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.