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The Week In Markets – 6th April – 12th April 2024

On Monday there was a total solar eclipse passing over Mexico, the US and Canada. Millions of observers saw the moon temporarily steal the spotlight from the sun, and just like in markets there can be moments of darkness and uncertainty, however the sun will emerge once more.

US inflation was the standout data event this week as investors were eager to see if the recent pickup in inflation would continue. Headline inflation rose greater than the market forecast of 3.4% to 3.5% (year-on-year). Core inflation (excludes food and energy prices) remained at 3.8%. Shelter (rent) and energy have been the largest contributors to inflation and food inflation joined the party. For example, there was a 4.6% rise in the price of eggs. This is the third inflation data point of the year which shows no significant progress towards the 2% target and has led investors to question if and when US rate cuts will materialise. US government bond yields rose on the back of the higher inflation data with the yield on the 10-year US treasury bond breaching 4.5%. The pain in bond markets spilled over into other regions with UK bonds also selling off on the back of the US data.

Following the US inflation print, markets began to expect the Bank of England (BoE) to cut rates earlier and by more than the US Fed in 2024. BoE policymaker, Megan Greene, spoke this week and attempted to pour cold water on any hopes stating rate cuts remained “way off”. Inflation data in the UK will be released next week with the BoE keeping a close eye on strong services inflation, however investors are still optimistic that the UK will reach the 2% inflation target rate before the beginning of summer, which should facilitate an easing of monetary policy.

There has been positive news in the UK this Friday. For the month of February, GDP rose by 0.1% (month-on-month) in line with market expectations. The pleasing start to the year for growth almost certainly means the UK is no longer in a recession, following two quarters of negative growth at the end of 2023. UK equity markets embraced the positive news on growth; the UK large-cap index rose above 8,000, approaching all-time highs.

Gold has continued its strong performance this year and has reached a new all-time high above $2390 an ounce. Other commodities such as silver and copper have also experienced sharp rises of late. The commodity price strength has provided tailwinds to the mining sector, and we have seen strong share price performance from the sector, which lagged for much of 2023.

Inflation in China for the month of March rose by a mere 0.1% (year-on-year), coming in less than market expectations of 0.4% and cooling from the previous month’s 0.7%. Producer price deflation persisted at -2.8%, continuing an 18-month stretch of declines. The sustained weakness confirms investors worries on the effectiveness of the Bank of China’s monetary policy and the ability to raise demand.

The European Central Bank met this week and to no surprise kept interest rates firm at 4.5% for the fifth straight meeting. Despite the uncertainty of the US Federal Reserve’s next move, markets are pricing in a 25-bps cut in June. By June, the central bank will also have data points on Q1 wage growth, a key area of concern for any potential inflation spike.  

In conclusion, markets have been reactive to data points, geopolitical tensions and the beginning of earning reports. Our key investment principles remain on diversification within portfolios and long-term investing in order to navigate dynamic markets and take advantage of the opportunities ahead. Our diversified approach meant we have been able to participate in the recent equity rotation into areas such as resources and financials while our dedicated physical gold holding has also performed well.

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 – March 2024

The Month In Markets - March 2024

March was a strong month for a range of assets and brought to a close a pleasing first quarter. The positive momentum, particularly in equity markets, came off the back of elevated returns in the final two months of 2023.

There was somewhat of a reversal in equity leadership this month, with recent laggard, the UK, appearing as the top equity market during the month. UK corporate and government bonds outperformed their global peers as well, marking a strong month for UK assets.

The UK Spring Budget was in the spotlight at the start of the month, however, it was a fairly bland budget truth be told, although the lack of surprise was well received by markets, particularly the bond market, which is still carrying the scars of the now infamous mini budget in September 2022. Perhaps more powerful for UK assets was a combination of falling inflation and strong corporate activity.

