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The Week In Markets – 3rd August – 9th August 2024

Any hopes of a quiet summer in markets were quickly abandoned as investors woke up on Monday morning to turmoil in the Japanese market, which soon spread globally. Monday’s fall of over 12% in the Japanese index meant it was the third worst day on record for Japanese equities, and when combined with the falls on the previous Friday, meant it was the worst two-day trading period ever for the Japanese main index.

It appears that the crash on Monday was not driven by fundamentals, but in fact by a huge unwind in positioning following the recent rapid appreciation of the Japanese Yen. The sharp decline in equities has occurred as the Japanese Yen has appreciated by over 10% versus most major currencies. This huge reversal has led to many quantitative strategies, hedge funds and algorithm traders having to cover their positioning, leading to the heightened volatility and drawdowns. Concerns that the Yen would further appreciate, and lead to continued drawdowns were soon abated by the Bank of Japan, who after an emergency meeting, stated “we will not raise rates when markets are unstable”. The news was enough to lead to a huge rebound on Tuesday – the Japanese index rising over 10% and finishing the week a little more than 2% down – quite the recovery!

The US market started the week on the back foot, with the events in Japan spreading globally, coupled with increasing concerns the US economy may be heading towards recession, following weaker jobs data last Friday. These recessionary fears were eased on Thursday when the initial jobless claims data was better than expected. US equities had their best day since November 2022 on Thursday and are now up for the week in sterling terms.  

The general trend across global equities was for weakness at the start of the week, before posting a recovery towards the end of the week. The reverse is true for government bonds. Concerns around US growth and the flash crash in Japan led to a rally in developed market government bonds. 10-year US and UK government bond yields fell below 4% (prices rising) as more interest rate cuts begun to be priced in. At one point on Monday the market was expecting the US to reduce interest rates by 1.25% before the end of the year. Yields have drifted higher, although the market is still expecting either a 0.25% or 0.5% interest rate cut from the US in September. Falling interest rates without a recession could be a powerful cocktail for equity markets.

Chinese inflation data came in higher than expected, at 0.5% year-on-year. The country has been battling deflation, so it was pleasing to see a positive inflation print. The world’s second largest economy is still challenged by a sluggish housing market and slowing growth. The Chinese authorities are attempting to stimulate the economy, however, it’s yet to be seen whether the measures implemented so far will be successful.

The week has been very light on key economic data, yet we have witnessed big swings in both equity and bond markets. Trading volumes are often thin in the summer months, with many market participants on holiday, and this amplified volatility this week. It was pleasing to see government bonds help offset some of the equity weakness on Monday. It’s a reminder that the asset class can diversify equity risk in times of growth concerns. The turnaround in Japanese equities from Monday to Tuesday was also a reminder about keeping calm when others are panicking. Those nervous sellers on Monday missed out on a 10% gain the following day.  For us, the focus remains on diversification, holding a range of assets that can perform in a range of outcomes, while leaning into areas where we have high conviction.

 

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 Week In Markets – 27th July – 2nd August 2024

This week we entered the month of August, with the Olympics up and running! Team GB have made a good start with 25 medals so far, including nine golds, and sit fourth in the medals table. In what has been a hectic week in markets it has been government bonds that have won the gold, with rate cuts and increasing concerns about a slowing global economy supporting the asset class.  

The US Federal Reserve and the Bank of England (BoE) both met in what would be a busy week for markets. Let’s start with the BoE who announced the first interest cut since March 2020. Governor Andrew Bailey and the eight other members were split on the decision of lowering interest rates, with five members voting for a cut, and four voting to hold rates. In the press conference Mr Bailey noted that “inflationary pressures have eased enough to cut rates”. Inflation fell to target of 2% in May and has remained there over the month of June, although market expectation is that inflation will spike to 2.75% due to energy prices before falling again to target in 2025.  The BoE has also upgraded economic growth expectations for the year from 0.5% to 1.25%, highlighting the resilience of the UK economy.

The US Fed met the day before the BoE, but the outcome was different as they decided to hold interest rates firm at 5.5%. Investors are however increasingly optimistic on the Fed cutting rates as soon as September with Fed Chair, Jerome Powell, stating “we are getting closer to the point”. US weekly jobless claims increased by 14,000 to 249,000 and exceeded market expectation of 236,000 suggesting some softening in the labour market. The Fed will certainly be cautious to ensure the labour market does not deteriorate from here.

