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The Month In Markets – May

The Month In Markets - May

Markets stayed jumpy in May, although after several months of turmoil, the swings in market direction aren’t causing quite the stir they were as the year began. Having plunged, but then rebounded, global equity markets ended up making a small loss for the month – a blessed relief compared to the steeper falls that have plagued investors for much of the year.

The UK stock market was May’s standout performer, as it has been for most of 2022. It would be lovely to put this down to some kind of jubilee-inspired rush of goodwill, but the unromantic truth is that it’s caused by the UK market’s heavy exposure to energy and mining companies. 

The twin shocks of inflation and the war in Ukraine continue to drive most natural resource prices higher, with the latter having thrown fuel onto what was already a decent-sized inflationary fire – originally caused by pent-up post-COVID demand colliding with supply-chain bottlenecks. This has boosted the share prices of the UK market’s large oil and resource companies.

Very little of this has much to do with the British economy. Instead, it’s a reflection of which behemoth global energy and mining titans choose to list themselves on the London Stock Exchange (as well as the absence of any global technology titans). 

To get a truer feel for what’s happening to our economy, it’s more telling to look elsewhere, such as the fortunes of the pound and of smaller UK-listed companies (as these tend to be more reliant on the UK economy, although not exclusively so). On this front, 2022 has been less rosy: While the multinational-dominated UK large-cap index has made positive returns, UK-listed smaller companies are down by around 10% for the year. 

Sterling has also had a tough time of it: If you’re taking a trip to the States in the next few weeks then, assuming you make it through the airport, you’ll be spending almost 8% more to buy a burger than if you’d flown on New Year’s Day (and that’s only on the currency move – food price inflation will leave a mark too).

But if the month provided any glimmer of hope for us Brits, it’s that markets seemed to calm down and improve over the second half of the month. So smaller companies made up some lost ground, while the pound clawed back a cent or two against the dollar.

The relief wasn’t confined to the UK though. Many other markets that had been under the cosh were given some respite. For us investors, perhaps the most noteworthy was the improvement in the share prices of ‘growth’ companies, in particular tech firms.

We’ve written about this at length over the past year or so. But to recap; after a decade and more of trashing everything else, the tech share hares have collapsed this year, dragging many markets – such as the US and China – down with them. 

The cause of this is the return of inflation, and with it, rising interest rates: Higher interest rates impact the way investors value fast-growing companies, and not in a good way. With so much invested in these parts of the market, investors are frantically trying to work out if the last fortnight of kinder price trends mean the worst is over, or if they’re simply a resting point on a far longer descent.

The cause of this respite was tentative signs that inflation may have peaked, and that interest rate hikes might be less severe than previously thought. The emphasis is on ‘tentative’ here, as while some data has pointed to a slight moderation in the pace at which inflation is accelerating, there isn’t much of that data to go on, and other data has suggested otherwise. It’s finely balanced, and further releases over the coming days and weeks will provide more colour, potentially tipping the market either way.

But perhaps the most emphatic bounce-back over the month came from Chinese shares. These benefited from the same factors as mentioned above, but had a further boost from indications that the country’s zero-Covid policy, which still has the country on hard lockdown, may be eased. 

Indeed, this news may itself have played into the hopes of easing inflation, as China’s lockdown has caused many of the bottlenecks that are spiking prices in certain products across the planet. If those bottlenecks are removed, price rises may begin to lighten up, and potentially even reverse.

It all adds up to a highly complex picture for global markets and economies, and trying to predict precisely what will happen next is difficult at best. We maintain that diversification is the best policy because the alternative requires knowing exactly which path the world will take, and when it will take it. And that requires a crystal ball. Or a time machine. If you have access to either, please let us know.

Simon Evan-Cook
On behalf of Raymond James Barbican

Appendix

5-year performance chart

Risk warning: With investing, your capital is at risk. Opinions constitute our judgement as of this date and are subject to change without warning. Past performance is not a reliable indicator of future results. 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.

