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The Week In Markets – 21st September – 27th September 2024

It’s been a quieter week in terms of economic data, following on from last week’s bumper US rate cut, alongside the Bank of England’s decision to keep rates at 5%.

The week started with worse than expected manufacturing and services data from Europe, the UK and US. Germany and France are Europe’s two largest economies, yet both saw disappointing results, drawing conclusions that Germany could have fallen into recession over Q2 and Q3, with their manufacturing PMI falling to 40.3. It has been 47 days since the Olympics ended in Paris and the country’s services sector, which saw a spike during the Olympics, appears to have run out of steam, with composite PMI for September falling to 47.4, from 53.1 in August. The European Central Bank (ECB) cut interest rates for the second consecutive time on the 12th of this month, but we could see the level of cuts increase if the Eurozone continues to regress. Inflation data, released this morning, will likely support the ECB’s decision to cut rates, with year-on-year inflation coming in at 1.5% for Spain, while monthly inflation in France fell by 1.2%.

On Monday we also saw the Chancellor, Rachel Reeves, speak at the Labour Party’s annual conference and her words “tough decisions are needed” has built up even more anticipation ahead of the budget at the end of October. She announced the imminent appointment of a Covid corruption commission to seek to recoup over £600m of contracts the Conversative party had handed out and also pledged to set up free breakfast clubs in primary schools for the nation.

In the US, PCE inflation has been released this Friday afternoon and fallen to 2.2% (year-on-year). Core PCE (month-on-month) has also surprised at 0.1%, falling below market expectations of 0.2%. The data supports the recent 0.5% rate cut and could encourage the US Fed to stay on the rate cutting path.

The Swiss National Bank (SNB) concluded their meeting this week, cutting rates by 25bps (0.25%) for the third time this year to combat low inflation, with interest rates now settling at 1%. For the Swiss, their journey has been slightly different to other major countries as in April 2022, interest rates were negative at -0.75% before the SNB hiked to the 16-year high of 1.75%. The Swiss Franc has also risen on the back of falling inflation causing issues for Swiss exporters.

The biggest news this week has come out of China. The country has introduced another wave of stimulus in a desperate attempt to ignite economic growth and prevent their housing sector deteriorating further. China is set to miss their 5% target of economic growth, and this has prompted the action. So far, all stimulus measures have appeared weak, however, the latest moves, including cuts to borrowing rates and investing in the stock market do seem to appear bigger than previous attempts and will hopefully drive an economic recovery. The level of banking reserves required has been slashed to 9.5%; in 2011 the reserve requirements were 21%. The market so far seems to be impressed, with Chinese equities rising over 10% this week, after hitting five-year lows recently. Luxury goods companies, such as Burberry, which typically rely on the Chinese consumer, have seen their share prices rebound this week on renewed optimism about the Chinese consumer.

The Chinese stimulus boost has been felt around the world, with equities generally having a positive week. Bond yields have nudged higher (prices fallen) as a rebounding China is likely to come with an inflationary pulse. The big question is whether the stimulus measures are enough – changing the fortunes of the housing market in China is no easy task. Portfolios have benefitted from the rebound in China with our emerging markets and Asia funds performing best this week. Gold, an important asset class in portfolios, has once again made new highs this week and has advanced close to 30% in 2024.

Nathan Amaning, Investment Analyst

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

The Week In Markets – 14th September – 20th September 2024

The much-anticipated US interest rate cut finally arrived this week. While the cut was a certainty with markets, investors were on the fence about whether the US Fed would reduce rates by 0.25% or 0.5%. In an almost unanimous decision, 11 out of 12 Fed members voted for a 0.5% interest rate cut. The expectation is that we will see a further 1.5% in interest rate cuts by the summer of 2025.

If we think back to the beginning of the year, the expectation was that we would see seven rate cuts for the year and the first cut would occur in the March meeting. It was then pushed back to the May meeting and now in September we have seen the first US rate cut in four years. US Fed Chair Powell and his committee have kept a close eye on data points such as inflation and the labour market as they try to achieve “restoring price stability without the painful increase in unemployment”. The level of the cut was largely debated with many prominent investment banks expecting only a 0.25% reduction. It’s unlikely that the US Fed will continue to cut rates by 0.5% at each meeting going forward. The next Fed meeting will take place the day after the US election begins on the 5th of November, so it may be likely we see a pause at that meeting as the election takes centre stage.