US Non-farm payrolls are in this Friday afternoon as 114,000 jobs were created in July. Market expectation was 175,000, much greater than the result and will certainly drive worries about the current health of the economy following May and June’s strong results. Unemployment rate has also come in above forecasts of 4.1%, rising to 4.3%.

The Bank of Japan (BoJ) surprised markets with their second rate-hike of the year and suggested they may go further later in the year. The hawkish rhetoric from the BoJ continued to support the currency, which has strengthened significantly against the USD over the last fortnight. The big rotation in the currency has impacted the stock market, with the index suffering big falls over the last 48 hours.

UK junior doctors have striked for a total of 44 days since they first began in March 2023. They have been holding out for a 35% pay rise but this week have been offered a compromise of 22.3%. The union has agreed to present the deal to the tens of thousands of doctors and if accepted the strikes will cease.  These strikes have hurt the NHS significantly and are estimated to have cost around £1.7bn of taxpayer money with the postponements of appointments, procedures and operations.

UK Chancellor Rachel Reeves spoke this week and announced she will deliver her first Budget on 30th October. She outlined that certain taxes would have to rise given the uncovering of a £22bn black hole in the public finances. She also announced the scrapping of a range of infrastructure projects as well as making the winter fuel allowance for pensioners means tested.

Eurozone inflation for the month of July has surprised to the upside with headline inflation (year-on-year) rising from 2.5% to 2.6%, whilst market expectations were for a fall to 2.4%. Core inflation (excludes energy and food prices) stayed firm at 2.9%. At the start of June, the ECB cut benchmark rates to 4.25% and paused in July as they acknowledged there would be a “bumpy road” to bringing inflation down to target whilst also maintaining economic growth. Investors maintain the belief that further rate cuts will happen in September and possibly December.

It has been a week of two halves in equity markets. There was strength at the start of the week with the UK large cap index approaching new all-time highs while other bourses rose globally. However, equity markets came under pressure in the second half of the week, most likely driven by concerns of a slowing economy following weak data out of the US. Nvidia’s recent volatility continued throughout the week. The company lost nearly $1 trillion in value in a month, before rebounding on Wednesday by around 10%. Elsewhere in the tech/artificial intelligence space there were positive results from Meta (Facebook) while Microsoft’s results showed disappointing cloud growth. 

While equities have struggled government bonds have rallied significantly on the hopes of interest rate cuts from the US and Europe. It’s been pleasing to see the non-equity part of the portfolio perform well as equities have faded and highlights the benefit of diversification.

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 turning point?

Our European Strategist, Jeremy Batstone-Carr takes the monthly temperature of the global markets and asks – have we reached the turning point for investors holding broadly diversified portfolios?

The Week in Markets – 20th July – 26th July 2024

Whether you regard Sunday as the beginning or end of the week, huge news broke on Sunday that President Biden would be stepping down in the presidential race and endorsed Vice-President Kamala Harris to be his successor. He has been under mounting pressure following a detrimental debate against Trump and wrongly referring to Ukraine President, Zelenskyy as “Putin”, and he now believes it is time for fresh voices to unite the nation.

The equity market rotation, which began a couple of weeks ago, continued throughout the week. The US market has been dominated by a handful of mega cap technology/artificial intelligence companies which have propelled the market, while many other stocks have lagged, particularly small caps. Over the last two weeks we have seen a big reversal, with the US small cap index rallying, while the mega cap stocks have languished. The US small cap index has outperformed the tech-heavy NASDAQ 100 index by over 15% since 10th July! The question investors are asking is whether this rotation will last, or whether normal service will be resumed and tech stocks will lead the market once more; only time will tell. There have been a range of factors driving the rotation – weaker inflation and economic data has got the market excited once more around interest rate cuts, which typically favour smaller companies. We have also seen some less than perfect earnings data from some of the “Magnificent Seven” companies, coupled with concerns around the elevated levels of investment, and whether it will be able to generate a meaningful return for investors. Tesla and Alphabet are the first of the magnificent seven to post earnings and disappointed. Tesla reported a 45% slump in Q2 profits, resulting in their shares falling 13% on the day, while Alphabet admitted they were overspending on AI infrastructure rather than advertising, but CEO Sundar Pichai, spoke about the opportunity costs – “the risk of underinvesting is dramatically greater than the risk of overinvesting”.

