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Weekly Note

The Week In Markets – 25 September – 1 October

Persistent or transitory inflation, that is the question. It’s actually been the question for most of the year and this week was no different, as it appeared the persistent inflation bulls had the upper hand, fighting back after the summer months were won by the transitory inflation camp.

The obvious short-term forces of supply chain bottlenecks, energy shortages and a rebound in demand from the pandemic induced lows are helping stoke inflation, but the longer-term inputs of a move away from globalisation, continued government spending and wage inflation are providing fuel for the persistent inflation believers. The higher inflation expectations have impacted markets this week. US government bond yields have risen (prices therefore fall) to levels last seen in June, while UK gilts and European government bonds have also seen their yields move higher. Equity markets have been bumpy too; stocks which are more correlated with bonds have retreated, while sectors such as energy and financials have proved more resilient.

German elections took place on Sunday, with Angela Merkel stepping aside after 16 years as Chancellor. Her party, the Christian Democratic Union, performed poorly, losing significant votes from previous elections. With no clear party winner, a coalition government is likely, yet we still do not know how that will look. Given Germany’s economic power within European markets will be watching proceedings very closely indeed. 

On domestic shores the petrol shortage has continued to rumble on, snatching the headlines from the gas crisis that we’ve also been experiencing. The energy crisis facing the UK is fast becoming a global problem, hitting the world’s second-largest economy, China. Reports of factory closures and power rationing will undoubtedly feed through to weaker economic data in the coming months while also increasing supply issues, given China’s role as the manufacturing heartbeat of the global economy. 

There was some positive news to end the week, with the UK economy growing faster than anticipated in Q2. Data on consumer savings also highlighted that we are continuing to save at elevated rates. These savings will likely be spent in the real economy as consumer confidence returns, meaning we could see further upside surprises to UK growth. Increasing consumer demand at a time when supply issues are apparent would do little to dampen the persistent inflation camp!

Andy Triggs | Head of Investments, Raymond James, Barbican

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 18 – 24 September

After a fairly benign summer period, all of a sudden there feels a lot to cover in the weekly note. From gas shortages to Chinese property concerns to hawkish central banks, it’s all happened this week. Despite many of these headlines, equity markets have climbed the wall of worry in the middle of the week, quickly rebounding from the sell-off on Monday.

On domestic shores the UK gas crisis continued with further energy companies collapsing, meaning nearly two million homes have lost their supplier this year. The cost of gas for suppliers has spiked by more than 250% in 2021 and, unable to pass this increase straight through to customers, many firms have run into difficulties. While there are short-term drivers for the rise in gas prices, including unusually low wind speeds, a lack of investment in the gas industry has also caused structural problems. It’s an interesting case study and one we may witness again over the next decade with oil and commodity prices. We have been through a period of underinvestment in these sectors, for various reasons, and while the hope and target is to move away from fossil fuels, we have to question whether the infrastructure and technology are currently in place to do this. If not, we may find that our planet still relies on oil at a time when there has been little investment in the space, which is likely to lead to supply shortages and spikes in prices. For investors, this can create opportunities. 

It was a busy week for central banks, with both the UK and the US deciding to keep interest rates at current levels. While this may sound fairly dull, the language and messaging used by central banks has impacted the bond markets. Both were fairly hawkish in their statements, showing concerns around inflation, which may lead to them increasing interest rates earlier than the market has priced in. Towards the end of the week, we saw government bond yields rise (and therefore prices fall). It may be worth noting that Norway increased their interest rates by 0.25% – the first G10 nation to do so – which acts as a reminder that ultra-low interest rates may begin to normalise over time. 

Chinese equity investors have had a rough ride in 2021 as political and regulatory risk has come to the fore and dented many sectors. Despite China being the second-largest economy in the world, we have always been mindful of the weaker corporate governance and potential regulatory risk; this has held us back from having a dedicated China exposure in portfolios. Chinese property firm Evergrande appeared to miss interest payments on a portion of its bonds this week, stoking fears that a default is imminent. The company has a significant amount of debt and there are concerns that this could spill over to other sectors, such is the reach of the debt pile. This comes at a time when we have seen the Chinese government clampdown on the education, technology and healthcare sectors as China pursues a ‘common prosperity’ goal. While the fall in the Chinese stock market is of interest, it is very hard to know how deep or far this government intervention will go, and as such we are happy to allow our emerging market fund managers to use their expertise and be very selective with their allocations to China. 