Weekly Note

The Week In Markets – 4th June – 10th June

There is being fashionably late to the party and then there is the European Central Bank (ECB). Despite high levels of inflation and other central banks looking to tighten policy, the ECB had refrained from joining the party and until recently intimated that interest rates would not rise in 2022. On Thursday, however, Christine Lagarde, head of the ECB, signposted that they will raise rates in July, for the first time since 2011, and end its bond-buying stimulus program. This is being done in an effort to cool inflation, which is running at multi-decade highs in the Euro area.

The shift in approach from the ECB led to European equities falling and European government bond yields pushing higher. The yield on the 10-year German bund now stands at 1.43%, compared to this time last year when it was still in negative territory, yielding -0.25%.

Chinese equities have been somewhat of a bright spot over recent weeks, rallying strongly as COVID lockdown measures appeared to be easing. However, Shanghai and Beijing now look to be going back into a form of lockdown and mass-testing as the country’s dynamic zero-COVID policy is implemented. This news pulled down Chinese stocks and will create a headache for Chinese exporters once more, just as the Port of Shanghai was reporting numbers almost back to normal. The average waiting time for tankers at the port had fallen by almost 37 hours. This trend could reverse with lockdown measures returning.

Elsewhere in China there were rumours circulating this week that Ant Group’s failed initial public offering (IPO) may be revived. This would mark a sea change in China’s regulatory policy, which has been a headwind for sectors such as technology over the last 12-18 months. Chinese headline inflation data was reported at 2.1% on Friday, coming in slightly below consensus. With inflation seemingly under control in the world’s second largest economy, there is scope for interest rates to be cut further and stimulus measures to be implemented to help support the economy. We are beginning to witness this already, and it often boosts not just China but the global economy as well, albeit with a 10–12-month lag.

On domestic shores, it was once again Boris Johnson who stole the headlines, with the PM narrowly surviving a vote of no confidence on Monday. Despite remaining in leadership there are still question marks over how long he will last, with comparisons being drawn to Margaret Thatcher and Theresa May, who both resigned, even after coming through their own votes of no confidence.

Oil prices have been rising this week, in part due to China’s reopening and an expectation of a pick-up in demand. This has led to UK petrol prices rising, with the RAC group estimating that it would cost over £100 to fill up a 55-litre tank. Higher petrol prices act as a tax on the consumer and will negatively impact consumption in other parts of the economy.  

Although the weather has certainly improved over the last week, the same cannot be said for flights around Europe. EasyJet have axed 72 flights today just as Britons were hoping for a summer break. British Airways have also cancelled almost 100 short haul flights from its main base London Heathrow. This has been caused by massive staff shortages. This follows news of rail strikes occurring from June 21st to June 26th. The Transport Salaried Staffs Association said its members on East and West Midlands trains were protesting over pay, conditions and job security.

The last piece of data this week, and one of the most important was US inflation, which showed inflation has yet to peak, coming in at 8.6%, a 40-year high. The elevated figure is likely to do little to deter the US Federal Reserve from raising interest rates by 0.5% at their next meeting.

The current backdrop continues to be challenging, with heightened volatility across equities and bonds. That being said, volatility does create opportunities, and we will look to pivot the portfolios as opportunities present themselves. At the moment that means making the portfolios increasingly diversified by adding to some of the defensive elements of the portfolios, at low valuations.

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.

Five Months Into The Year

Every year is different from what you expect, and that is particularly true in financial markets. It is easier to say over the first five months of 2022 which investment areas have lost you money, especially if you also factor in the enhanced inflationary backdrop. There will always be some element of volatility in financial market investment, but it still plays the most essential role in any pension fund portfolio or medium-term financial target. What really matters is maintaining confidence during times of uncertainty.