US equity markets initially rallied on the drop-in interest rates, but eventually closed marginally down on Wednesday. However, after a big move up yesterday, the S&P500 hit its 39th all-time high of the year and the technology heavy Nasdaq index is up over 2% for the week.

As we mentioned the US Fed had various data points to evaluate in the run up to Wednesday’s meeting with retail sales for the month of August (month-on-month) rising 0.1% despite market expectations of a -0.3% fall.  Online retail and sporting goods were able to offset the weakness in restaurants and bars where spending was flat. Gas station spending fell 1.2% but that was largely driven by weakness in oil prices.

The Bank of England (BoE) also met this week but before the meeting UK inflation for August was announced and came in unchanged at 2.2%. The BoE have often made it clear that they want to see services inflation fall towards target as that has remained extremely sticky and it was concerning to see services inflation tick up to 5.6% last month. There was also a rare 22.2% rise in airline tickets which is the second largest rise since 2001. Following the data, Sterling rose above $1.33 as investors began to trim bets on the BoE cutting rates the following day.

Market expectations were correct as eight out of nine policymakers for the BoE voted to keep rates unchanged. It was an easy guess that policymaker Swati Dhingra would hold the contrarian view and vote to cut rates by 25bps. Governor Bailey spoke following the meeting, maintaining a cautious tone that the BoE needed to see more evidence of price pressures cooling. The news led to further strength in Sterling, which is now at levels not seen in over two years. It’s almost two years since Liz Truss’ infamous budget, at which point Sterling approached parity with the USD.

A central bank that is marching to the beat of its own drum is the Brazilian central bank. Inflation in Brazil fell to 4.2%, however the bank’s monetary policy committee, named Copam, were concerned by larger than expected economic growth which rose to 3.3% over Q2 24, as well as concerns around rising wages. This fear of a potential resurgence in inflation led to a unanimous vote by policymakers to raise interest rates by 25bps to 10.75%. Markets worry this may not be the end of their hiking spree and expect two further 25bps increases by year end leaving the interest rate at 11.25%. 

On Friday morning there was mixed data from the UK. Retail sales came in better than expected, rising 1%. However, public sector net borrowing was higher for the month of August, and this will cause concern for the new Chancellor, Rachel Reeves, ahead of her October budget. Consumer confidence has fallen recently with some suggesting the concerns around a difficult budget are beginning to negatively impact the consumer.

A jumbo rate cut from the US was enough to support equity markets this week. As we have commented on before, the prospect of lower inflation and interest rates, coupled with moderate global growth could be a supportive backdrop for risk assets. The ongoing question is whether policy rates have been held too high for too long, which could lead to an economic slowdown. As such we continue to tread a careful path of both attack and defence in portfolios.

Nathan Amaning, Investment Analyst

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

The Month In Markets – August 2024

The Month In Markets - August 2024

If you don’t check markets daily, August could have seemed like a benign month, with only marginal movements from start to finish. However, intraday, there was significant volatility, with Japanese equities suffering its second worst day in history, falling over 12%.

The volatility in Japan seems to have been triggered by a rapid appreciation of their currency, which then prompted a huge unwind in positioning particularly from hedge funds, alongside heightened concerns around a slowdown in the US economy. The speed and severity of the movements led to the Japanese market falling nearly 20% in three trading days, culminating in 12% falls on 5 August. While this was extremely uncomfortable, the market very quickly rebounded, rising 10% on 6 August and by the end of the month had nearly regained all earlier losses. Given the drops were largely driven by technical reasons as opposed to a fundamental deterioration in outlook, we remained comfortable with our positioning and didn’t react to the volatility. Doing nothing is not always easy but is often the best course of action.