The issues facing global markets this week act as a timely reminder that risks can appear quickly and often without warning. Portfolio diversification is critical to help mitigate risk and smooth returns and we will continue to focus on this. 

Andy Triggs | Head of Investments, Raymond James, Barbican

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 – 10 – 17 September

OK: Another tranquil week to describe. The Chinese authorities have had another pop at one of their big industries, this time, gambling companies in Macau. That caused their share prices to plummet and further dented sentiment about the wider Chinese market. In contrast, Japanese shares, perhaps benefiting from flattery by comparison, had another good week. Other than that; all quiet on the markets front.

But, much as I say not much happened, for all we know, maybe it did. Markets have a lot in common with other complex phenomena, such as earthquakes or forest fires. Much as we think they should be predictable, they constantly confound humanity’s best attempts to forecast them.
This is because earthquakes and forest fires happen far more frequently than we assume. In the case of earthquakes, they’re happening all the time. But almost all tremors are so tiny we don’t feel them, so we don’t obsess about trying to predict them.

However, although the overwhelming majority amount to nothing, any one of these tremors could trigger others, which then trigger even more, and so on until we have a major quake (almost like the first tremor has “gone viral”). As Mark Buchanan put it in his excellent book – ‘Ubiquity’; “when it starts, an earthquake doesn’t know how big it will get.” This is why they’re impossible to predict.

And so it is with market sell-offs, which share the same mathematical signature as earthquakes and forest fires, and even wars. That’s something called a ‘power law’, which roughly means that there are exponentially fewer big wars/earthquakes/market crashes than there are medium ones and exponentially fewer medium ones than there are tiddlers.

Put another way, we see market sell-offs hundreds of times every day, we just don’t care because they’re tiny. But, like earthquakes, when a sell-off starts it doesn’t know how big it will get. So China causing investors to sell Casino shares might mean they have to sell other shares too, which causes even more investors to pull out, which then ripples out to a global crash. Or it might spark a rally in Japanese shares. Or it could just peter out to nothing. We won’t know until we know.

Taken the wrong way, this could be scary: We like to think our world is predictable, even if, deep down, we know it isn’t. But markets have always been this way. That’s why we use tried and trusted safety measures like diversification. Concentrating our money in just one company, market, or asset class makes us more vulnerable to unforeseen events. But using a selection of diversified funds and asset classes as we do (you hold, for example, a modest amount of Chinese and Japanese shares), we’re confident we can survive the small, medium or large tremors, and bounce back stronger afterwards too.

For now though, all is quiet. So you can forget markets – and earthquakes – and enjoy your weekend.

Simon Evan-Cook
(On Behalf of Raymond James Barbican)

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 – 4 – 10 September

Global equities reversed this week, ending a long winning run. When markets have dropped, but there’s no clear reason why, it’s traditional for us market reporters to put it down to “profit-taking” then break early for lunch. But on this occasion, it’s worth taking a quick tour of the regions, as differing trends are playing out.

To understand what’s happened to a global equity index, the first place to look is always the US. American equities punch well above their weight in world stock markets: while their economy makes up less than a third of the globe’s, their companies represent double that amount in a global equity index. So they usually dictate the global tone. This week the consensus is that investors are worrying about the Federal Reserve beginning to slow the pace of stimulus. It isn’t yet overly clear why they’re worrying this week more than last, but that’s the mystery of markets for you.

If investors in U.S. equities are worried about this, then holders of British and Continental European shares are even more concerned: share prices on this side of The Pond have had an altogether soggier week. Looking at the winners and losers in the fund world, “value” funds have fared worse than “growth” funds, which implies investors are becoming less convinced that broad-based economic recovery and/or inflation are what we’re headed for.
The stand-out market this week has been Japan. For most of this year, it’s seemed as if investors had simply forgotten that Japan existed; its market has flatlined while most others raced upwards. But the recent resignation of Prime Minister Suga has jolted their memory, and talk of new leaders with new cheque books helped the Tokyo index to defy the wider gloom; it has rallied by 4% in just a week. (This is why Japanese equities form a useful part of a global portfolio – it’s good to have different parts doing different things at different times, and Japan often marches to its own tune).