Alphabet (owner of Google) has been unsuccessful in the acquisition of Wiz, a cyber security firm for £18bn. This would have been Alphabet’s largest ever acquisition as they continue to rival Microsoft and Amazon in the cloud services market. Wiz decided against the deal with the target to reach $1bn annual revenue before a potential IPO.

US personal consumption expenditure (PCE) data was released this afternoon. It differs from regular core inflation data as it only measures goods and services targeted towards and consumed by individuals. Core PCE remained at 2.6% while headline PCE fell in line with market expectations to 2.5%. This will be an encouraging print for the US Fed and could encourage them to cuts rates shortly.

US GDP for Q2 rose by 2.8%, hugely surprising markets as only 2% was expected. Economic growth has remained resilient this year despite elevated interest rates. GDP is a lagging indicator however the data will make for happy reading for the US Fed as the data supports claims that the economy is heading for a soft-landing and is yet to rollover due to high interest rates. With slowing inflation, it is widely expected the US Fed will be able to cut rates in the coming weeks and months, supporting the consumer and economy further.

Netflix has recently added a number of great series and films with Baby Reindeer and Bridgerton topping the charts, however they added their fewest number of subscribers over Q2 24 following their password sharing crackdown. This hasn’t impacted earnings as they reported a 23% rise in net profit margins and their lower priced ads subscription tier appears to have aided revenues. The benefit of the plan is not expected to be long term and Netflix has stated the search for new growth drivers will continue.

The Bank of Canada (BoC) has not been afraid to diverge away from the US Fed as on Wednesday they cut interest rates for the second consecutive meeting, down to 4.5%. BoC Governor, Tiff Macklem, is aware that the economy is weak, and growth needs to pick up in order for inflation not to fall beyond target. There is optimism for a recovery in household spending as borrowing costs ease as households are currently cutting back on non-necessities in order to deleverage.

The UK equity market made the headlines this week with claims we are witnessing a “turning of tide” for the unloved market. Asset managers Blackrock and Allianz joined other fund houses in increasing exposure to UK equities. Flow data showed that since May institutional customers are now net buyers of UK equities, reversing a long-standing trend of being net sellers. Money flowing back into UK equities could be very powerful and help close the valuation gap between UK equities and the rest of the world. Relative political stability has been cited as one of the reasons investors are turning more positive on the UK.

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 – 13th July- 19th July 2024

A busy week in markets was made even busier by the news over the weekend regarding the attempted assassination of Donald Trump. The incident appeared to galvanise the Republican party and have increased Trump’s chances of returning to the White House. President Biden has recently been taken ill with COVID and there are rumours circulating that he may imminently drop out and be replaced as the Democrat candidate.

Taylor Swift and Burna Boy are musicians that have come to the UK over the month of June and have been cited as reasons for UK inflation coming in slightly higher than expected. The concerts have boosted demand for hotels and restaurants, leading to an increase in prices. For the restaurants and hotels and of course the Swifties there is more good news – Taylor Swift will be in London in August!

Markets had been optimistic about the UK’s inflation print for June with 1.9% forecasted, however headline inflation remained at 2%. Core inflation (excludes food and energy prices) was unchanged at 3.5%. With the Bank of England’s (BoE) target rate set at 2%, inflation is now in line with target, however investors have reduced bets on the BoE cutting interest rates in their August meeting. Services inflation is a key component that the monetary policy committee members are keen to see fall, and it also remained strong at 5.7%, despite market forecasts of a slight fall to 5.6%.

Later in the week, UK unemployment for May stayed firm at 4.4%, however wage growth for May (including bonuses) fell slightly to 5.7%, in line with market expectations. The BoE have spoken and want to see wages moderate, and the labour market continue to cool before they entertain an interest rate cut and it seems May’s figures were not significant enough to sway this vote.

We’ve had a busy week on the inflation front as the Eurozone figures for June were finalised. Core inflation (year-on-year) was unmoved at 2.9% and headline inflation slightly dropped to 2.5%. The Eurozone’s road to the 2% target could take some time, with investors not expecting it to be reached until late 2025.   