The turbulence in Japan did spread to global markets, with circa 5% drops in most global stock exchanges. Again, while this felt uncomfortable at the time, these levels of drawdowns in equities are common and part and parcel of investing in risky assets. Once again, global equities rebounded after the falls, with some investors using the pullback as an opportunity to increase exposure to markets.

One of the major concerns that surfaced during August was the increasing expectation of a US recession. While this is still low probability, the odds moved higher following weak non-farm payrolls (jobs) data on 2 August. We’ve witnessed US unemployment nudge higher to 4.3%, which is now up 0.9% from recent lows. While the jobs data was disappointing, other more real-time jobs data, such as weekly unemployment claims, repeatedly came in better than expected in August. This helped provide confidence that although the labour market is slowing there are currently no major cracks.

Inflation data coming from the UK and US provided further positive signals that inflation is more contained. It was expected that UK inflation would nudge higher to 2.3%, but it came in at 2.2%. US inflation fell to 2.9%, the first time it has been below 3% since 2021. The data helped solidify expectations that the US Fed will imminently begin cutting interest rates and increased the probability of another 0.25% cut from the Bank of England in September. Weaker jobs data and softer inflation led to government bond prices nudging higher during August. The mood music around inflation and government bonds has changed dramatically since last lastsummer. Only 12 months ago there were genuine concerns that UK interest rates could reach as high as 6-7% as inflation seemed out of control. As a result, there was a reluctance to hold assets such as government bonds. Fast forward 12 months and the Bank of England has now embarked on cutting interest rates, with UK inflation now below US inflation and close to target. Given the shift in inflation and interest rates, UK government bonds have performed strongly over the last 12 months, delivering high single-digit returns.

The Jackson Hole Symposium, an annual event, took place at the end of August. Over the course of three days central bank leaders from around the world presented and discussed world events and financial trends. All eyes were on US Fed chair Jerome Powell, who delivered a keynote speech on Friday 23 August. The clear takeaway from his presentation was that the US Fed is now ready to act and reduce interest rates. He stated, “the time has come for Fed policy to adjust,” and in recognition of a slowing jobs market said the Fed “will do everything” to support a strong labour market. This speech was the clearest indication that the Fed pivot is now in play and we are entering a period of policy easing as inflationary pressures subside and the US economy slows. In theory, this can be an extremely attractive backdrop for risk assets; falling inflation, moderate growth and lower interest rates should support company earnings and valuations. The risk is that the US economy cools too much and tips into recession, although that is not the current base case for the majority of investors. Looking out into 2025, the bond market is pricing in around 2% of interest rate cuts over the next 12 months. Whether or not the US Fed will commit to such aggressive moves is unclear, especially if the US economy continues to advance.

Asian markets were slightly disappointing over August. There continues to be major concerns around the world’s second largest economy, China. The property market remains in the doldrums and stimulus measures to date haven’t been bold enough to support the housing market. Weaker house prices have weighed on the Chinese consumer and had ripple effects across the globe. Luxury goods companies, even those outside of China, have frequently relied on the Chinese consumer for growth. We’ve seen Burberry and LVMH issue profits warnings recently, linked to a weakening Chinese consumer market.

Economic data in August looks to have been pivotal and has ushered in an imminent easing cycle from the US. At the same time, the deterioration in labour market data has increased risks to the global economy. As a result, we continue to be balanced in our portfolio positioning, recognising the opportunities from rate cuts, but acknowledging the risks of a slowing US (and therefore global) economy. Our non-equity bucket is well positioned to deliver if growth slows, while our equity exposure remains highly diversified, with exposure to a range of sectors and geographies.

Andy Triggs

Head of Investments, 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 and forecasts are not a reliable indicator of future performance. 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.

The Week In Markets – 7th September – 13th September 2024

It’s been a busy week, with a raft of economic data from around the world providing plenty for investors to digest.

To begin the week UK unemployment and average wage growth reports were released and were aligned with market expectations. The unemployment rate for the month of July was 4.1%, falling from the previous month’s figure of 4.2%. Average wage growth (excluding bonuses) fell to 5.1%, down from 5.4% the month before. The Bank of England (BoE) is watching wage growth closely, as higher wages often lead to price increases as businesses try to pass on their higher costs. The BoE meet again next Thursday following their first rate cut of the year at the beginning of August to 5%.

