Today marks a year since Russia invaded Ukraine. From a financial market standpoint, it has been a difficult twelve months with equities and bonds impacted. Putin seems determined to continue his invasion and even had the US holding their breath this week as he announced Russia would be halting their participation in “New Start”, a nuclear arms treaty. During a state address, Putin looked to support the Russian economy, promising tax breaks for businesses and government support for fighters returning from the war in Ukraine, a further prop-up for the economy that held up considerably well last year, despite the numerous western sanctions.
This week the Chancellor of the Exchequer was handed a timely boost with the UK running an unexpected budget surplus in January. With the budget set to be delivered on the 14th of March, the surplus of £5.42bn ideally gives Mr Hunt some wiggle room to potentially fund short term tax cuts or raise spending. However, he has set a stern tone this week stating that there is no possibility of greater pay for nurses and public sector workers despite the ongoing strikes.
New Rolls Royce CEO, Mr Tufan Erginbilgic’s term has got off to a flying start with the company beating profit forecasts. They are hoping for more consistent performance this year as underperformance in previous years was heavily influenced by the pandemic; grounded aircraft led to a significant collapse in revenue. They have estimated that this year they will return to 80% – 90% of pre-pandemic engine demand.
German inflation has shown little signs of easing as high food and energy prices persist. The year-on-year figure for January was 8.7%, coming in higher than December ‘22. Germany have certainly felt the brunt of the Russia/Ukraine war as households saw a 23.1% energy rise on the year despite significant government relief measures. The high inflation in Europe’s largest economy may influence the European Central Bank’s interest rate setting policy.
Strong early US market performance has begun to unwind as investors mull the US Fed’s next move. Bonds and equities have once again been positively correlated in recent weeks, with equities falling as bond yields rise (prices fall). A series of strong economic data readings have led investors to price in higher interest rates and a delay in a potential ‘Fed pivot’. The S&P 500 is down -2.49% on the week with its greatest fall in 2023 coming on Tuesday at -2% but is still 4.13% up year to date.
We have seen another historic data release this week as Japan inflation hit a 41 year high in January, core inflation rising 4.2% year on year. The Bank of Japan will soon have a new man in the hot seat, Mr Kazuo Ueda, and he faces a decision on whether to abandon the current ultra-low interest rate policy. He spoke this week stating the recent acceleration in inflation was driven by rising raw import costs rather than strong demand. Japan’s economy narrowly avoided a technical recession in Q4 of last year but certainly rebounded less than expected as business investment slumped.
As ever we will continue to do the hard work and consider a wide range of asset classes to reduce portfolio volatility and capture investment opportunities. Diversification in asset class, style and management is key in order to navigate the markets. By not losing in the short term, you can win in the long run.
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.