Following the inflation data, the European Central Bank (ECB) met for the fifth time this year and the conclusion of the meeting was no surprise to markets, interest rates were held firm at 4.25%. The ECB cut rates by 25bps in the June meeting and the bank seem to be cautious on making any “rushed” decisions given the stalling disinflation. “What we do in September is wide open” said President Christine Lagarde, but it is tough to estimate what will occur as an abundance of economic data, two monthly inflation prints and quarterly figures on GDP and wages will be released before policymakers meet again. Investors however have begun to price in two further rate cuts for the year. 

In the US, retail sales for June (month-on-month) were flat at 0%, following May’s figure being revised to 0.3%. Subsequent to the strong start to the year for retail sales, they have now significantly cooled as households continue to feel the pinch of stubborn inflation and elevated interest rates. PepsiCo, the drinks manufacturer, announced they have seen a trend in lower income households seeking alternatives which affected their second quarter revenue results. 

UK retail sales disappointed this morning, declining by -1.2% month-on-month. Wet weather in June could have been a contributory factor, along with high interest rates. As time goes by more consumers will be re-mortgaging to higher levels and this will naturally curb consumer spending in other areas of the economy.

It has been a fascinating week in markets, with big rotations occurring in equities. The first real concerns around the artificial intelligence (AI) theme surfaced this week. On the back of concerns around user application, future revenues and possible Trump tariffs we witnessed big reversals in previous market leaders. Dutch chip equipment maker ASML fell over 12% on Wednesday, while other AI darlings such as Nvidia fell over 6% on the day. 

The summer months are historically quiet in markets, with the holiday period leading to low trading volumes and limited activity. However, the current period feels anything but quiet, and with interest rate cuts appearing imminent it is unlikely to quieten down anytime soon! We will be keeping a close eye on events, aiming to ensure portfolios are well placed to blossom over the summer months.

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 – 6th July – 12th July 2024

It has been a busy week in markets, alongside an exciting week in sport. On Wednesday evening England left it late to beat the Netherlands to reach the Euro 24 men’s football final. The England men’s cricket team are taking on the West Indies in what will be James Anderson’s last test match. He steps back as the leading wicket taker in test history for a fast bowler. For the sporting enthusiasts there is a jam-packed weekend ahead with England taking on Spain in the men’s Euro 24 final, followed by the Copa America final between Argentina and Colombia. We will also have the Wimbledon Tennis finals to enjoy.

Rachel Reeves is the UK’s first female Chancellor of the Exchequer and in her first speech she got straight to business, asking officials for an assessment of the UK’s public spending capabilities. The assessment will come before an Autumn budget which is set to be announced before the end of the month. Another bold move that was made almost immediately was the removal of the de facto ban on onshore wind farms that was put in place in 2015, paving the way for labour to set up “Great British Energy”.

Onto economic data, in the UK GDP figures for May were released and pleasantly surprised. Year-on-year, GDP was 1.4%, exceeding market expectations of 1.2%. This figure has come as a boost for the Labour party & Prime Minister Kier Starmer who aims to increase economic stability and growth in the UK. We must remember good news can be bad news (for markets) and although we take the positives from the current economic strength, estimates on the Bank of England (BoE) cutting rates has been pushed back due to the underlying strength of the economy.   

Earlier this week, Carlsberg agreed a deal to purchase Britvic, the soft drinks company, for £3.3bn after previous failed bids last month. Britvic will be more commonly known as the home to drinks such as Robinsons, J2O and Lipton Iced Tea. This deal allows Carlsberg to expand their presence in the non-alcoholic market and enhance their geographic footprint.

Dyson are known for their vacuum cleaners and hair dryers, but the plug has been pulled on 1,000 jobs in the UK as part of a cost cutting restructure. Although the headquarters were moved to Singapore in 2019 there are still three sites in the UK responsible for the designs and research and development (R&D). The cuts have been made as the company aims to be more agile. Dyson are still pushing their R&D spend, aiming to make waves in the robotics sector.