Finally, we hop across the sea to China, where gaming giants Tencent and Netease were called in for another telling off from Beijing officials. Having already been on the receiving end of one share-walloping lecture earlier in the summer, they were again chided to “profoundly understand the importance and urgency of preventing minors from online game addiction.” Their shares promptly tanked again, dragging other tech giants with them, and turning what had been a mildly positive week for Asia Ex-Japan shares into a negative one.

And now a market scoop: The success of these tactics duly noted, the Evan-Cook household, which is similarly blighted by gaming-hooked minors, will henceforth move to the communist governance model. Sadly, at the time of writing, the US and Japanese markets are closed, so you’ll have to wait for next week’s report to hear how hard this hits shares in Microsoft and Nintendo.

In the meantime, have a great weekend.

Simon Evan-Cook
(On Behalf of Raymond James Barbican)

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. 

End Of Summer, But Not The Year

Hopefully you enjoyed a good summer break. August was another positive month for many financial markets, with one pan-European (including the U.K.) index achieving a seventh consecutive advance. Whilst 2021 started with material concerns about COVID-19 challenges, limited vaccination numbers and widespread lockdowns, progress has been made on all fronts. No doubt the late August news that seven further countries have been added to the U.K.’s green travel rules, will further boost hopes that a return to previous norms are closer.

Weekly Note

The Week In Markets – 28 August – 3 September

This week markets have offered us a carbon copy of markets last week: They generally went up, with Asian equities rising the fastest as they rebound from their mid-summer trouncing. 

Tempting as it is just to reuse last week’s note, instead I’ll expand on something I mentioned in it: central bankers’ impact on investment returns. Because the big cheeses of central banking met up at Jackson Hole last Friday (well, they did a group Zoom). There was much speculation about what they’d say, and what it would do to markets. But in the end markets shrugged, suggesting they’d correctly guessed the content (or lack of it) within the US Fed Governor’s speech. Ho hum.

But out of the proceedings did come an interesting academic paper. It helps to answer two big questions you might rightly ask: 1) Why, despite the trifling matter of a global pandemic, do share prices keep rising? And 2) why, if central bankers are creating oodles of new money through “Quantitative Easing”, haven’t we seen inflation go through the roof?

If the paper is right, then it’s because most of the new money that’s being created is going to people who already have it: Central banks inject this new money into the economy by buying assets, so it stands to reason that those with fewer assets will benefit less than those with plenty.

Then we come to something I dimly remember from A-Level economics: “The Marginal Propensity to Consume” (stay with me). Basically, the more money you have, the lower your marginal propensity to consume. In other words; if you give money to richer people, they are more likely to save it, and less likely to spend it, than someone who has less money to start with.

This is why, the theory goes, we haven’t had runaway inflation in prices of everyday goods and services, which we might have assumed would follow the creation of tons of money. If, instead of buying stuff, that money is being saved, or invested into assets like shares or property, it explains why we’ve seen high inflation in the prices of those assets. In short: there’s a lot of money swimming about, and it’s all looking for somewhere to earn a decent return, pushing up prices as it goes.

So there you go. That’s why we in the investment world focus so much on what central bankers do and say. If this paper is to be believed, their past and current actions are behind rallying stock markets, as well as other assets like homes, art and fine wine. If they stay on the current tack, there’s good reason to believe this will continue. But if they change course, it’s reasonable to believe that, well, markets will change course too. 

Here endeth the note. Less of a ‘The Week in Markets’, and more of a ‘The Decade in Markets’ this time. But hopefully, with the summer holidays ending, we can get back to shorter-term gyrations, which are less brain-bending than the long-haul stuff, and easier to digest of a Friday afternoon.

Until then, have a great weekend.

Simon Evan-Cook

 (On Behalf of Raymond James Barbican)

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 – 21 – 27 August

It’s been a benign week for global stock markets, led higher by Asia’s partial rebound from its preceding weekus horribilis.

Given the lack of action in the immediate past, most commentators have turned instead to the immediate future. Specifically, they’re commenting on what they imagine might be said at the Jackson Hole meeting of central bankers today (Friday), and what they imagine markets might do in response. I haven’t yet seen any comment about what they imagine central bankers will do in response to the markets’ imagined reaction to their imagined meeting though. I suspect that’s because, much as it reflects what happens in reality, it sounds silly in a newspaper.

We’ll come back to that meeting, because it will matter, and it does feel like this week’s drifting markets has been a holding pattern, with investors waiting to see what’s said later today.