Headline UK inflation fell more than expected to 3.4% and more importantly the outlook for the coming months is that inflation will be at, or even below, the 2% target. After being an outlier to the upside for much of 2023, the UK could in fact have sustained lower inflation than our developed market peers as we look forward to the remainder of this year (and into 2025). With inflation falling to target, the Bank of England (BoE) should soon be able to ease monetary policy which should support all UK assets. Economic data during the month showed that the UK economy is now likely already out of a technical recession. Labour markets are still strong, with the average worker now benefitting from a real pay rise, with wages growing faster than inflation, but importantly not at unsustainable levels which could cause inflation to spike once more. It’s been extremely unfashionable to be positive on the UK, however, we can make a very plausible argument for UK equities and bonds at this point in the cycle.  

Mergers and acquisitions (M&A) activity in the UK market carried on at pace during March, with five listed companies bid for. The largest bid by size was Nationwide’s £2.9bn offer for Virgin Money. Over recent months we have seen a wide range of buyers for UK assets, including foreign and domestic private equity, as well as foreign and domestic corporates. The heightened activity, with bid premiums ranging from 12% – 61% in March helped boost UK equity indices. During the month ITV sold its 50% stake in Britbox to BBC studios for £255m cash and said they would return the proceeds through a share buyback plan. We are witnessing a considerable amount of share buybacks from UK listed companies. With depressed equity valuations, buyback programs can create significant long-term value for shareholders.

Stepping aside from the UK, global equity markets continued to advance. There were signs of leadership change; for many months it has been the “magnificent seven” mega cap names in the US pushing markets higher, but we are now seeing increased breadth in equity markets and some of the unloved areas beginning to advance. We see this as a healthy trend and one that favours our diversified approach.

Japanese equities had another impressive month, building on very strong performance in January and February. There is considerable momentum in the market, with allocators increasing weightings to the region. The Japanese Yen has weakened significantly over recent months and that has helped support the earnings of the large overseas exporters within the index. During March there was a landmark change in monetary policy with the Bank of Japan (BoJ) increasing interest rates for the first time in 17 years, taking interest rates out of negative territory. There is growing confidence that the Japanese economy is on a stronger footing and that the deflationary risks the country has faced are receding. The initial interest rate rise is likely to be followed by further interest rate hikes later in the year, although the BoJ will proceed with caution.

While the BoJ were raising rates we witnessed the first major central bank cut rates, with the Swiss National Bank surprising markets and reducing their headline interest rate by 0.25%. So far Europe, the US and UK have continued to hold rates steady, although we could see the first cuts occur over the summer months if inflationary pressures subside.

Gold hit new all-time highs during March with the spot price rising above $2,200 an ounce. It appears that many central banks are increasing their allocations to physical gold, potentially at the expense of US government bonds. There has also been a big pick-up in demand for gold from China. With the Chinese real estate market facing significant headwinds, many Chinese investors are moving away from this asset class and storing their wealth in gold.

Gold wasn’t the only commodity rising in March, with the oil price ticking up over the month. This helped support the oil sector, boosting share prices. Sustained rises in commodities such as oil could cause problems for the inflation doves; the huge spike in oil in 2022 was one of the big drivers of inflation.

Overall, a strong month and a strong quarter for capital markets and our investment portfolios. It was pleasing to see a broadening out of equity market performance from simply large-cap technology focused companies to other parts of the market, such as resources and financials. Our diversified, valuation sensitive approach ensured we held exposure to some of these unloved areas that rebounded. Gold is an asset we hold across all portfolios and was a big contributor during the month. We continue to see good long-term value in large parts of the equity market and are also finding compelling ideas in the fixed income market, with positive real yields now available. The strong run over the last five months has rewarded investors handsomely and provided returns significantly above those available on cash.

 

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. 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 – 2nd April – 5th April 2024

We kicked Q2 off with the third bank holiday of the year, Easter Monday. Historians will tell you once upon a time until 1834, the UK had a total of 33 bank holidays but there will only be five more this year.