On Tuesday UK GDP reports were released and slightly disappointed as GDP, month-on-month, came in flat at 0% for the second consecutive month, with markets forecasting a rise of 0.2%. Over the previous month, the GDP slowdown was attributed to the political uncertainty and there was huge anticipation that as the Labour party won the election there would be a post-election economic “bounce back”. So far this has failed to materialise as the Chancellor, Rachel Reeves, focuses on the fast-approaching Autumn budget. The weakness in data has made next Thursday’s BoE meeting more interesting and increased the odds of another interest rate cut.

German inflation for the month of August has fallen to the 2% target rate for the first time since March 2021. There was a significant fall (year-on-year) from July’s figure of 2.6% with energy prices largely contributing to this as they fell by 5.15%. Just this Friday morning, French inflation has fallen below target to 1.8% (year-on-year), as we continue to see the trend of inflation around Europe continuing to fall.

The European Central Bank (ECB) met this week and for the second consecutive meeting cut interest rates by 0.25%. Inflation across the Eurozone has fallen to 2.2%, which policymakers say has been “developing as expected”. The ECB downgraded their GDP forecasts for the region by 0.1% but did not commit to further imminent rate cuts. Instead, the ECB will continue to be data dependant, with its President, Christine Lagarde, stating “we are going to decide meeting by meeting”.

US inflation was announced on Thursday with inflation (year-on-year) falling to 2.5% from the previous 2.9% in July. This is now the lowest level of headline inflation since 2021. The story is a little different for core inflation (excludes food and energy prices) which remained at 3.2% (year-on-year) and rose to 0.3% (month-on-month) with rises in airline tickets, car insurance and shelter (rent) prices the main contributors to this. The US Federal Reserve will meet next week, and it is nailed on that they will cut interest rates for the first time this year. The level of the cut is open to debate, with each data point the odds change and there is currently estimated to be a 40% chance of a 50bps (0.5%) cut.

Apple began their roll out for their latest phone, the iPhone 16, with the A18 chip featuring Apple intelligence. The iPhone will be available next week however oddly the software update containing apple intelligence will not be available until October. There is the still the anticipation that Apple will see a significant upgrade cycle with a large percentage of users still using four and five-year-old iPhones. Apple also received the green light from US regulators to add a feature into the Airpod Pros enabling them to be used as hearing aids, a gateway into disrupting that market. Such news is usually extremely positive for the Apple share price, however they have a current cloud over their head in the form of an £11bn tax bill owed to Ireland in unpaid taxes.

Away from the data there was the first, and potentially only, debate between Kamala Harris and Donald Trump. Following on from the debate, the odds of Kamala Harris winning the race to the White House improved. The expectation is the result is going to be very tight, and a few swing states will hold the key. We will likely see increased campaigning in the coming weeks ahead of the election.

This week has been a stronger week for equity markets, with the US market leading the way, helped by a 10% increase in Nvidia. While equities performed well, we have also seen bond yields fall (prices rise) as investors continue to bet on significant interest rate cuts in the coming months.

Next week is likely to be lively, with all eyes on the US Fed’s meeting on Wednesday. Here in the UK we will receive key inflation data, before the Bank Of England meet on Thursday to set interest rates, with a rate cut in the balance.

Nathan Amaning, Investment Analyst

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

The Week In Markets – 31st August – 6th September 2024

We are quite used to explaining how inflation, GDP or labour market data influences markets, however this week markets initially reacted to US manufacturing data.

Manufacturing Purchasing Managers’ Index (PMI) is a measure of the economic trends in the sector. Manufacturing in the US has been weak of late, but market expectations were that there would be a slight increase towards expansion in the sector, however this was not the case as the report came in at 47.2, lower than expected and indicated further contraction. This is the fifth straight month the manufacturing sector has remained in the contraction zone; albeit a bump up from July’s 46.8 reading, despite the decline in new orders and supplier costs rising. The data led to markets questioning the extent of the imminent US Fed interest rate cut, which would help to stimulate economic growth in sectors again. The S&P 500 and Nasdaq suffered big falls on the day, down 1.7% and 3% respectively. Nvidia seemingly took the biggest hit on the day as it closed down by 9.5%, erasing $278bn in market cap, the largest one-day company decline in history.

