This morning saw the Chancellor of the Exchequer, Mr Hunt, face the media as he reflected on his first three months in the role. He set out his priorities of economic growth in the UK under the following four E’s: enterprise, education, employment and everywhere. Ambitious is certainly a word to describe his plans as he believes his strategies will help “turn the UK into the world’s next Silicon Valley”.
Staying in the UK, job strikes and walkouts became more and more common over 2022 and this has continued into the new year. We are expecting to see buses and trains strike twice just next week. The owner of Royal Mail has concluded that the recent wave of strikes at the firm has cost them £200m. Their negotiations with the communications workers union over pay and conditions has led to 18 days of walkouts over the last six months. Job cuts could be coming at the company in the magnitude of 5000-6000 as the firm looks to revamp the business. Delivering letters is no longer very profitable and the company plans to switch to greater parcel deliveries – a growing market since the increase in online shopping.
US Q4 GDP data was released on Thursday and showed the world’s largest economy grew at an annualised rate of 2.9%, which was slightly better than expected. Investors believe Q4 could be the last quarter of solid growth before we feel the lagged effects of the federal reserve’s monetary policy tightening. Retail sales have weakened over the last two months, and while the labour market remains strong, we continue to see a trend in layoffs in the largest sectors. IBM was the latest technology company to announce job cuts, with 3,900 layoffs being announced on Wednesday.
The bright spot of lower energy costs in Europe has been coupled with good news from the re-opening of China. The reversal of the country’s heavy Covid-19 restrictions has seen more movement from residents as railway commuters begin to head back to work and passenger flights quickly uptick. Indicators show activity has not recovered to pre-pandemic levels, but signs are pointing towards steady recovery in consumption and economic activity.
Unfortunately, the Ukraine/ Russia war is still prevalent as the 1-year anniversary gets closer and closer. Zelensky’s government this week has seen major reshuffling as 11 officials have resigned or been sacked. This has been as a result of Kyiv tackling corruption as Ukraine has received billions of aid and finance, but it seems officials have dipped their hands into the aid in order to fund their own lifestyles. The timing of this news will not be ideal for Zelensky as this week it was announced both the US and Germany would be sending further aid and armoured tanks in order for Ukraine to counter Russia’s planned spring attack.
We are happy to see that our strong start to 2023 has continued this week. Unlike 2022, the US market has been leading the way this week, with the S&P 500 rising over 3% and the more technology focused NASDAQ delivering 5.7% so far. The advances in markets this year is very pleasing, but we continue to cast a watchful eye over forward-looking indicators and valuations of assets. We are reminded of a quote from Howard Marks; “There are two concepts we can hold to with confidence: – Rule No. 1: Most things will prove to be cyclical. – Rule No. 2: Some of the greatest opportunities for gain and loss come when other people forget Rule No. 1”.
Nathan Amaning, Investment Analyst
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