Weekly Note

The Week In Markets – 21st May – 27th May

“Upside Down” was a hit single for Diana Ross in 1980. There does seem to be parallels with the song and the current global economy, which was highlighted again this week through global central bank action.

Over the last 20 years or so inflation has been a problem for emerging markets, who have had to raise interest rates to contain inflation, while developed markets have typically experienced benign inflation. This year has been upside down and inside-out with developed markets plagued by high inflation and having to tighten policy, while emerging markets, having already begun hiking interest rates last year, have been in a much better position. The New Zealand central bank raised interest rates by 0.50% at the start of the week and indicated there was more to come. At the same time, the Russian central bank cut interest rates by 3%, citing a slowing inflation outlook and strong currency as the driver. Russia’s huge cut followed a surprise interest rate cut from China last week, a nation that is currently experiencing inflation levels of just over 2%.

Thankfully equity markets turned upside down this week, with the US equity market looking like ending an eight-week losing streak to end the week higher. Gains have extended across most regions this week with European equities on course for their best week in over two months. One of the major headwinds for global equities has been the inflation story and response from developed world central banks. It was interesting to see this week that Atlanta Fed President Raphael Bostic suggested a pause may be required in US interest rate rises in September. Investors are beginning to question whether the economy can withstand such aggressive Fed policy.

It wasn’t all rosy with the US equity market, as social media company Snap fell almost 40% after issuing a profit warning. The stock now trades below its IPO price in 2017. It’s another example of the market severely punishing companies for missing targets. We think this backdrop lends itself to active managers, who can carry out deep, fundamental research into a company’s financial statements and outlook.

In the UK the big news was saved for Thursday, with Chancellor Rishi Sunak announcing a windfall tax on energy firms, using this tax to help households with soaring living costs. Oil majors Shell and BP saw their share prices actually rise on the day, potentially driven by a 3% rise in the price of oil, which likely more than offsets their increased tax burden. The brent oil price pushed through $115 a barrel this week with continued concerns around supply. With sky high hydrocarbon prices and Europe’s desire to move away from Russian energy dependence there is a huge need for investment into renewable energy and this is likely to provide good investment opportunities going forward. Interestingly, some of the traditional energy companies are looking to utilise their high profit levels to pivot more into renewable energy. This was highlighted through Total’s proposed acquisition of the 5th largest renewable player in the US on Wednesday.

Economic data has been mixed over the past seven days. There were bright spots in the UK, with retail sale rising month-on-month. Wage data showed that employers raised wages by around 4% over the three months to April. While this is higher compared to recent years, it is still below the current inflation levels. US Durable goods orders, which measures industrial activity and is used as an economic indicator by many investors, came in slightly below expectations. US Q1 GDP was revised down to -1.5%, showing the economy contracted slightly more than previously thought.

Despite what appears to be disappointing data, the US equity market has been strong this week, and hints to what was alluded to in last week’s note – that bad news may actually be good news – that it prevents central banks from tightening policy too much or too quickly and allows the global economy to operate in a low-rate environment for longer.

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.i

Weekly Note

The Week In Markets – 14th May – 20th May

As the old Chinese curse goes (paraphrased slightly); may you comment on interesting markets. Accordingly, having drummed my fingers on a weekly basis through the dead calm of last summer, I’m now looking back on those beige days with teary-eyed nostalgia.

Because this week has – so far- been brutal. At least it was if you’re looking at a global stock market index: down about four percent with a day left to play. 

As I’m sure you’re aware, this isn’t the first grim week of the year. Far from it; the market news flow has a distinctly slow and grinding feel to it. This stands it apart from other recent negative episodes, such as the pandemic sell-off in 2020, which were sharp, but relatively short-lived.

But look deeper within the market data, and you’ll find other “interesting” titbits that make this week’s movements stand out.

In stark contrast to much of this year, and most of the last fifteen years too, this week’s nosedive was led by the US: Up until Thursday at least, American shares were down by almost five per cent for the week. But everywhere else, including the UK? Not so bad – generally off by a per cent or two, and they’re erasing much of that in Friday’s early trading (UK equities are still positive for the year, amazingly).