A “feeding frenzy” has begun in the UK but it’s not because of the Easter eggs consumed over the last weekend but rather due to the pickup in M&A activity of London-listed companies. Buyers are taking advantage of the low valuations within the FTSE 350 & FTSE Small Cap arena as twelve companies have already been bid for in Q1, a much higher level than 12 months earlier. Jeremy Hunt has been reported to have met with large firms in a bid to persuade them to list in London and re-establish the UK as a financial powerhouse. The initial sugar rush of bid premiums can be a good short-term boost for markets, however, over the longer term the UK could suffer if high quality businesses continue to be taken over by foreign investors.

Inflation in Germany has continued to ease as figures showed it dropped to 2.2% over March (year-on-year). This is a fall from 2.5% in February, in line with market expectation. Germany is edging closer to the 2% target and with a stagnant economy the hope will be that the European Central Bank (ECB) go ahead with rate cuts in June which could help kickstart the largest economy in Europe. Core Eurozone inflation for March fell more than expected to 2.9% (year-on-year), while headline inflation was expected to remain at 2.6% but surprisingly fell to 2.4% with food and energy costs falling. The inflation data does put forward a credible case for the ECB to imminently begin cutting interest rates, however, they may be reluctant to break rank early and may aim to hold on until the US Fed begins to cut rates. Economic data out of the Eurozone however may force their hand. Eurozone unemployment has held firm at 6.5%, a relatively low level of unemployment compared to history.

Last week we reported that the Swiss were the first major central bank to cut rates and this week inflation within the country has continued to ease. Headline inflation for March fell to 1% (year-on-year) when it was expected to be reported at 1.3%. This is the lowest level consumer prices have risen since September 2021, causing the Swiss Franc to weaken on the news. Investors are forecasting another two cuts in June and September.

US Non-Farm Payroll Data this Friday afternoon has raised eyebrows as a staggering 303,000 jobs were created in the month of March. We have not seen this figure of jobs created since May 2023 and it completely beat the market forecast of 200,000, highlighting the continued tightness in the labour market. February’s strong jobs number has been revised down slightly, so it will be interesting to see if this number is also revised down. Government bond yields rose (prices fell) on the back of the strong data as expectations for interest rate cuts were pushed out further on the back of the strong labour market.

One of the magnificent seven, Tesla, has continued their struggles this year. This week they reported a sharp fall in global sales, down almost 10% in comparison to Q1 last year. Tesla citied issues including disruption to shipping via the Red Sea region and an arson attack at their factory in Berlin. Tesla CEO Mr Elon Musk is always in the headlines with investors constantly questioning his stretched focus on the business. Just this week he called for the current Disney CEO Bob Iger to be sacked and endorsed former hedge fund manager, Nelson Peltz, to replace him following Mr Iger’s decision to halt all advertising spending on social platform X.

The start to the quarter has proved to be bumpy, much like the opening week of January. We have seen volatility pick up, driven by escalating tensions in the Middle East. For much of this year investors have not paid too much attention to the potential risks spilling out of the Middle East, however, that came firmly back on the agenda this week. Brent Crude oil rose above $90 a barrel as concerns around supply re-surfaced. Gold, which many see as a geo-political hedge, continued its recent strong performance and rose above $2,300 an ounce this week, making new-all-time highs. US inflation figures will be announced next week and signs of falling inflation could act as a catalyst for equities to regain their upward trajectory.

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 Next Level Up

Our latest Investment Strategy Quarterly provides informed insights on what the US economy looks like post-pandemic, the improving UK economy, the changing prices of crops, and asks ‘Is the average stock still worth owning?’. Read all this and more in Investment Strategy Quarterly: The Next Level Up.

The Week In Markets – 23rd March – 28th March 2024

Last year in the US Easter chocolate sales reached $5.4bn and early expectations are that sales will reach this figure once more, however this will be achieved by the increase in prices rather than volumes sold. Confectionery brands have had to hike prices due to a “cocoa crunch” as the price of cocoa has tripled over the past 12 months due to difficult weather conditions and disease affecting supply in West Africa.

UK retail sales for February (month-on-month) held flat despite negative market expectations of -0.2% following strong January figures. We have had one of the wettest winters this year affecting footfall in stores, however this was offset by an increase in the volume of online sales, the largest rise since July 2023. With UK CPI continuing to fall and the highly anticipated interest rate cuts expected to begin this summer, there is the expectation that retail activity will continue to rebound as pressures on the consumer begin to ease.

