thursday we saw the release of UK GDP for the month of February. Month-on-month GDP was flat, falling just behind the expectation of 0.1%, with year-on-year GDP coming in at 0.5%. The impact of the public sector strikes was more significant than expected as they weighed on output, coupled with uncommon mild weather leading to a fall in the use of electricity and gas.  This data release will be another factor for the Bank of England to consider in next month’s monetary policy meeting as the prospect of continuing to raise interest rates may harm growth prospects.

US inflation data for March was released on Wednesday coming in at 5%, lower than February’s 6% and a continuing decline since the peak of 9.1% inflation back in June 2022. Core inflation (excluding energy and food prices) is a different story however, coming in at 5.6%, slightly greater than the previous month. Russia’s invasion of Ukraine last year led to soaring energy prices, but we have since seen prices cool significantly contributing to the overall fall in inflation. Despite the downward trend in inflation, the US Fed are still expected to stay stubborn and continue to raise the base rate. If we remember back to 22nd of March, they raised the base rate by 25bps despite the failure of Silicon Valley Bank, showing their intent on taming inflation.

Twitter is an interesting case study as this week the CEO Elon Musk discussed the social media firm’s status. Since the $44 billion acquisition last October, Twitter has been clouded by commotion and uncertainty, with major layoffs and Mr Musk’s unpredictable leadership driving this. Twitter now has approximately 1500 employees, a sharp decline from the 8000 employees 6 months ago. However, Mr Musk is confident these layoffs have been essential in order to turn around the £3billion negative cash flow position and is confident Twitter can deliver positive revenue growth this quarter as advertising on the platform has boomed again on the back of Twitter reaching new highs in terms of user numbers.

Chinese inflation data showed consumer inflation had hit an 18-month low, in stark contrast to the western world. There is a real danger that China may fall short of their inflation targets, and it has opened the door to further monetary policy easing and stimulus within the world’s second largest economy. Such support should be a boost for not only the domestic Chinese economy, but the global economy as well.

It’s been a strong week for equities, with most major indices grinding higher, supported by falling inflation and receding concern around the banking sector. Lower interest rate expectations from the US has led to the US dollar falling in 2023, and this week sterling hit a 10-month high versus the US dollar. We’ve spoken about the prospect for a pickup in M&A activity within the UK market, given the low valuations and historically low value of the currency. On Friday Dechra Pharmaceuticals, a UK veterinary medicine group, confirmed it was in talks to be sold to a foreign private equity firm. The shares jumped 40% on the news.

The roundup of the weekly is always consistent, even though last week’s football analogies were painful to read for some!  We continue to blend asset classes in portfolios to diversify risk(s) and smooth the overall return profile. Our key message is to maintain a long-term investment mindset in order to best take advantage of the short-term instability.

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.

As we enter the month of April, it is 111 years since the great Titanic ship sank. Staying on the topic of sinking ships, Graham Potter was sacked as manager of Chelsea Football Club on Sunday. He was actually the second manager to lose his job that day, with Brendan Rodgers also being dismissed (from Leicester City). In total there have been 12 manager dismissals this season in the Premier League, a new record.

The weekly won’t be totally focused on football as we have had a significant week in markets. Monday saw the release of the Purchasing Manufacturing Index (PMI) in the US, which came in at 46.3. The PMI measures the direction of the manufacturing (and services) sector spending with a reading of 50 or above indicating growth in the sector. March’s release of 46.3 came in below the forecast of 47.7, pointing towards contraction in the sector. Excluding during the pandemic, it was the lowest reading since 2009.  This is evidence that the interest rate hikes are beginning to slow the economy. The recent failure of Silicon Valley Bank has also led to banks tightening lending conditions, this mainly affects small businesses and consumers ability to access credit to spend.

OPEC and its allies on Sunday made the surprise decision to cut oil production by 3.66 million barrels a day, equating to 3.7% of global demand. This was a shock to markets and led to the oil price rising over 6% to around $85 a barrel. There are a couple of reasons behind this power move, firstly, OPEC were declaring their support for Russia following continual price caps on Russian oil from the West, irritating Washington officials. OPEC has also been thought to be keen to set a floor under oil prices at around $80, which could be a risk as countries reliant on OPEC supply may accelerate shifts toward alternative energy.

This week we are also seeing the effects of the UBS and Credit Suisse merger. Credit Suisse shareholders were keen to understand how the takeover would be completed successfully, with rumours of major job losses and concerns around the adverse impact on the country’s banking competition. The merger will make UBS the fourth largest bank in the world with a combined $5trillion in assets. UBS vice-chair, Lukas Gahwiler stated it was “simply too soon for any speculation” on potential job cuts but that the takeover in the short term would need everyone on board.

