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The Week in Markets – 28 June – 2 July

I’ve been moaning about the lack of market drama to write about over recent weeks. This one hasn’t helped, although it has made me more sympathetic towards TV commentators struggling through the inevitable Wimbledon rain breaks. But, actually, the 2% rise in global equities this week is the best part of 20 years’ interest at the current UK base rate (0.1%), which is a fairly dramatic statistic. So maybe I’m not looking hard enough.

That 2% rise is a good example of the illusion I mentioned last week: Was it actually equities rising? Or was it the thing we’re measuring them with falling? Well, we’re measuring them in sterling here, and the pound has had a duff week relative to most major currencies, so most of that ‘rise’ was actually the value of the pound dropping: it was off by more than 1% last week against the dollar. It’s hard to isolate any one reason for this weakness, so I’d put it down to a general sense that the prospect of a British interest rate rise has, if anything, moved further away.

Another indicator that it was currencies moving, not markets, is that UK equities, which didn’t get the same overseas currency boost, were off the pace: only a 0.3% rise at the time of writing.

Currency, however, isn’t the only reason UK equities lagged last week. And, for that matter, why they’ve lagged for the last decade. The make-up of the British market is radically different to that of the world’s biggest market – the US (which itself constitutes over half of the total global stock market). The UK market has heavy exposure to large oil companies, mining companies and banks, while the US market is dominated by tech giants like Microsoft, Apple and Google.

So the fact that UK equities have begun to wilt again, while US equities are regaining their mojo, tells us something about the outlook for global economic growth. Oil companies, mining companies and banks all need strong, broad-based economic growth in order to flourish. So they rallied hard after November’s vaccine announcements, as this heralded the likely easing of lockdown, and with it our thirst for buying stuff and going places, all of which need oil and natural resources.

However, in recent weeks that rally has faded, and investors have been returning to the tech giants, and with them US equities. This doesn’t mean they’re suddenly expecting a recession, but does imply they believe we’re heading back to the winner-takes-all conditions that have dominated for the last decade. That means the strongest company in any industry survives and thrives, but weaker competitors struggle just to defend their slice of the pie, let alone grow it.

Note that this is all “at the time of writing”, which is Friday morning. Later today sees the release of key US employment data. If these are wildly different to what’s expected, we could see this trend either accelerate or reverse. Finally some drama then? I should be careful what I wish for…

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. 

The Week in Markets – 21 to 25 June

It’s been a millpondesque week in financial markets, which is great for investors’ nerves, but catastrophic for those of us trying to inject drama into a weekly market summary.

One previously reliable well of tension that has run dry is the Bank of England rate setting meeting. There used to be genuine uncertainty over its outcome: An interest rate rise? A cut? A quarter of a per cent? Or the full half? Not anymore: The BofE crew met this week, but their fiercest debate would have been their choice of biscuit, as their “no change” verdict on interest rates was all but set in stone.

They did elicit a slight tremor in the pound, however, by announcing they are relaxed with inflation running up to 3.1% for a while (their target is 2%). They expect this to be a temporary thing that will soon pass, which is exactly how I feel about my 11-year old son’s recent willingness to tidy his room.

Sterling’s wobble happened because investors are drawn to currencies that pay higher interest rates. But the BofE’s chillaxed attitude means they’re not planning on raising rates even if inflation does tick up. This obviously disappointed those expecting them to copy the US Federal Reserve’s more clenched tone from last week. So, there was some light pressure on sterling against the euro, but not so much that you’d notice in, say, the price of a tub of tzatziki.

One good thing about this market lull is it gives me a chance to expand on the inflation theme. As I mentioned last week, it really is ‘The Big Thing’ that investors markets are obsessing over. Many commentators believe we are at a historical turning point, at which the long era of falling inflation turns to a period of rising inflation. If they’re right, this polarity reversal would have a profound impact on the fortunes of different asset classes, turning winners to losers.

It also highlights another of the slipperier areas of investing: that we measure the size of one thing (returns made by our investments) using something – a currency – that also changes in value. There has, and bear with me on this, been much conjecture about the gradual shrinking of our beloved snacks, such as the Creme Egg, the Wagon Wheel or the Mars Bar (a phenomenon that itself may have diddled the inflation calculation). But, for anyone with a ruler, this is simple to measure.

But now imagine measuring the length of a Mars Bar using not centimetres, but Creme Eggs. If the Creme Egg has shrunk while the Mars Bar has stayed constant, it will appear as if Mars Bars have actually grown. This isn’t as trite as it may sound: much has been made of equities’ extended rally, but this has happened at a time when the supply of the things used to measure it – dollars, euros or pounds – has been expanded at pace. So have the prices of shares, fine wines and second homes in Cornwall all risen? Or have currencies all dropped? And, either way, will this trend continue? These are some of the reality-bending issues we continue to wrestle with 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. 