Bank of England (BoE) policy committee member, Catherine Mann, was one of two committee members who changed their view on increasing interest rates to keeping them steady. She warned that markets are expecting too many interest rate cuts this year and expects that the BoE will not cut rates before the US Federal Reserve or European Central Bank. High street banks have already begun to offer households and businesses cheaper loans ahead of interest rate cuts, which Ms Mann believes may be premature. Her change in stance to hold rates came after positive signs of a slowing jobs market with more companies reluctant to hire, a theme that may combat wage inflation.

In the US, the CEO of aircraft company Boeing has announced he will step down at the end of this year. Dave Calhoun’s company has been under severe pressure to reassure US regulators, airlines and passengers that their aircrafts were fit for purpose following the recent cabin panel blowout incident. The confirmation of key overhauls in management sent the stock up marginally this week, however the company’s share price has struggled since the blowout event, down 25% for the year and a long way off the highs set before Covid-19.

This Wednesday in Japan an emergency meeting between key policymakers was held to discuss the weak Yen as it hit a 34-year low against the US Dollar. Despite the Bank of Japan making the historic shift away from negative interest rates last week, the Yen has continued to fall against the US dollar. Japan Finance Minister, Shunichi Suzuki, said that policymakers would take “decisive steps” against the yen weakness, the last time he used such language was in 2022 when Japan intervened to buy the currency.

Today is the last working day in Q1 and brings to a close a strong quarter for equities, with it being the best start to a year for US equities since 2019. As we look out into Q2 there are reasons to be positive, with the possibility of falling inflation and interest rate cuts helping push equities and bonds higher. We have marginally increased interest rate sensitivity in portfolios, while also maintaining our small and mid-cap equity exposure, which could be big beneficiaries of falling interest rate expectations, something we witnessed at the end of 2023.   

We would like to wish everyone a fantastic long weekend. For those wondering it is estimated the UK will spend £415 million on Easter chocolate this year!  

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 – 16th March – 22nd March 2024

Vladimir Putin cemented his position as leader of Russia, winning a record 87% of the vote, securing a fifth term in office. The longest serving Russian ruler since Stalin, Putin spoke before reporters thanking the public for their “overwhelming support” and outlined his goals for the next six years. The result was not a surprise to many!

We have been barraged with many data points this week. Starting with the UK, inflation for February was reported on Wednesday. Headline inflation (year-on-year) fell from 4% the previous month to 3.4%. Core inflation (excludes food and energy prices) also fell from the previous month and beyond market expectations to 4.5%. The UK continues to creep towards the 2% target with the fall in CPI consistent across many sectors. Food inflation has continued its sharp drop from a peak of 19.1% in March 2023 to 5% this February. Investors have staked bets for inflation to reach target before the summer, a task the UK may achieve before the US.

The Bank of England (BoE) met on Thursday and by lunchtime had announced a fifth consecutive pause in interest rates at 5.25%.  If we think back to the start of the year, this March meeting was circled on calendars as the day base rates would be cut. Fast forward to today and the vote for rates to remain at current levels by policymakers was almost unanimous. Dr Swati Dhingra, was the stand-alone member who voted for a 25-bps rate cut as the eight other members voiced concerns that inflation is on the right path but are wary of prices spiking again, particularly in the services sector. The notable shift in voting came from two members who had previously voted to increase rates, they now have changed tact and become more dovish, voting for a pause instead of hike. The market took this as a positive sign that rates will soon be cut, and UK equities and bonds rallied on Thursday; the UK large cap index climbing nearly 2%.

The US Federal Reserve board held their March meeting the day before the UK as they concluded to hold rates at 5.5%. Many data points in the US would have been vigorously analysed before the meeting and a conclusion of stickier than expected inflation with continued labour market strength has made the path for rate cuts more complicated. Fed Chair Powell stated that there is “sometimes a bumpy road towards 2%” for inflation and indicated that they still expect to cut rates by 75bps this year. This commentary sent US equity markets to record highs, with investors reacting positively to the news that three rate cuts in 2024 were still likely.