Regarding manufacturers, German car company Volkswagen (VW) is facing a dilemma. Over history, previous CEO’s have been fired for attempting to cut jobs, and current CEO Oliver Blume is facing the same test as he announced the potential closure of factories. There have been two specific factories earmarked to be closed as they are running significantly below capacity, however, thousands of employees are not happy and are expected to protest next week. VW’s global market share has been falling as electric and hybrid car demand expands and the “bloated monster” needs to cut costs.

Tesla has enjoyed a successful week in markets as they announced plans to launch their “full self-driving” (FSD) product in Europe and China. The full self-driving will be an upgrade to the Tesla autopilot that is currently available to drivers and if regulators can be convinced, this will be a significant boost to Tesla profit margins, charging customers an extra $12,000 on their purchase. Tesla shares have surged almost 10% for the week.

On Wednesday, we saw the Bank of Canada (BoC) continue their interest rate journey as they cut rates down to 4.25%. Their first-rate cut was in May where they lowered rates from a 20 year high of 5% and have since cut rates by 25bps (0.25%) each meeting. It seems they are not stopping there as BoC Governor Tiff Macklem, opened the door for further cuts stating, “if inflation continues to ease in line with forecasts, it is reasonable to expect further rate cuts”.

A new French prime minister has been appointed this week, two months following the snap election that caused a political shakeup. Michel Barnier was the European Union’s former Brexit negotiator and has now been tasked by French President Macron, to unify the government. Over his long career, Mr Barnier has been considered a centrist, however in his bid to become the president in 2022 he swayed towards the right side, hardening his stance on immigration. At the age of 73, he also becomes France’s oldest prime minister.

Readers may well have noticed lower fuel prices recently, driven by recent falls in the oil price. US Crude oil is now below $70 a barrel, on the back of strong supply and expectations of weakening demand as economies slow.

As is customary, US Non-Farm Payrolls data was released today, the First Friday of the new month. Following on from last month’s reading, the jobs data undershot expectations with 142,000 jobs created in August, strengthening the case for a 0.5% cut by the US Fed later this month. The underwhelming data led to bond markets rallying as yields dropped (prices rose) on the back of the news. We’ve written extensively about our comfort in holding government bonds in portfolios currently, and we continue to believe the asset class can help stabilise portfolios should economic growth disappoint.

September is historically a tricky month for equities, and so far this trend is continuing. While equities have pulled back, we have witnessed strength in government bonds. With key inflation data and central bank meetings to come this month, there is plenty of news flow that could impact markets in the short-term.

Nathan Amaning, Investment Analyst

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

The Week In Markets – 24th August – 30th August

Markets were on edge this week as they eagerly awaited “the world’s most important stock” Nvidia’s earnings report. Nvidia has been long labelled the Artificial Intelligence (AI) posterchild, momentarily becoming the world’s largest company in June, but investors have contemplated whether insatiable demand for their processor chips is sustainable.

On Wednesday, Nvidia announced they had comfortably beaten expectations with record revenues of $30bn, however by the end of US trading the stock had fallen by 6%. Investors were worried how sustainable the extraordinary levels of growth were and also picked up on the significant delay of their second-generation Blackwell AI chips. This drop in Nvidia’s share price has been a drag on US markets given the company is a large part of US indices. At the time of writing the US market is slightly down for the week.

Last week markets were keen to hear from US Federal Reserve Chair, Jerome Powell, who spoke at the Jackson Hole Symposium on the trajectory of future rates. “The time has come for policy to adjust”, was the message as the Federal Open Market Committee (FOMC) digested softening employment data. Non-farm payrolls has slowed, and unemployment continues to accelerate beyond the 4% mark.