The Week in Markets – 14 to 18 June

Writing a weekly note on financial markets is, in many ways, like writing a weekly note on British weather. There are occasional bouts of great drama, when there’s too much to cover. But, unhelpfully for authors of the weekly summary, most weeks are filled with unremarkable greyness (not that we Brits let that stop us from remarking on it anyway).

As it happens, markets mirrored our weather this week. It was blue skies for the first half, but there was a marked change from Thursday onwards. The cause of this shift was the US Federal Reserve (“The Fed”), who indicated they might raise US interest rates a little sooner than previously expected. So now they expect a rate rise in 2023, instead of 2024.

This is exactly the kind of dull-sounding piece of financial information that may well have passed you by. But in the financial world, a shift by the Fed is the equivalent of a shift in the Gulf Stream: it will impact the returns on global financial assets for years to come.

It’s also another in a series of data points that form the big game that investors are watching closely: inflation. Specifically, after 30 years of falling inflation, have we reached a turning point? Is inflation about to start rising again? Or will it carry on falling into outright deflation? And if it is about to return, does it do so modestly, or are we heading back to the 1970s?

This matters greatly, because the kind of assets that perform well when inflation is falling, such as government bonds, are the kind of assets that will fare very badly if inflation starts rising again. Hence the avid interest: investors are trying to decide if it’s time to hop out of one kind of asset, and into its polar opposite. So any outbreaks of volatility we see in the coming weeks or months will, most likely, be caused by data suggesting one outcome is more likely than the other.

The Fed’s mild shift on interest rates was taken as a sign that inflation may well be coming back. So, big drama for the writers of financial headlines. But, actually, not that much drama in markets themselves. Markets have a way of sniffing out trends, and reacting to them, way before they reach the papers. So the corresponding drama for this particular piece of news most likely happened several months back, when government bonds dropped in price, and the prices of commodities and mining companies (which like inflation) rose sharply.

There was one notable move, however: The US dollar rose against sterling by almost 2% over the week – a big move in the often-glacial world of currencies. Under normal circumstances, this would mean that cooling beer in the heat of the Florida sun had just become more expensive. But, luckily, we’re not allowed to go to Florida, and – I’m pleased to report – a pint of warm ale under a grey sky remains unchanged.

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. 

Stay Optimistic

The fifth month of 2021 will not go down as an important month for global investors. Most equity and bond market investors made some positive – but relatively modest – gains during May. And whilst COVID-19 vaccination progress across many countries has been notable over recent weeks, the general economic outlook across the U.K., United States and Europe has recently improved. Certainly underlying confidence for the rest of this year and into 2022 has improved over recent weeks.

Now It’s May, Do You Go Away?

April was another interesting month, with gains across almost all global stock markets led by the United States, but closely followed by the U.K. and Europe. Whilst the former two were significantly aided by continued COVID-19 vaccine progress and associated national reopening, Europe has started to make some progress too.

Inflation The Dog That Barked In The Dark

Sixty years ago, Marshall Nirenberg and Henrich Matthaei began the process of cracking the genetic code. Thanks to their persistence and resilience, today’s scientists developed effective mRNA-based vaccines in record time – saving millions of lives from COVID-19. With the darkest days of the pandemic behind us, investors can also appreciate the resilience of the economy and financial markets and the hopeful prospect of brighter days ahead.

A different summer pause

Financial markets are always a three-dimensional jigsaw, with new pieces being added and deleted at whim every business day. But the signals from the last month have been especially difficult to discern. In contrast to the bounce back second quarter, July was a negative month for pan-European markets with the U.K. continuing to lag.

THE ROAD TO RECOVERY

We maintain our belief in the ‘American Dream’ as described by James Truslow Adams, that “life should be better and richer and fuller for everyone, with opportunity for each according to ability or achievement,” regardless of social class or circumstances of birth. We not only acknowledge but embrace that we have work to do as a society, and hope that this year will serve as an inflection point as we advance toward a stronger and more united world.

The end of the beginning

Over three hundred and fifty years ago, back in 1665, Isaac Newton socially distanced himself from the horrors of the then rampant bubonic plague and – away from his burgeoning academic career at Trinity College in Cambridge – enjoyed a ‘year of wonders’ at his childhood home. During this period he formulated a theory of universal gravitation, explored optics and discovered differential and integral calculus.

A Journey through the Unknown

The COVID-19 outbreak has led to unprecedented volatility and tremendous declines in wealth, but we have faith that once the pandemic is defeated, the wild swings in the financial markets will abate and prosperity will return. But what cannot be so easily recovered is the loss of a job, the loss of a business, or, worst of all, the loss of a loved one. While it is our duty to provide timely market insights, please know that now, more than ever, the health and safety of you and your families is at the forefront of our minds.

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