Japan’s central bank made a historic switch as they ended eight years of negative interest rates, raising the base rate to 0%. The change in the Bank of Japan’s (BoJ) approach signals that Japan is slowly emerging from a deflationary environment, however Governor Ueda, did not want to elaborate on the pace or timing of further rate hikes. Japan stocks responded positively as the Nikkei 225 rose 2.3% on the day closing at new record highs.  

Other central banks have met this week and there were a couple of meetings that left investor eyebrows raised. In Switzerland, the Swiss National Bank cut their base rate by 25bps to 1.5%, a surprising move making them the first major central bank to begin to ease monetary policy. On the other hand, Turkey’s central bank raised interest rates to 50% on Thursday eager to tackle inflation that continues to soar towards 70%.

Apple has had an interesting week. Rumours of a deal to build Google’s (Alphabet) Gemini artificial intelligence (AI) engine into the iPhone sent both stocks up beyond 2.5% on Monday. A partnership of both Apple and Google would be significant to rival Microsoft in the AI race as Google would expand its AI service to more than 2 billion active Apple devices. By the end of the week, Apple were fighting a federal case after the US accused the tech giant of creating “barriers” to protect their monopoly. One example citied was that Apple made it difficult to connect iPhones to rival smart watches, promoting the need for Apple watches. As they appeal the case, Apple shares fell 4% on the news adding to the tough year to date performance.

It has been a busy week in markets and pleasingly a positive week for equities and bonds. The general takeaway from central bank meetings is that interest rate cuts are still likely to occur in the short-term, despite sticky inflation data in 2024. Other parts of the portfolio have also performed well this week. Our focus on diversification leads us to hold assets such as gold in portfolios, alongside equities and bonds. Gold hit an all-time high this week of $2,222, helping benefit portfolios, while also aiding with risk management.

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 – February 2024

The Month In Markets - February 2024

February was a strong month for equity investors, led by last month’s laggard in Asia ex Japan equities. Fixed income assets remained under pressure and did not participate in the equity rally.

Over recent months we have written about weakness in the Chinese equity market, which has dragged down Asian and emerging market indices. There was a strong rebound this month as Chinese equities rallied around 10% in sterling terms. Given China is the largest weight in most Asian and emerging markets it helped propel these indices higher. It appears the market is starting to believe that Chinese policymakers are determined to end the equity market rout, while there are early signs of improving economic and earnings data. Only time will tell if the rally will be sustained, but foreign flows back into China have ticked up.

The continued story driving the US equity market centered around artificial intelligence (AI), with Nvidia continuing its exceptional share price rally. The company released quarterly results mid-way through the month, and it once again beat revenue and earnings expectations, leading to strong gains. The shares rose 16% on the news, adding an astonishing $272bn (£219bn) in market cap in a single day. To put this into perspective the largest UK-listed company is AstraZeneca, which has a market cap of around £165bn. The staggering moves have led to Nvidia’s market cap breaching $2 trillion. At an index level, the US market has appeared very strong both in February and for the last 12 months or so. However, that performance has largely come from a handful of stocks, labelled the “Magnificent Seven”. Many other parts of the US market have actually struggled over the short-term and have been overlooked, with investors instead focusing on the alluring narrative surrounding AI. This can create opportunities, with unloved stocks, which have strong fundamentals, offering good long-term potential. As investors who focus on both valuation and diversification, we are naturally drawn to these parts of the market, while also allocating to the mega-cap names through passive vehicles and a technology focused fund.

UK equities were a laggard during the month. There was the headline grabbing news that the UK fell into recession in the second half of 2023. However, the latest economic data indicates that the economy will quickly exit recession and it will have been an extremely mild contraction. While the word “recession” can spook investors, history has shown that UK equities typically perform very strongly over the following 12 months after the start of a technical recession. While this may sound counterintuitive it is worth remembering stock markets are forward looking discounting mechanisms, considering the future environment for companies as opposed to the immediate state of play in economies.

