At the start of the week the festival Sechseläuten was the main attraction in Switzerland. Traditionally at this event at 6pm on the dot the church bells ring and a snowman named “The Boogg” is lit. Legend has it that the faster the snowman burns (generally within twelve minutes), the better the summer will be! Sadly, it was not possible to burn the Boogg this year due to heavy winds – an ominous sign for the summer!
In the UK, March’s inflation print was announced on Wednesday. Headline inflation fell from 3.4% to 3.2% (year-on-year), however the drop was not as significant as market forecasts of 3.1%. Similarly with core inflation (excludes food and energy prices), market expectations of 4.1% was just below the 4.2% figure. Services inflation is being closely watched by the Bank of England (BoE) and this eased slightly from 6.1% to 6%. An increase in the price of fuel also contributed to headline inflation as the ever-growing geopolitical tensions and potential supply disruption have raised oil prices. Inflation is still expected to fall this quarter in the UK with the new energy price cap kicking in from 1st April, however, the market is becoming concerned about reflation on a global scale.
UK wage data was released the day before the inflation print as average earnings (incl. bonus) stayed firm at 5.6%, above market forecasts of a fall to 5.5%. Average earnings (excl. bonus) saw a slight fall to 6% over the last 3 months from 6.1%. While wage data was strong, the unemployment rate rose more than expected, providing mixed messages on the labour market strength. The ONS confirmed that the rate of inactivity in the UK jobs market rose to 22.2%, the highest figure since 2015. Data point sensitivity is high at the moment and the slightly higher than expected inflation led to government bonds selling off and rate cut expectations were moved out further.
Another UK FTSE 250 firm, Hipgnosis, has just agreed to a £1.1bn takeover by music rival Concord Chorus. The music royalties firm own the rights to songs by some of the biggest artists in the world like Beyonce, Ed Sheeran and Justin Bieber. Concord’s deal offers Hipgnosis shareholders a 32% premium and makes the troubled firms future more certain. In a blow to the UK there are plans to delist the firm from the UK stock market.
In the US, strong retail sales provided further evidence of a growing US economy and impressive consumer strength. For the month of March, retail sales were up 0.7% outpacing the 0.3% market forecast, while February’s figure of 0.6% was revised up to 0.9%. Despite sticky inflation figures and elevated interest rates consumer spending remains solid, especially in areas such as food services and garden equipment stores. There were areas of weakness such as a fall in furniture stores, most likely combatting the rise in mortgage rates which has led to lower housing transactions. At the start of the year the market was expecting six rate cuts from the US Fed, however, after further strong data this week the market is now expecting only 1-2 cuts. So far this has negatively impacted bond markets, however, equities have remained resilient this year.
Peloton, the fitness equipment and media company, has been in the news this week, as it has dropped its free membership offer, as it failed to bring in additional paying customers and actually cannibalised some of its existing paying users, who downgraded their service. Peloton was one of the darling stocks during COVID as investors bet on a shift to more exercising from home. Such was the excitement and high expectation that Peloton’s valuation approached $50bn and it’s share price traded above $150 a share. Today, although people are exercising more at home, the lofty expectations for Peloton have simply not been met and the company’s market cap is now a little over $1bn, with the shares falling from $150 to $3. The lesson is not to overpay for shares with extremely high expectations, as any disappointment to these expectations can be crippling to share prices.
The looming tensions between Israel and Iran have lurked over markets this week, with rumours of further escalation on Thursday night leading to weakness in equities. Risk assets sold off, while areas such as US government bonds, gold and oil all rallied this morning.
Nathan Amaning, Investment Analyst
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