Bank of England (BoE) Governor Bailey was also present at Wyoming as he concluded that longer-term inflationary pressures had eased, however he was keen to state further interest rate cuts would not be rushed. At the beginning of this month interest rates were cut from the 16-year high of 5.25% to 5% but the BoE will remain cautious as “it’s too early to declare victory” on inflation.

Temu, the Chinese online marketplace company, has gained huge popularity since its launch at the end of 2022, breaking into the US, Canada and European markets. They gained their popularity off the wide range of products they sell at low prices, complemented by their aggressive social media campaigns and advertisements whilst also gamifying the shopping experience on their app. On Tuesday parent company, China PDD Holdings missed market estimates for Q2 revenues, and this was followed by stern comments from Co-CEO Chen Lei, which caused a one-day share meltdown wiping $55bn off the market cap. Chen Li explained that increasing challenges from competition and changing consumer demand have affected earnings with China’s domestic economy faltering.

Nigeria is a country we don’t often cover in the weekly but this week the “Giants of Africa” reported their economy grew 3.19% in Q2 (year-on-year) boosted by agriculture and the increase in crude oil output. There have been disruptions to agriculture driven by weather conditions, security and logistic issues however it was still the greatest contributor (22.61%) to growth. Crude production has grown to 1.4m barrels a day with the target of reaching 2m barrels a day by the end of 2024.

The US dollar has continued to weaken over recent days and is now at levels last seen in March 2022 against Sterling (£). A weakening US dollar is often associated with a risk-on sentiment in markets. Markets have definitely been in more optimistic spirits recently, bouncing back after an extremely rocky first few days in August.

Nathan Amaning, Investment Analyst

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

The Week In Markets – 17th August- 23rd August 2024

The annual Jackson Hole Symposium opened last night and gets going in earnest later this afternoon where it is expected US Fed Chair, Jerome Powell, will outline the central bank’s current view on monetary policy and the US economy. Investors will be looking for clues on the level and timing of potential rate cuts as well as assessing the US Fed’s current economic outlook.

As we head towards the month of September, when the US Fed will once again meet, markets are almost certain we will see the first interest rate cut as key economic data points have indicated a continued slowdown of the labour market and inflation has dropped below 3%. There still remains various key data points before the big decision; GDP, PCE inflation, Non-farm payrolls and July retail sales, which could all affect the level of interest rate cut. While a rate cut is nailed on for September, there is still a wide range of outcomes for the total amount of interest rate cuts for the remainder of 2024, with 0.75% of interest rate cuts the most likely outcome.

The imminent prospect of rate cuts has fuelled gold prices to rise to fresh all-time highs this week, pushing above $2,500 an ounce. To put that into perspective a standard gold bar (weighting 12kg) would now be worth more than $1 million.  Gold has provided excellent diversification to portfolios as well as stellar returns, rising over 22% in the last six months.

Peloton interactive has just reported its first sales increase in nine quarters, with shares closing up 35% on the news. During the pandemic and global lockdowns, high end home gyms were certainly in fashion as consumers had the disposable income to spend and couldn’t access traditional gyms. After over-earning during lockdown, Peloton sales suffered significantly with the share price tanking. A broad restructuring plan is still underway as the search for a permanent CEO is ongoing and global headcount is being cut by 15%.

Japanese equities continued to regain their poise after the significant falls at the start of the month. The index dropped over 20% in three days, however, it is now close to recent highs.

Purchasing Managers Index (PMI) data from UK, Europe and the US was released this week, with mixed results. The standout data came from the UK, where both manufacturing PMI and services PMI were higher than expected and in clear expansionary mode. It provides further evidence of a robust UK economy that continues to perform better than anticipated. The good news has led investors to question whether another interest rate cut is required in the short-term and it will be a close call as to whether another 0.25% cut is delivered at the next Bank of England (BoE) meeting.