Fixed-income markets remained under pressure during February. The main reason for this was the shifting expectations around when the first-rate cuts will begin. Heading into 2024 the market expected US, UK and European rate cuts to kick off in the month of March. However, a raft of positive economic data and sticky inflation has led to those expectations being kicked down the road, to late Q2 for the first-rate cuts. This led to modest rises in bond yields, negatively impacting prices.  

Outside of markets there were developments in the US where it now appears likely that it will once again be Biden vs Trump in the race to the White House. It looks like a very close race, however with over six months to go there is the potential for change. There are key elections in many countries this year, including the UK.

At a portfolio level, there were small changes made within the fixed income exposure, reducing exposure to US government bonds in favour of exposure to UK and global bonds. While the UK has been perceived to be an outlier in terms of inflation relative to its developed peers, there is every possibility that UK inflation will soon be below US inflation and potentially at, or below, the 2% target in Q2. This could provide support for both UK equities and bonds and as such a modest increase in exposure felt prudent. We do continue to be mindful about our overall interest rate sensitivity and many of the government and corporate bonds we hold are focused on short-dated holdings, which tend to exhibit less interest rate sensitivity and less volatility. It has been a strategy that has served us well since 2022 and we continue to favour the front end of the curve, while selectively adding longer-dated bonds to provide some portfolio hedging.

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. 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 – 9th March -15th March 2024

There are many planned elections across the globe this year, but a change of political leadership in Haiti was not planned. However, Prime Minister Ariel Henry has announced his resignation. Mr Henry has led the country on an interim basis since July 2021 but over recent weeks pressure from heavily armed gangs, who have demanded his resignation, has grown. A “transition council” is set to be put in place to replace Mr Henry and restore order in the capital, Port-au-Prince.

 Looking up the North Atlantic Ocean to the US, inflation figures for February were announced this week. Headline inflation (year-on-year) ticked up to 3.2%, coming in greater than market expectations of 3.1%. Core inflation (excludes food and energy prices) fell from the previous month to 3.8% but still came in higher than expected. Inflation is certainly sticky in the US as higher costs in oil and shelter (rent) contribute to the rise in inflation. The inflation data is likely to deter the US Fed from any imminent rate cuts and the market moved their expectation of a first rate cut towards the summer. In response to a “higher-for-longer” narrative US and global bonds sold off.

Retail sales in the US fell over the month of February to 0.6%, rebounding less than the expected 0.8%. With inflation appearing to remain sticky, there are signs of slowing consumer spending over this first quarter of the year. Sales at petrol stations rose 0.9% reflecting a higher price at the pump, however online sales, personal care and health sales all fell. The number of Americans applying for new unemployed benefits also fell as weekly jobless claims came in at 209k from the previous 210k. Revisions of data points are certainly happening at a greater occurrence, as a revision to the previous weekly jobless claims showed laid off workers are finding work quicker and not spending a significant time on benefits.

In the UK, GDP data for January (month-on-month) was positive at 0.2%, boosting the hope that the UK recession is already over. Data from the Office for National Statistics (ONS) showed that a 3.4% jump in retail spending was the main contributor to growth. There was also a pickup in housebuilding to start the year as construction output saw a 1.1% jump. The UK will remain in a technical recession until GDP figures for Q1 24 are released, however the positive start to the year in terms of economic growth is certainly welcomed.

Japanese car manufacturer Toyota Motors has enjoyed huge success recently and this week agreed to give factory workers their biggest pay rise in 25 years. Toyota are not the only company doing this as Panasonic, Nippon Steel and Nissan also agreed to meet union demands of meaningful monthly pay increases. Japan Prime Minister, Kishida, who made a point to end weak wage growth in the hopes of boosting consumer spending, will be pleased union talks were positive. It is key that the wage growth momentum trickles down from large firms to the small and mid-sized firms in order to help boost spending in the domestic economy.

The Bank of Japan (BoJ) are also watching the wage growth cycle closely as they meet at the beginning of next week to discuss the potential end of negative interest rates that have been in place over the last nine years.