This is bordering on weird. If US equities tumble, European and Asian shares usually follow suit, and with more gusto too. But not this time. Has the long run of US market exceptionalism come to an end?

Another change was that America’s sell off was truly inclusive (and not in a good way). For most of the year it’s been tech and other growth shares getting walloped, but this week everything joined in, including previously immune ‘value’ shares.

Commentators are putting this down to investors beginning to worry not just about inflation and interest rate rises (which growth stocks hate like cats hate swimming), but also an economic slowdown, which isn’t great for anything – including value stocks.

Is this a start of a new trend, or just a blip? Absent a crystal ball, only time will tell.

I don’t want to leave you on a note of bad news, so how about a bad-news-might-be-good-news vibe instead? 

We heard this week that global fund managers had raised cash to their highest levels since soon after the 9/11 attacks. Ominous as it sounds, you’ll note that they didn’t raise cash to their highest levels just before 9/11 (it would have been mighty suspicious if they had), just as they hadn’t raised cash to their highest levels before this year’s sell-off – which would have been useful given what we’ve just seen. 

So, this is something – jumping in and out of the market – they’re clearly not good at (dirty secret: nobody is). Perhaps, even, it’s a contrarian indicator that news has got as bad as it’s going to get? Well, let’s see what next week brings.

In the meantime, have a great weekend,

Simon Evan-Cook

(On Behalf of Raymond James, Barbican)

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.

Weekly Note

The Week In Markets – 7th May – 13th May

The heightened volatility that has plagued markets over recent weeks continued over the past five days. A theme for this year has been the positive correlation between equities and bonds, which has proved challenging. However, this week, despite seeing weakness in equity markets, bond prices (at the time of writing) are higher.

Starting with the UK, we received weaker than expected GDP data, which showed the economy contracted by 0.1% during March. With low consumer confidence and high inflation, demand was weaker than anticipated. Higher household energy prices from April will likely cause a drag on next month’s GDP figures and we could see a further contraction in the economy. April’s retail sales figures were weak, as the cost-of-living squeeze impacted spending. However, spending on travel and international holiday bookings has surged above pre-pandemic levels, with people keen to travel abroad once more. Spending on hotels, accommodation and resorts was 16% higher compared with April 2019. At a market level, UK equities have struggled this week, although equities are rebounding at the time of writing. Government bond yields have fallen this week (prices rise) as investors have become increasingly nervous about the economic outlook for the UK following poor GDP data.

US inflation data on Wednesday provided mixed messages. Inflation came in at 8.3%, which was lower than the previous month’s 8.5% figure. However, core inflation, which strips out volatile items such as energy and food, was up 0.6% month-on-month, versus March’s figure of 0.3%. US equities ended Wednesday in negative territory once more, with the tech-heavy Nasdaq index down over 3%. US government bond yields have fallen below 3% this week as investors begin to question whether the central bank will be able to engineer a ‘soft’ landing – that is cooling inflation without stalling the economy. Rising bond yields have proved a headwind for equity markets, and there is the potential for the recent fall in bond yields to begin to provide some support to US equities. At a business level US companies continue to trade well, with high levels of earnings and revenue ‘beats’ for Q1 2022 earnings season so far.

Russian tensions with western Europe looked like escalating on Friday with Finland’s leaders stating that their country should join Nato. The immediate retaliation from Russia is likely to be the switching off of Russian gas supplies to the country, pushing European gas prices higher. Rising energy prices have put pressure on governments in Europe and the UK to provide some form of assistance. Spain have looked to tackle this with plans announced for a price cap that limits gas prices used to produce electricity. It will be interesting to see if other nations follow suit.