Another firm has filed for bankruptcy, Virgin Orbit Holdings, founded by billionaire Richard Branson. The company was forced to close after failing to secure long term funding. Virgin Orbit sends satellites into space using rockets but the most recent launch in January was a failure with the majority of its commercial and defence related satellites dropping into the ocean, leading to a halt in operations. Venture investments in space operations have dropped 50% year-on-year in 2022 as the global interest rate hikes have led to increases in cost of capital.

France will face another round of nationwide protests and strikes after the latest meeting with prime minister Élisabeth Borne and labour unions failed to come to an agreement. The protests have been fuelled by anger over the reformed pension bill – the retirement age has been raised by two years to the age of 64. Hundreds of thousands have protested in rallies organised by unions since the beginning of the year and have at times turned violent against the police. Unions have stated the only way the crisis can be averted is for the new legislation to be completely pulled.

To round up the weekly, I want to return to the record manager dismissals in the Premier League this season. Much like investing, it appears the football world is becoming more focused on the short-term and looking for instant success, which often isn’t possible, or sustainable. Although I’m not an Arsenal supporter, their long-term focus and ability to avoid the short-term noise on sacking Mikel Arteta last season is now paying dividends as they are firmly at the top of the league playing top quality football. The owners took a long-term approach to rebuilding the club and had a clear strategy in place to achieve their goals. This message is consistent with our own investment philosophy, where we try and take a long-term view and allocate capital to the best fund managers.

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.

Our latest Investment Strategy Quarterly provides informed insights into a turbulent market with analysis on economic situations at both home and abroad, the questions facing policymakers and investors, plus reasons to be optimistic in the long term. Read all this and more in Investment Strategy Quarterly: Time is on Our Side.

This week sees the end of the first quarter of 2023. March has thus far been eventful to say the least, however, relative calm returned to markets this week. The lack of further contagion (so far) within the banking sector has helped alleviate some pressure in markets and we have seen equities rebound accordingly.

One of the implications of the banking woes has been for the markets to price in lower terminal interest rates and interest rate cuts towards the back end of 2023. This has been supportive for sectors such as technology, which tend to command higher valuations in a lower interest-rate environment. The tech-heavy US Nasdaq 100 index fell over 30% in 2022, but has seen a very strong rebound, rising nearly 2% this week and around 17% for the first quarter. This is in complete contrast to the energy and banking sectors, which enjoyed very strong rises last year, but have fallen in 2023.

It was a quiet week in terms of economic data, with most of the news flow centred around the UK and Europe. Inflation data from the Eurozone showed the year-on-year inflation rate fall to 6.9%, lower than expected and lower than last month’s figure of 8.5%. The European Central Bank (ECB) is likely breathing a sigh of relief to see inflation continue to fall. Central banks in general are caught between a rock and a hard place, trying to bring down inflation without toppling over the economy. This lower-than-expected inflation data may allow the ECB to ease up on future rate hikes. Staying with Europe, German employment data showed the unemployment rate in Europe’s biggest economy nudged up from 5.5% to 5.6%.

There was mixed data from the UK. Finalised Q4 GDP data showed the economy grew 0.1% in the final quarter, having previously been reported at 0% growth. The data meant that the UK economy grew 0.6% for 2022, which is considered below-trend growth. House price data highlighted that higher interest rates are now impacting home values. Nationwide house price data showed prices had declined by 3.1% over the last 12 months. House prices have been expected to fall given that the sharp rise in interest rates has driven up the cost of mortgage debt servicing. The impact will be a negative wealth effect and could be detrimental for consumer confidence and spending.

Richard Hughes, chair of the Office for Budget Responsibility shared his views on Brexit, saying it had a big detrimental impact to the UK economy, estimated to be around 4% of economic output. However, there was some positive news for the UK economy by the end of the week with reports that PM Sunak was close to agreeing a trade-deal with the Pacific bloc.

While the first quarter of 2023 may not have felt that positive, portfolio returns have been pleasing. From a portfolio construction standpoint, its’s been welcome to see equities and bonds behave differently in recent weeks, something that did not occur last year. The reversal in equity market leadership in 2023 is a reminder of why we try and stayed balanced and diversified across equity style and region.

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.

This week started with a bang with the news that UBS had agreed a deal over the weekend to acquire Credit Suisse (CS) for around $3bn. Only two years ago, the market capitalisation for CS was around $34bn.  The deal brings an end to CS’s recent woes where a flurry of regulatory fines, mismanagement and loss of confidence led to assets and deposits rapidly declining. The bank can trace its roots back to 1856 and alongside UBS had been a flagship company for Switzerland.