The impact of sticky US inflation led to a small pull back in both bond and equity markets. Commodity prices have ticked up on the back of a stronger economy, with crude oil rising above $80 a barrel this week and both the copper and silver price performing well. In general equities exposed to energy and mining performed poorly in 2023, however, they appear well placed to benefit from any signs of persistent inflation and have been the bright spot this week. Our resource exposure in portfolios is based on long-term views of scarcity of supply, with improving structural demand, however, the asset class also provides us with an inflation hedge and helps offset some of our growth focused equity positions, such as technology.  

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 – 2nd March – 8th March 2024

The focus in the UK this week was on the March Budget, which was dubbed the “The Budget for Long Term Growth”. After much heckling and jeering the Chancellor announced his plans to boost the economy, while attempting to close the gaps in the polls with the Labour Party. We saw the arrival of a new British ISA, a measure introduced to encourage more people to invest in UK equities. This measure has been in the pipeline for some months, although it has faced push back from various groups. Jeremy Hunt’s decision to push ahead with the British ISA is hoped to help “grow our economy, reward investors and support British businesses”.

There were other major announcements, such as National insurance (NI) being cut by an additional 2%, the earnings threshold for child benefit increased to £60,000, the windfall tax on oil and gas companies extended to 2029 and the higher rate of capital gains tax on residential property reduced from 28% to 24%. Overall, there were no major surprises in the Budget, and markets seemed fairly pleased with the outcome, with both UK equities and UK government bonds rallying on Wednesday.

This week we saw our latest example of mergers and acquisitions (M&A) in the UK as Nationwide agreed to purchase Virgin Money in a £2.9 billion deal. Just last month Barclays bank purchased the banking operations of supermarket Tesco for £600m. Many banks currently trade on low valuations, despite increasing profits recently and having strong balance sheets, as such the trend for M&A could continue going forward. The same is true for the whole UK market, where there has been a recent pick up in M&A activity, largely driven by foreign buyers picking off cheap UK assets. While this provides a short-term boost for investors, over the long-term it could damage the UK market as companies are picked off.  

The European Central Bank (ECB) met for their second meeting of the year on Thursday and as expected they held the base rate firm at 4.5%. Investor expectations for the first-rate cut has now been pushed back to June as ECB President, Christine Lagarde, mentioned cuts were not discussed this meeting but the “dialling back of our restrictive stance” will begin in following meetings. Incoming data releases will be pivotal towards the rate decision as inflation falls towards the 2% target, while the ECB will also evaluate Q1 wage data before making their move. We have previously written that it is likely the ECB will not cut before the US Fed make their first move, for fear of devaluing their currency, however, the data may force the ECB’s hand to act sooner rather than later.

US Non-farm payroll data was announced this afternoon with 275,000 jobs being added to the economy in February despite the market expectation of 200,000 jobs. This shows the continued resilience in the labour market, highlighting the strength of the US economy. The US Fed will consider all data points before deciding to cut interest rates later this year.

Apple have had a tough start to the year. They have just been hit with a €1.8bn EU antitrust fine and now they face another dilemma as iPhone sales in China have fallen 24% (year-on-year) over the first six weeks of 2024. China contributes just under a fifth of total sales for Apple. Huawei are China’s leading tech giants in smartphones, and they have seen sales rise by 64% over the same period. Apple are one of the “Magnificent Seven” stocks that contributed to the extraordinary US market performance in 2023, however it appears that their bubble may have burst.

Super Tuesday is a term commonly known in the US as the beginning of the race for the White House during an election year. Voters in 15 states chose their candidate to run for Presidency and the expected winners were no surprise as Joe Biden and Donald Trump emerged as front runners. Republican Nikki Haley did her best but came short in convincing the party that it was time to dump Trump.

It was a largely positive week for equity and bond markets. After a stellar end to 2023, UK assets had started the year on the back foot but have begun to erase earlier falls. One asset class that has regained its shine has been gold, which is approaching all-time highs once again.

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.

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