France also had positive PMI data. The economics of the Olympics is always interesting as Paris budgeted $8bn for the games and unlike previous hosts Brazil (Rio) and Japan (Tokyo) managed to stick to plan. Existing infrastructure has been key to this, and the French are already reaping the rewards. Services PMI rose to 55, the fastest pace in over two years, as tourists were prominent in restaurants, cafes, bars and sports arenas. This boost should also positively impact upcoming GDP figures by an estimated 30bps (0.3%) over the third quarter.

Next week has the potential for excitement with Nvidia releasing their Q2 results after hours on Wednesday. The results have set the tone for short-term market leadership and is seen as the bellwether of the artificial intelligence (AI) narrative. While we will be paying close attention to the results, our portfolios are designed to be well diversified and aim to reduce significant company specific risk, ensuring we are never de-railed by one individual stock.

Nathan Amaning, Investment Analyst

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

The Week In Markets – 10th August – 16th August

What a difference a week makes. Last week’s concerns around a potential US hard landing and recession have now been shelved following data that pointed towards lower inflation and modest growth, which was well received by equity markets.

The Japanese equity market, which suffered its second worst day in history last Monday, has continued to regain its poise this week. The main index finished the week very strongly and is close to 20% higher than the closing level on 5th August. While the equity market has recovered, the currency has once again weakened versus most major currencies, after a sharp rally that started in July. The Yen looks cheap on a wide range of metrics, but after the Bank of Japan stepped away from any further interest rate rises, the currency has weakened. GDP data for Japan was very strong this week, with the economy growing at an annualised 3.1% in Q2, boosted by consumption and this helped support the equity market.

Wednesday was a key day for data with both UK and US inflation data being released. UK inflation was slightly softer than expected, with headline inflation coming in at 2.2% vs an expected 2.3% figure. The same was true with the US – inflation was 2.9% against an expected 3% print. This was the first time in over three years that US inflation has been below 3% and likely cements an interest rate cut in September from the US Fed. Overall the data from the UK and US is pleasing; wage growth is now outpacing inflation, which should support consumption, while borrowing costs should begin to fall as interest rates are reduced, which will help businesses and consumers.

On Thursday the positive US jobs and retail sales data helped alleviate any concerns about a US recession and supported equity markets. Retail sales came in ahead of expectations, while unemployment claims were lower than anticipated. US equities posted a very strong Thursday, led by the small cap index, which rose nearly 3% on the news. Slow, but positive, economic growth, with falling inflation and interest rates is a positive cocktail for equities and this is the narrative supporting risk assets currently.

In the UK Q2 GDP and retail sales data was broadly in line with consensus and highlighted that the UK has now emerged from recession and is enjoying mild growth.

Fixed income markets sold off towards the end of the week, driven by strong economic data and the diminishing chances of aggressive rate cuts. At one-point last week there was the possibility of an emergency rate cut by the US Fed, and at least a 0.5% interest rate cut in September. Now the market is pricing in only a 0.25% cut in September and this negatively impacted government bond prices. However, the asset class has done its job recently in diversifying equity risk.

At a company level, Starbucks sacked their CEO after only a year in charge. The company has been struggling to maintain its market position and has suffered poor results over recent quarters, leading to a declining share price. Costs for Starbucks, particularly barista wages, have caused problems, while the ability to push pricing further appears limited, meaning profit margins have been impacted. The news of the immediate change of CEO led to the share price spiking around 25%, adding $20bn of market cap – clearly investors were thrilled with the leadership change.

Gold has been in a period of consolidation but made new highs once more this week, closing above $2,500 an ounce. The precious metal is in demand from areas such as China, with the central bank and consumers accumulating holdings in gold. Oil has nudged higher this week on the back of escalating geopolitical tensions. It may surprise many to read that the biggest oil producer in the world currently is the US, and last week they were producing a record breaking 13.4 million barrels of oil a day on average.

It’s been a positive week for risk assets, regaining their upward momentum following the Japanese flash crash last week. While short-sharp corrections can cause panic, it is important to stay objective and focus on the long-term during these bouts of volatility. Some of the most painful days in markets are quickly followed by some of the best, and that has been the case over the last two weeks.

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 Month In Markets – July 2024

So much for a quiet summer! From markets to politics a lot went on over the last month and we will try and unpack it all here.