In the US, inflation figures for June were announced on Thursday leading to huge swings in markets. Headline inflation fell from 3.3% to 3%, beyond market expectations of 3.1%. Core inflation (excludes food and energy prices) dropped to 3.3%, beating market forecasts of 3.4%. The general trend of US inflation is falling following the slight rebound we experienced at the beginning of the year. Following the inflation data there was a huge reversal in market leadership, with the much written about “magnificent seven” stocks, which have been leading the market, dropping over 4% on average, while the US small cap index rose over 3.5%. Small cap stocks are seen as being more interest rate sensitive; the weaker inflation data led to an increased expectation of imminent rate cuts in the US, boosting the small cap index, along with other rate sensitive sectors such as utilities. Government bond yields, in the US and UK, fell on the inflation data.  

Data from China this morning showed their exports grew 8.6% year-on-year, leading to a record trade surplus. The import picture was much less positive, highlighting the weakness in domestic consumption, with imports down -2.3% year-on-year. China’s reliance on exports could lead to problems if a potential Trump-led US administration begin to impose further tariffs on their exports.

At a currency level the softer US inflation data led to the USD weakening against a wide range of currencies. The Pound is now at highs against the USD not seen since July 2023. The Japanese yen, which has been exceptionally weak in 2024, staged a mini recovery on Thursday afternoon, with rumours of intervention from the Bank of Japan.

Despite huge swings in markets on Thursday, it was pleasing to see that portfolios were largely immune from the volatility. This was driven by our diversified approach which is not overly focused on one sector, currency or country.

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 – 29th June – 5th July 2024

The fourth of July is a special day for the US every year, as they celebrate their independence. This year it was also a key date in the UK calendar with the UK General Election taking place. The Labour Party, led by Sir Kier Starmer, had long been touted as favourites to win, and this was confirmed by Friday morning, with Labour securing a landslide victory to claim an absolute majority with 412 seats.

It has been 14 years since Labour were last in power, under Gordon Brown, and their turnaround from a poor showing in the 2019 election has been profound. Many high-profile Tory MPs lost seats, including Liz Truss and Jacob Rees-Mogg. Labour has campaigned on change, and is focusing on providing economic stability, improving the NHS and creating “Great British Energy” with the aim of reducing bills and making Britain a clean energy superpower.

The reaction from UK markets has been largely positive to the news. The outcome was widely expected and much of Labour’s rhetoric has been seen as pro-growth and pro-business. Mid-cap, more domestically focused equities have had a strong week and this continued, rising over 1% on the election news. Interestingly government bond yields dropped this morning (prices rose), which highlights that Labour are not seen as a fiscally irresponsible party. Sterling nudged higher versus the USD, potentially on the prospect of political stability.

In France, the snap election that President Macron called for has not been so smooth as Le Pen’s National Rally (NR) party won the first round. This coming Sunday will be the final round of voting, and we have seen over 200 candidates drop out from the local polls to stop the NR achieving an outright majority.  The French are known to protest, and this time is no different, as thousands gathered in Paris calling for voters to block the rise of the far right. The uncertainty has rocked French markets as bond yields have risen and the equity market is down -3% over a month, although it has rebounded this week. The expectation now is that the NR will not be able to secure an outright majority and that helped soothe markets.

We have spoken about the Swiss National Bank (SNB) in recent weeks, noting that they have cut interest rates twice this year. There was a pleasant surprise, when on Thursday, June’s inflation (year-on-year) fell beyond market forecast to 1.3% and inflation (month-on-month) came in flat at 0%. The reaction to falling inflation has been positive and there are expectations that the SNB will look to continue the cutting cycle in September.

US equity markets are steadily continuing their climb as the main market closed at its 32nd record high of 2024. The tech-heavy NASDAQ has risen over 2% for the week with huge contributions from the Magnificent 7 stocks. Tesla reported better than expected car sales for Q2 24 and their share price has rallied over 25% for the week. Microsoft and Apple have raced back ahead of Nvidia in terms of market cap with extremely strong performance this week.

US Non-farm Payrolls are in and remain strong once again as 206,000 jobs were created in June, beating market expectations of 190,000. The previous month’s figure of 272,000 has been revised down to 218,000. Wages (year-on-year) have slightly eased to 3.9%, in line with market expectations. US Fed Chair Powell spoke earlier this week at a conference in Portugal, emphasising the need to see more data which will provide an accurate picture of the economy.