Crypto markets were sent into a tailspin this week with the popular Luna coin losing over 98%. The estimated losses stand at around $15bn. The incredible decline highlights some of the risks of this immature asset class and is why we do not yet consider it as an investable asset.

The last month or so has been a particularly challenging period with price declines across the board. Economic data is beginning to indicate that US inflation may be peaking, and this could provide support for all asset classes. We continue to tread a path of diversification across geography and asset class, while seeking out long-term investment opportunities. One area we currently like is infrastructure. Not only does infrastructure offer an element of inflation protection, while also historically providing better downside protection than equities, we think the sector will benefit from two long-term structural tailwinds; the energy transition and energy security.

Andy Triggs | Head of Investments, Raymond James, Barbican

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

The Month In Markets - April 2022

It’s striking just how volatile markets have become. If I’d written this note a day before the month end (always tempting to knock off early before a bank holiday), then it would describe an unremarkable run for markets. But US equities fell by 4.6% on April’s final day of trading, dragging the global average with them, changing the tone of the month entirely.

The causes of this choppiness are the same we’ve been talking about all year: Inflation is the main culprit, along with the interest rate rises deemed necessary to tame it; and the events that are feeding that inflation, such as Asian COVID shutdowns, supply bottlenecks, and disruption to food and energy supplies caused by the war in Ukraine.

These are all adding to the other big feature of markets in 2022: the rotation. By rotation, we mean that everything that had been winning has started losing, while the losers have started winning.

One of those stumbling winners is the bond market. Save for the odd interlude, this has had the wind at its back for the best part of forty years. As a rule of thumb, bonds hate inflation. So, the fact that the double-digit inflation of the 1970s and 1980s gradually fell to the subdued levels we had (until recently) got used to, gave these assets an almighty helping hand.

One of the things that makes inflation so pernicious is that it can cause stock markets to fall while dragging down bonds too. Bonds – particularly gilts and treasuries – are held as a counterweight to the equities in a portfolio – part of their job is to go up as equities head lower, which brings balance to a portfolio. But this year they’ve dropped together, lessening their defensive impact.

And April was no exception. You can see from the chart that UK government bonds (gilts) dropped by almost 3% over the month, which puts them close to a 10% loss for the year. US Treasuries appeared to have a better month, but that’s only from your perspective as a UK investor: Sterling dropped sharply against the dollar over the month, and that’s where all the return for British holders of Treasuries came from. For a US investor, the losses in Treasuries were even worse than for a Brit holding gilts.

Tech shares and other high ‘growth’ companies are the other big stumbling winners. Many of these companies love the low interest rates that go hand in hand with low inflation. Partly because low borrowing costs help them to cheaply fund that growth, but also due to a quirk of how investors work out the value of such companies. So, like bonds, they too had enjoyed a great run, particularly following the financial crisis, which ushered in a decade of low interest rates.

But with interest rates rising fast, technology shares have had a tough time of it. Initially it was the more speculative firms that were hit – those companies that weren’t yet making profits, and whose success lay in an imagined future, not the reality of today. But more recently some of the tech titans have been dragged into the fray.

Netflix was the highest-profile casualty. News that its previously unstoppable growth in subscriber numbers hadn’t just halted, but reversed, shocked markets. Netflix, as it turns out, is more of a ‘nice to have’ than a ‘must have’ for its subscribers. That simple category shift caused its share price to halve in April.

It also led investors to question just how resilient business models are to the relentless rise in the cost of living. Google (AKA Alphabet) sank by almost 18% over the month, as investors worried about the revenue it receives from advertisers, who are themselves under the cosh from inflation.

Thankfully, as the word ‘rotation’ implies, some assets have fared a little better. Natural resources are an obvious example. These are on the right side of the recent disruptions, and their prices are rising with inflation. Likewise, listed infrastructure equities are also faring well. Their defensive properties, combined with inflation-linked contracts, make them stock market favourites in the new world. We’re pleased to report you have exposure to both in your portfolio.