Not everything drifted though. Shares in UK supermarkets have had a bumper week – so much so that my mum emailed me for the inside line. Sadly, she emailed the wrong person: my speciality is picking good fund managers, who then pick the stocks for me. But I can read the FT as well as the next man, and it seems it’s due to speculation that there’s a takeover spree heading their way.

WM Morrison is already the subject of a spiralling series of bids, and this week it was Sainsbury’s turn to take centre stage, with takeover rumours causing its share price to spike by more than 15% on Monday. So, who is buying them? The answer, certainly in the case of Morrisons, is private equity.

The term “Private Equity” is bandied around a lot, but perhaps not all of us know exactly what it is. The simplest answer is what it’s not: “Public Equity”, which is shares that are listed for anyone to buy on a stock exchange. So private equity is, instead, shares in companies, or often the whole company, held off the market by individuals or, in this case, funds run on behalf of individuals.

Which brings us back to those central bankers who will be chinwagging (albeit virtually) at Jackson Hole today. Loads of money has flown into private equity funds in recent years, just as loads of money has flowed into almost every financial asset you can think of (including ones that have only just been invented, like cryptocurrencies). This coincides with central bankers creating loads of money through quantitative easing (“QE”) which they use to buy financial assets.

I use the word “coincides” with a wink, because it’s no coincidence: Their actions are pushing up asset prices everywhere. Hence the focus on their comments today – any indication that they might stop QE, or even slow it, may mean less future money to buy stuff and push up prices. Now I’m speculating on imagined future events myself – something I promised myself I wouldn’t do (at least not publicly, anyway) – which means it’s time to stop imagining and get back to real life.

Have a great weekend,

Simon Evan-Cook
(On Behalf of Raymond James Barbican)

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 – 14 – 20 August

In markets the hardest thing to get right (to the point of being impossible) is timing. So, I’m pleased to report that fortune has smiled on me this month: my recent two-week break coincided with possibly the dullest run for markets since records began – squeezing out two interesting weekly summaries would have been a tough ask. So, if you, like me, were taking a fortnight’s break from the 24-hour financial news cycle, you can relax – you missed nothing.

The last week has been a little wobblier though. You’d be forgiven for thinking this was due to the news coming out of Afghanistan, which has been bleak. But to the best of my knowledge that hasn’t been the cause. It has, instead, been the usual to and fro on the inflation-vs-deflation tug of war, which is all that markets can think about for now.

In this case, the very mild sell-off in equities, and corresponding rise in ‘safe-haven’ assets (such as government bonds or the US dollar) was caused by suggestions from US Federal Reserve officials that they may begin to taper their asset purchases by the end of this year. I could spend the rest of this note trying to explain exactly what “tapering asset purchases” is. But you wouldn’t thank me for it, not this close to the weekend.

So, I’ll turn instead to Asia where the market turmoil caused by the Chinese government’s recent actions continues to make for more interesting reading.

Asian markets fell by more than the global average again this week, extending the starker drops I described a couple of weeks back. In essence, the Chinese government has decided it doesn’t like the concentrations of power being built up by its tech companies. So it’s nipping them, painfully, in the bud. In fact, maybe ‘bud’ is the wrong term: Having performed spectacularly well for years, the Chinese internet companies’ were in full bloom. So now their woes are having a big impact on the Asian Stock Market Index – as companies like Tencent, which has dropped 40% in the last six months, had become huge parts of the market. This week it was the announcement of measures to ban unfair competitive practices that has wiped further billions off several Chinese tech behemoths.

Such concerns are frequently mentioned when thinking about US companies too, as antitrust talk has returned to the fore of late, and their tech giants are no longer the cuddly, universally popular entities they were when we first got smartphones (ahh, simpler times). But the US government has less inclination to clip its own companies’ wings and has less power than the Chinese Communist Party to do so even if it did. So, while the “FAANGS” aren’t winning with quite the gusto of the previous ten years, they’re holding up far better than their Chinese equivalents – for now.

That’s all that mattered for markets this week. Summer is a funny time though. Usually little happens, but when it does, things can move sharply. We’ll keep watching on your behalf.

Have a great weekend,

Simon Evan-Cook
(On Behalf of Raymond James Barbican)

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 – 7 August – 13 August

With a new football season upon us, some brave managers will adopt the approach of attack being the best form of defence. It seems President Biden is taking a similar approach in his response to COVID-19, with spending and stimulus measures being viewed as the best form of defence against the havoc created by the virus.