While the UK General Election has passed with little disruption to markets, both the French and US elections could create more volatility, with the outcomes less certain. As a result, it is prudent to ensure portfolios are well diversified and not overly concentrated by sector or country.

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 – June 2024

The Month In Markets - June 2024

June was an eventful month, with political events dominating headlines. This was alongside the news of Nvidia becoming the world’s largest listed company (even if just for a few days) and UK inflation falling to the target of 2%.

Following on from a poor showing in the EU elections, French President Macron called a surprise snap election, with the first round of voting taking place at the end of June. There was no need for Macron to send the French citizens to the voting booths, however, he felt it was the right thing to do after Le Pen’s National Rally (NR) party received more than double the votes compared to Macron’s Renaissance party. French markets were negatively impacted on the news of the elections, with both equities and bonds falling in price. The Euro also suffered on the election news, with GBP reaching a 22-month high against the Euro.

The first round of the election, which took place on the last day of the month, was won by Le Pen. The second vote will now see if Le Pen can secure an absolute majority. The polls suggest this is unlikely, although not impossible. The pain for French equities and the Euro meant European equity markets were the laggard in the month of June.

The build-up to the US election ramped up in June, with President Biden and Republican candidate Trump going head-to-head in a live debate. There was broad consensus that Trump came out on top, and the market quickly priced in a higher probability of Trump returning to the White House. Interestingly, equity markets responded favourably to the news. While there are concerns about Trump, he is seen as being pro-business and pro-consumer. When he last took power, he introduced sweeping tax cuts that are due to expire in 2025. He is seen as the most likely to extend these tax cuts. While there are negative implications for government debt levels, through lower tax receipts, it should help business profits and consumer expenditure.

It feels slightly strange to write, but the UK political backdrop appears relatively calm compared to many of our peers! With the election due to take place on 4th July, it is assumed that Labour will take power, with a majority, and this will lead to a level of relative stability for the country.

Staying with the UK, inflation data (for the month of May) was released, which showed that headline inflation had fallen to 2%, the Bank of England’s (BoE) official target. This was the lowest level of inflation since July 2021. While the BoE maintained interest rates, evidence that inflation is at target could encourage them to reduce interest rates in the coming months. UK wage growth is now running comfortably above inflation, which should help support the consumer and encourage spending. The one fly in the ointment regarding the labour market was that unemployment had risen to 4.3% and has been trending higher over recent months.

Over in the US, headline inflation came in at 3.3%, broadly in line with expectations. The US Fed’s preferred measure of inflation is the Personal Consumption Expenditure (PCE) index, which was flat month-on-month, the lowest reading since April 2020. The yearly figure of 2.6% was encouraging to see, and potentially opens the door to a rate cut in September for the US. While there was progress for the UK and US in their battle against inflation, Canada, Australia and the Eurozone saw mild rises in inflation, which will certainly keep central bankers on their toes. Japan saw inflation come in ahead of consensus at 2.1%. This country remains the outlier, as the central bank is trying to stoke inflation, as opposed to tame it. There is early evidence that inflation expectations are becoming more entrenched in Japan which should be a positive, and lead to a pickup in spending from consumers and businesses, who sit on large cash piles. The Bank of Japan (BoJ) have continued to take their time over raising interest rates in Japan, which has negatively impacted their currency. The yen, which looks extremely cheap on a range of metrics, continued to trend lower in June, reaching 38-year lows versus the USD. The currency also slid against GBP and is down over 10% for the first half of 2024. This has been painful for the Japanese holdings in portfolios (in GBP terms).

At a company level, Nvidia breached the $3 trillion market cap level and briefly surpassed Microsoft as the world’s largest listed company. The moves in the semiconductor company share price have been staggering, with the company adding $1 trillion of value in 32 trading days. Towards the end of the month the share price did sell-off, falling around 15% at one point, allowing Microsoft and Apple to rise above it, in terms of market cap. Apple, after a weak start to the year, saw its share price rally significantly in June on the back of an artificial intelligence (AI) announcement around “Apple Intelligence”. The big hope here is that the introduction of AI into new devices will trigger an upgrade cycle, with consumers replacing old iPhones and iMacs in order to access Apple Intelligence.