There were significant political changes during July. Here in the UK, Labour, as expected, took power following a landslide election result. While changes of government can have big implications for asset markets, Labour had long been expected to win the election and as such the result was largely priced in already. This Labour government has been viewed by many as pro-growth, and with relative political stability compared to our European and US counterparts, UK equites have actually come back on to the radar for international investors this month.

The final round of French elections led to the New Popular Front winning the most seats, although there was no majority. The inconclusive result could lead to gridlock in French politics over the coming months and years.

In the US there was a failed assassination attempt on Donald Trump at one of his rallies. The assassin came very close, with a bullet skimming his ear. The attempt on his life has not stopped Trump from continuing with his election campaign. President Joe Biden did however withdraw his candidacy for another term in the White House. He has been under mounting pressure following a series of well publicised slip ups and decided it was in “the best interest” of his party and country.

Aside from politics there were some interesting dynamics playing out in markets, which isn’t really reflected in the performance chart. Mid-month there was a huge leadership change in the market. The trigger for this rotation was a period of softer US economic data, with the US inflation data acting as the final catalyst to kickstart the rotation. With US inflation coming in lower than expected, the market once again began to price in a higher number of rate cuts. Much like the end of 2023, this hope of interest rate cuts spurred on small cap stocks, at the expense of large cap stocks. Alongside this there were the first whispers of doubt around the artificial intelligence (AI) investment narrative. Investors have begun to question if and when all the investment in AI will generate a return on that investment, and at what profit margin. Companies such as Microsoft, Meta and Apple are piling billions of dollars into AI capital expenditure, but the return from this expenditure is yet to be fully understood. The AI darling stock Nvidia, which is selling chips to companies such as Microsoft, has delivered exceptional earnings and share price growth over recent quarters. However, in the month of July the market cap of Nvidia fell by around $1 trillion – roughly four times the size of the largest UK listed business! Investors appeared to take profits on their AI trades and re-allocate to small cap stocks, which are typically more interest rate sensitive, and should see prospects improve if we have lower interest rates but a robust economy. Over the course of July, the US small cap index outperformed the main US index by over 8%.

The rotation wasn’t just in the US, it happened on a global scale, with some of the laggers of 2024 starting to deliver, while the market leaders begun to falter. We do often witness short-sharp rotations, and it will be interesting to see if this rotation plays out over August. One of the best ways to insulate portfolios from these rotations in markets is to have diversification within equities. This ensures all your eggs are not in one basket. Increasingly, we are seeing global equity indices as not being well diversified, by either country representation or equity style. Passive investors in global equity benchmarks are now taking on significant US equity exposure, and within that a considerable amount of technology exposure. For those investors, the month of July was most likely painful.

As already mentioned, Labour taking power in the UK was seen as creating a level of stability in UK politics, something that has not been in place in recent years. This coupled with increasing political tensions in parts of Europe and the US has made the UK a more attractive destination for investors. Alongside this, we have seen UK economic growth forecasts upgraded, along with inflation being maintained at 2%. This was enough to provide good support for UK assets in July, with equities and bonds performing well.

At the end of the month the Bank of Japan surprised the markets by increasing interest rates for the second time this year. The news helped to strengthen the currency, which is trading at multi-year lows versus a basket of currencies. The strength of the Japanese Yen more than offset some weakness in the larger cap Japanese stocks to lead to a positive month.

Away from equities, areas of the fixed income market showed positive signs during July. Momentum grew around the possibility of an increasing number of interest rate cuts later in this year, fuelled by some softer US economic data, including inflation that came in lower than expected at 3%. While the US Fed resisted cutting interest rates on the last day of the month, commentary from Fed Chair Jerome Powell pointed towards a cut at their last meeting.

The month of July favoured many funds in the portfolios which had struggled to date in 2024. It was pleasing to see that as the market rotated, we were able to still perform well, which was enabled by the portfolios being well diversified.

Andy Triggs
Head of Investments, Raymond James, Barbican

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 and forecasts are not a reliable indicator of future performance. 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.

Appendix
5-year performance chart

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