This week has been filled with news across all regions, the most recent news being that this morning Andy Triggs, our Head of Investment, received his first born. A huge congratulations to him and his family.
The UK Inflation rate report (year on year) for July was released on Wednesday at 10.1%, beating the forecast of 9.8% and leaping from 9.4% in June. This is the first time it has hit double digits in over 40 years, mainly fuelled by a 12.7% increase in food prices and contributing to record falling UK consumer confidence over the last 20 years. This data comes in straight off the back of labour market data showing real levels of wages falling rapidly and magnifies the difficulties households are facing, even before the expected sharp energy bills rise in October.
Following this data, we can expect strikes to continue towards the end of the year as London’s transport network grinds to a halt again this weekend. Train workers and now bus workers are continuing to hold strikes in a dispute over pay and working conditions. The strikes are seeping into other job sectors as Postal workers are now arranging a series of strikes, presenting further problems for the Government as they worry big wage increases may further fuel inflation.
Moving into Europe, Germany’s industrial sectors are facing a potential standstill as manufacturers of car parts, chemicals and steel struggle to absorb the energy price increases. Power and gas prices have more than doubled since the Nord Stream 1 pipeline resumed at 30% capacity in July. Electricity prices have now soared past 540 Euros per megawatt hour. Only two years ago it was under 40 Euros.
Factories in China’s southwest have completely shut down after reservoirs used to generate hydropower ran low & power demand for air conditioning surged due to scorching temperatures. Companies in the Sichuan province have been ordered by President Xi Jinping to ration power for up to 5 working days. This adds to the setback of Chinas economic recovery following their strict approach to Covid outbreaks earlier this year. The economy grew just 2.5% over a year in the first half of 2022, which is less than half the annual target of 5.5%. This makes the outlook for a potential third five-year term as leader less promising for President Xi Jinping.
News in the US Markets has been more promising as markets have rallied since the turn of August. The S&P 500 hit its 4200 marker for the first time in over 4 months & the Nasdaq has risen in excess of 20% from its 16th June low and is now back in an industry defined ‘bull market’. These moves were fuelled by comments made by the US Fed indicating they could adjust the pace of quantitative tightening based on market conditions.
The weather this week can often reflect markets, with hot and humid temperatures but with occasional days of heavy rain and thunderstorms. We believe that in these times, diversification of asset classes is key to helping support and insulate portfolios.
Nathan Amaning, Investment Analyst
Risk warning: With investing, your capital is at risk. The value of investments and the income from them can go down as well as up and you may not recover the amount of your initial investment. Certain investments carry a higher degree of risk than others and are, therefore, unsuitable for some investors.