One of the surprising elements of the deal was that holders of Credit Suisse AT1 bonds have effectively been wiped out, while shareholders were not. CS had issued approximately $17bn of AT1 bonds and rumours are circulating that bondholders are preparing a lawsuit against the Swiss regulator.

Following on from the emergency takeover of CS, all eyes were on central banks this week, who were due to meet and set interest policy. The concerns around the banking sector were not enough to deter central banks from raising interest rates further. The US Fed and UK’s Bank of England both raised rates by 0.25%, but struck a cautionary tone, acknowledging that higher rates are impacting the economy. At this moment central bankers are walking a tightrope, trying to bring down inflation through higher interest rates, while not causing financial instability.

UK inflation data, released on Wednesday, provided an unpleasant surprise, coming in at 10.4%, against an expectation of 9.9%. The uptick in inflation (previous month 10.1%) was driven by food and non-alcoholic drink prices, which rose at the fastest pace in 45 years.

The big winners this week were defensive assets, with government bonds and gold performing strongly. Bonds rallied (yields fell) on the expectation of lower future interest rates. The gold price has passed through $2,000 per oz this week. The precious metal is often viewed as a safe-haven asset and the price of gold does well when real yields fall – something we have witnessed this week.

Equity markets have been mixed this week, with UK and European equities struggling for momentum by the end of the week. It’s pleasing that the inverse correlation between bonds and equities has returned recently, something that was missing in 2022.

It was banks, a strong sector in 2022, that was bearing the brunt of the pain on Friday, a sign that central banks measures to calm markets may not yet be sufficient. Another strong performer in 2022, the energy sector, has also been weak of late; the oil price has fallen on the back of a more uncertain economic outlook which has fed through to underlying share prices.

The strong relative performance of Apple and Microsoft in recent weeks, the two largest companies in the US, has seen their combined weight reach 13.3% of the S&P 500 – the highest level on record. That means for every $100 invested into the S&P 500, $13.30 goes into just two companies. Within the global equity index, Apple now has a bigger weight than the whole of the UK market!

This week may end up being remembered for two major events; the demise of Credit Suisse, and potentially the end of the interest rate hiking cycle, with the real possibility the US Fed (and Bank of England) may well pause, before potentially cutting rates later in 2023.

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 most discussed topic in markets heading into this week was the collapse of the Silicon Valley bank in the US. Signature bank, a commercial bank specialising in digital assets with $110 billion in assets, was the next casualty as it was closed this week by state regulators, making it the third largest failure in US banking history. The run on the banks has led to over $100 billion in market value being wiped out from US regional banks forcing policymakers to try and restore confidence in the security of the financial system. President Biden pledged emergency funds available for banks and ensured there would be stricter regulation.

US inflation data saw another fall as the inflation rate dropped to 6% (year-on-year) for February and core inflation (excluding food and energy prices) dropped to 5.5% matching expectations. This data point strengthens the consensus that we have seen the peak in inflation and the US Fed interest rate hikes are having their desired effect. Although US Fed Chair Jerome Powell is insistent on staying the course until inflation reaches the 2%, the SVB debacle and vulnerability of the nation’s banking system may change the Fed’s approach. Last week investors were almost certain the Fed would be raising interest rates by another 50bps, however the banking concerns could now lead the Fed to a lower increase, or even pause interest rate hikes.

The demise of Credit Suisse has been a gloomy one to watch as Switzerland’s second largest bank has battled multiple scandals since 2021. These scandals have led to consecutive losses reported and the stock market value has nosedived almost 90% from $91 billion to around $8.8 billion. Switzerland’s central bank has recently lent the bank up to $54 billion in an attempt to shore up liquidity and begin to restore investor confidence. The famous Savoy hotel located in Zurich has also been put up for sale to help raise additional capital.

On Thursday, the European Central bank raised interest rates by 50bps, a strong hike despite the thoughts of investors that policymakers would hold back on rate rises until the turbulence in the banking sector eases. However, ECB president Christine Lagarde has stuck to her fight against inflation stating that “the banking sector is currently in a much stronger position than where it was in 2008”. Also, she has set out a new framing for the ECB’s decision process that will consider financial data as well as economic data in order to gauge the impact higher interest rates were having on the economy. Despite raising interest rates, the market has lowered its expectation on the peak interest rate level in Europe from 4% to 3.25% on the back of this week’s banking issues.