Meanwhile, the Sharks to growth investors’ Jets are ‘value’ investors. This gang are generally more concerned about avoiding high share prices than finding the best or fastest growing companies, and after a decade in which their style consistently failed to work, their portfolios are bucking the falling trend. And it’s certainly been the value funds in our portfolios that have provided the best returns so far this year.

 So, you will ask, how long will inflation last? And how high will it go?

We know better than to try to answer those questions. There were plenty last year who were quick to label inflation “transitory”, many of whom are now hastily recanting their forecasts (and counting their sizable losses). The trouble is, events like Putin’s invasion of Ukraine are inherently unpredictable, and yet they can have a deep impact on inflation. This simple fact alone should be enough to put us all off predictions for life. But, just as a hangover should put us off drinking alcohol, it’s all too easy to forget the pain they can cause, and be drawn back into the easy, albeit false, sense of certainty they offer.

With our ears closed to the siren song of economists’ predictions, we rely instead on considered diversification. This means we are always balancing your portfolios. That’s with a view to them withstanding prolonged inflation if we go down that path, but also not being damaged if the economy is taken in a different direction. It’s not an easy balancing act, but in a dramatically unpredictable world, we believe it’s the best approach.

Simon Evan-Cook

(On behalf of Raymond James, Barbican)

Appendix

5-year performance chart

Risk warning: With investing, your capital is at risk. Opinions constitute our judgement as of this date and are subject to change without warning. Past performance is not a reliable indicator of future results. 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.

Weekly Note

The Week In Markets – 30th April – 6th May

This week saw volatility pick up across major asset classes as US and UK central banks raised interest rates. The moves in markets were extreme, in many cases to levels we haven’t seen in years. I will apologise in advance for the frequent use of phrases such as “the highest since…” or “the largest since…”.

All eyes were focused on the US and UK central banks who both met this week to set their key interest rates. Following a two-day meeting, the US Federal Reserve raised interest rates by 0.5%. Ahead of the raise, US equity markets sold off heavily on Tuesday, however, this fall was reversed on Wednesday as investors responded positively to comments from Fed Chair Powell who said the US Fed were not contemplating raising rates by 0.75% at the next meeting. By Thursday, the US market rolled over once more, falling over 3%, with the tech-heavy Nasdaq index falling over 5%, its largest daily fall since 2020. The move coincided with a big sell off in fixed income markets, with yields on the 10-year US government bond rising above 3%, at one point touching 3.1% on Thursday, the highest since 2018. The moves in US equities have largely been driven by falls in valuations, as opposed to concerns about earnings. At both a consumer and housing market level, the indicators are very strong, with consumer bank accounts flush with cash (at an aggregate level) and house prices reaching new highs.

The Bank of England (BoE) followed the US’s lead and increased interest rates, although only by 0.25%, taking the rate back up to 1%, the highest level since 2009. Accompanying the rise was commentary from the BoE which said UK inflation could hit 10% this year. There were downgrades to economic growth forecasts and acknowledgement that consumer confidence was falling as real incomes were being squeezed. The biggest loser on the news was sterling (GBP), which fell versus most major currencies, including dropping over 2% against USD, reaching the lowest levels since July 2020.

China’s zero-Covid policy has exacerbated the current supply constraints and has caused concern among foreign companies operating in China. The EU Chamber of Commerce in China published their most recent survey which showed twice as many European companies compared to the start of the year were considering moving investment out of China.  The lack of a roadmap for how to manage with COVID in China was causing increased uncertainty for businesses. Staying with China, the services sector PMI data was weak as the lockdowns in Shanghai, the financial hub of China, acted as a major drag.

Oil prices moved higher once again this week, as reports of the EU phasing in bans on Russian oil imports intensified. The EU imports 2.5 million barrels of oil a day from Russia and any ban will lead to a supply squeeze as the EU has to buy the oil elsewhere. The higher commodity environment has benefited oil and gas companies, with Shell posting bumper results this week. At a portfolio level our allocation to a resources fund continues to be a strong contributor this year, with the fund rising this week, bucking the general trend in equity markets.