Technology excitement extended to the emerging markets over June, with companies such as Taiwan Semiconductor Manufacturing Company (TSMC) and Samsung seeing strong moves in share prices. These two companies helped buoy the Asia pacific ex Japan and emerging market indices.

There were two notable corporate bids during June in the UK, with the consortium of private equity bidders returning with a higher offer for Hargreaves Lansdown, as well as Carlsberg having a bid rejected for Britvic. Given the improving outlook for the UK economy, potential for political stability and cheap valuations we expect corporate activity to remain elevated throughout the year.

It was a mixed month in general, with the equity market being led higher by a narrow range of sectors. This made it difficult for genuinely diversified approaches, with concentration and high stock specific risk being rewarded. Our approach aims to reduce these risks, particularly at times when valuations and expectations are elevated. We will continue to tread a careful path through markets, maintaining diversification and taking a sensible approach to valuations, where we believe that the price you pay for an asset will have a big impact on long-term returns. While the geopolitical backdrop is challenging, economies are continuing to grow and company profits remain healthy. Yields on fixed income assets are now at attractive levels and there continues to be a range of opportunities for long-term investors.

 

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

The Week In Markets – 22nd June – 28th June 2024

This week has seen the men’s Euro 2024 group stages wrap up with England topping their group, despite some lacklustre performances to date. While the final group match on Tuesday was a dull affair, televised political debates in the UK and US have provided more entertainment for viewers.

There are rumours circulating this morning that the Democrat party are considering replacing Biden as their candidate following his performance last night. In the aftermath of the debate, the odds of Trump becoming the next US President spiked and that could potentially force the Democrats to act. The pair duelled over a wide range of topics, from immigration, foreign policy and even golf handicaps, with Trump dismissing Biden’s claim that he once had a golf handicap of 6! It was interesting to see that US equity futures jumped on Thursday evening on the back of a perceived victory for Trump. Here in the UK the market does not foresee such a close election race as the US, with Labour expected to win with a majority. Wednesday’s debate did little to change this expectation. 

Chinese fast fashion retailer, Shein, has kicked off the process for a listing on the London Stock Exchange, which would be a huge victory for the UK market that has seen multiple companies head to the US to list. Valued at $66bn, the deal would be one of the UK’s largest ever. However, there is still a long way to go with a human rights group urging the FCA to block Shein’s initial public offering (IPO) over concerns around labour standards.

Staying in the UK, electrical gadget retailer Currys, which rejected a takeover bid earlier in the year, posted positive results. The company has now forecast that artificial intelligence (AI) powered gadgets are set to further boost profits after reporting a 10% rise in profit before tax over 2023. Currys was the first retailer to launch the Microsoft Copilot PC, a computer with an in-built AI companion, whilst also using their own AI to improve after sales service. Currys CEO believes the company is “best placed to benefit” from the AI – wave of technology, as they also become Microsoft’s first retail repair partner in the UK.

There was less positive company news from two large firms this week with Nike and L’Oreal both providing disappointing updates. This could potentially be early evidence of a weakening global consumer, given a backdrop of high rates in the western world and a sluggish China. Bad news could be good news for markets however, with central banks likely to cut interest rates should they have concerns around the health of the consumer.

Inflation data from Canada, Australia and Japan came in ahead of expectations this week. This will no doubt alert all central banks to the possibility that the battle against inflation may not yet be over, and there is a risk inflation re-accelerates into the second half of the year. In the case of Japan, the Bank of Japan may need to raise interest rates to help stabilise the currency, which has continued to weaken versus a basket of currencies. It is currently trading at 38-year lows versus the USD. The Japanese yen looks cheap on a wide range of metrics, and we see the potential for the currency to mean revert over the medium term.

In a week light on key economic data, it was pleasing to see UK GDP for Q1 revised upwards to 0.7%. The UK economy appears to be grinding on, despite interest rates of 5.25%. US PCE inflation data, which is one of the US Fed’s favoured measures of inflation, came in at 0.1% (month-on-month). Bond yields dropped on the release on Friday afternoon as it supports the case for the US Fed to consider rate cuts.

As we look ahead to next week there should be a lot more to cover with the first round of French elections taking place in addition to the UK General Election.  Alongside these major events we will have key US employment data to dissect.

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.

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