Turning our attention to the UK, on Wednesday the Chancellor Jeremy Hunt delivered the UK Budget. His first bold claim was that the UK would be avoiding a technical recession this year. The budget was certainly meaty with several key measures unveiled; the easing of costly childcare costs, the continuation of the energy price guarantee for the next three months, a freeze on fuel duty, the follow through with the raised corporation tax to 25%, and a pension tax shake up with the aim to ease the UK’s workforce squeeze. Figures for the UK unemployment rate were released on Tuesday at 3.7%, staying the same as the previous month, however job vacancies continue to fall for the eighth month in a row. The UK has been stricken by public sector strikes with workers mainly protesting over pay failing to keep up with the rise in inflationVolatility returned to markets this week, with large swings in both equities and bonds. Sectors such as financials and energy, which had been the star performers in 2022 suffered the most. UK equities fell considerably on Wednesday, with the large-cap index suffering one of its worst days since 2020. Some of the strongest performing funds this week in portfolios were some of the laggards from last year. This strengthens our consistent message on the need for diversification in portfolios. It is impossible to predict the future however, history has shown us that during these uncertain moments opportunities are created for investors with a long-term horizon.

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.

Our Spring Budget Newsletter breaks down the Chancellor’s recent announcement, outlining what it means for you and helping you to plan for the new tax year – which is almost upon us.

To start this weekly, we cover a brand not commonly spoken about around the market but certainly important to the chocolate lovers. Toblerone bars, owned by Mondelez, is set to lose its iconic Matterhorn from the packaging under Swissness legislation as production has now moved to Slovakia. National symbols are not permitted on products that are produced with less than 80% of raw materials from Switzerland, with the new branding set to feature a signature from the founder, Theodore Tobler.

One of the most anticipated events this week was the commentary of US Fed Chair Jerome Powell on Tuesday. It’s important to remember that commentary from Powell can often be as significant as the actual interest rate moves as it signals to investors the trajectory of future rates. The main takeaways were that interest rates were likely to rise more than expected in a response to strong inflation and economic data, and the Fed are prepared to move in larger strides, possibly returning to raising rates by 50 basis points. The Fed’s base rate is 4.75% following February’s 0.25% rise, but investors are now predicting rates could rise to 5.6% at its peak. The S&P 500 dropped around 1.3% on the day with the 2-year treasury yield rising to 5% for the first time since 2006.

UK Chancellor Jeremy Hunt is also set to speak soon as investors brace for next week’s budget. With a £30bn windfall in the public sector borrowing, Mr Hunt is facing more pressure to relax the harsh stance he took when first entering the job. He is expected to lay out economic growth measures, address Britain’s workforce and announce tax incentives even with corporation tax climbing from 19% to 25% next month. It is possible to assume that Mr Hunt may be unadventurous with this March budget to leave himself and the Conservative party wiggle room, as he eyes the election timetable.

The UK has certainly been hit with a cold snap this week which is adding strain on the country’s power and transport networks. The national grid was forced to use coal reserves on Tuesday but has not been exerted for the extra supply on any other days.

Germany, Europe’s largest economy, makes the weekly again as they have without warning vetoed their European Union deal to effectively ban the sale of new cars with combustion engines from 2035. The EU have bid to cut emissions by 55% by 2030 with car pollution accounting for almost 30% of worldwide pollution. Germany’s automotive industry is approx. 5% of the country’s GDP, with carmakers Mercedes Benz, Volkswagen and BMW employing over 800,000 people. It looks like Germany will now not support the proposal without a clear plan on how synthetic fuels could be used to meet the zero-CO2 target.

US bank Silicon Valley Bank (SVB) saw its share price collapse on Thursday and is down heavily in pre-market trading this morning. The bank has seen a run-on deposits and as such has had to sell bonds for liquidity, locking in heavy losses. The bank has a high reliance on venture capital corporates as clients, who are now being advised to withdraw their deposits which is escalating the problem further. The concerns around SVB’s survival has impacted banking shares in general, with the sector down on Friday morning. HSBC share’s were down around 5% at open.

US Non-Farm Payrolls data, like last month, came in ahead of consensus. The data showed 311,000 jobs had been added to the economy, against an expected increase of 205,000. Wage inflation was 0.2%, lower than last month’s 0.3% and the slowest increase since February 2022.

This was always going to be an eventful week, with key speeches and data releases occurring, and markets have also had to digest the unexpected events unfolding at Silicon Valley Bank. Next week looks equally as busy, with all eyes on the US Fed’s meeting and to what degree they will raise interest rates further.

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.