The Senate Democrats released a vast $3.5 trillion budget resolution on Monday, which was effectively approved on Wednesday, meaning the budget could be passed over the next few weeks or months, with little the Republican opposition can do to prevent it.

The timing of the budget is interesting, given the US economy has recently returned to pre-pandemic levels following the release of Q2 GDP last week. With the economy recovering, inflation running at elevated levels and jobs being added back at an impressive pace, some will question whether such stimulus is required, or whether it should be saved for the next downturn. Will this lead to more persistent inflation? The market is clearly dismissing this scenario, with bond yields still historically low and little expectation of rate rises in the near term, even with inflation above target in US, UK and Europe. In Germany we have just seen inflation reported at 3.8% year-on-year, a 27 year high. Yet despite this, investors are still willing to lend to the German government at deeply negative rates, with the yield on the 10 year bund at -0.46%.

With rising inflation, low interest rates and low bond yields, it is strange that the gold price continues to lag, with the precious metal falling at the start of the week to circa $1745. Remember the precious metal breached $2,000 an ounce for the first time in August 2020. Gold in theory should perform well in this backdrop; falling real yields has historically been ideal for it, although we are not witnessing this at the moment. It’s rare that everything in a portfolio works at once; indeed the objective of a well-diversified portfolio is to ensure that assets perform in different ways to one another. Although gold has been lagging over recent weeks, more risky parts of the portfolio continue to perform well, with UK mid-cap equities advancing over the last week or so. UK M&A activity has been picking up, with international companies continuing to pick off UK assets. Meggitt was subject to a rival bid on Wednesday, with two US firms now battling it out for the company. While these events are great for the short-term share price, one may question the overall effects to the UK economy on a more medium-long term time horizon. 

Like every football season the months ahead will be filled with success, surprise and disappointment with various management strategies constantly analysed by fans and pundits alike. In terms of investing, like all good managers we have an eye on the defence as well as the attack and are willing to tweak the strategy along the way to score as many goals as possible while trying our hardest not to concede.

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 – 31 July – 6 August

When Raymond Jackson the inimitable cartoonist better known as JAK, who drew cartoons for the Evening Standard for 45 years, was away on holiday some lesser-known cartoonist would draw a cartoon for the newspaper and a line underneath would simply explain “JAK is on holiday.” So too, we are writing this piece informing you first of all “Simon Evan-Cook is on holiday.” He’s away next week too!

The summer months in investment markets are often viewed as quiet months, characterised by low trading volumes, as key decision-makers often take annual leave (there’s a theme developing here) and little portfolio activity takes place. This week has felt fairly uneventful in markets, despite China’s best efforts with continued regulatory pressure.

US ISM manufacturing data, released on Monday, highlighted that manufacturing activity may slow from its frantic pace earlier in the year. The slightly disappointing data had an immediate impact on the oil markets, where prices fell around 3%, driven by concerns that the pace of growth could be slowing. Despite this, US equity markets were not impacted and in fact by Tuesday had recovered to close at an all-time high.

A market that is a long way from its all-time high is China, where a series of increased regularity interventions has spooked investors. This week Tencent suffered, falling around 6% on Tuesday, as a state article described online gaming as “spiritual opium”. Given the stock’s exposure to online gaming, it was no surprise to see investors sell in droves on this news.

On domestic shores all eyes were on the Bank of England Monetary Policy Committee meeting on Thursday. Despite expecting inflation to reach 4% this year due to the strength of the economic recovery in the UK, interest rates were kept on hold, although they may need to be raised in 2022 to curb inflation. The Bank of England stated it expects UK GDP growth to reach 8% in 2021.

As is customary for the first Friday of the month, US non-farm payroll data will be published later today. It will be interesting to see the pace at which jobs have been added to the US economy over the last month. Hiring has been occurring at a healthy pace, and anecdotally there are stories of continued labour and skills shortages, leading to higher wages being offered to entice workers. Perhaps US employers would find it easier to recruit if they simply offered staff more holiday and that might mean less inflationary pressure.

If you are managing to get in a summer holiday, perhaps taking advantage of the further lifting of travel restrictions, stay safe and enjoy while we keep an eye on your portfolio.

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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