As is customary, the first Friday of the month saw the release of US Non-Farm Payrolls jobs data. The US economy added 428,000 jobs in April, comfortably ahead of consensus, and highlighting the continued strength in the labour market. US wage growth was 5.5% year-on-year, still below current inflation levels, but strong wage growth nonetheless when compared to history.

The challenges facing multi-asset investors continued this week with equities and bonds selling off. At times like this it can be difficult to insulate portfolios from the market volatility. However, recent changes to portfolios have helped, including our recent increase to USD exposure.

Andy Triggs | Head of Investments, Raymond James, Barbican

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.

Challenges and Opportunities in May

Whilst the spring weather continues to warm, plenty of financial sector issues continue to worry global investors across both equity and bond markets. Meanwhile heightened inflation levels continued to impact bank account balances, and the war in Ukraine has led to many tragedies along with heightened geopolitical, commodity and supply concerns.

Weekly Note

The Week In Markets – 23rd April – 29th April

Much like stock markets, writing the weekly round-up can be a volatile affair. Some weeks there is little to report on, while in other weeks there are a multitude of topics to cover – I’ll let the readers guess what this week is!

Elon Musk appeared to win the race to buy Twitter, with the board agreeing to sell the company for $44bn. The deal, if completed will be one of the largest leverage buyouts on record. It was not all celebrations this week for Musk however, with his other prized asset, Tesla, falling circa. 10% on Tuesday, wiping out $108bn from the market cap of the company. Investors have become concerned about Musk’s ability to run both Twitter and Tesla. Shares such as Tesla and Netflix, which fell heavily last week, have been firm favourites with US retail investors, but the mood music has begun to shift, with investors questioning whether the growth rates of these companies are sustainable.

Tesla’s fall on Tuesday compounded a difficult day in US equity markets, with the tech-heavy NASDAQ index falling close to 4% on the day. Microsoft, the second largest company in the S&P 500, posted very strong Q1 earnings on Tuesday evening, which helped bring some calm back to the markets later in the week. 

Gas prices in Europe remained spiked this week, with Russia cutting off exports to Poland and Bulgaria, two nations that Russia declared “unfriendly”, who refused to make payments for gas in Roubles. Oil prices also rose this week, moving above $100 a barrel as investors begin to consider future Russian sanctions.

For many of us in the western world COVID lockdowns are hopefully a thing of the past; the same cannot be said for China with Shanghai under a strict lockdown and fears Beijing may be next. Shanghai has been in a strict lockdown for a month, putting pressure on Chinese economic growth as well as the global supply chain. Chinese President XI Jingping highlighted this week his willingness to help support the domestic economy with increased investment into infrastructure and construction projects to help boost growth.

The US Dollar has continued to rally against a basket of currencies this week, including the Euro and Sterling. The Euro/USD rate has fallen to a five-year low on the back of slowdown fears in Europe, while Sterling fell to its lowest level in two years against the USD this week. The moves were in part driven by weak UK economic data, with both consumer confidence and retail sales disappointing. At a portfolio level we have recently increased our USD exposure, so have benefitted from the moves this week.

US consumer confidence also missed consensus, although housing data was more positive; the US House Price Index showed prices were up 19% year-on-year, a staggering rise. The popular 30-year US mortgage rate is now around 5.3%, the highest level in over a decade – this could act as a headwind to the housing market and slowdown the red-hot property sector.

With so much apparently going on in markets currently it is very important to stay aligned with one’s investment process and maintain a long-term time horizon. The short-term noise can in fact create opportunities for the long-term investor. We have felt that is the case with US government bonds and Japanese equities, where we have increased exposure recently.

Andy Triggs | Head of Investments, Raymond James, Barbican

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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