The number 9 is an iconic number to football followers, with clubs’ star strikers often allocated this shirt number. It was a tough week for Chelsea fans, who had to witness a fine display by Real Madrid’s number 9 on Wednesday evening. But it was not just in the sports pages where this number was appearing. Financial papers this week reported that the bond market is now pricing in an additional 9 interest rate rises in the US in 2022.
Bond markets have been under considerable pressure this week and we saw yields rise further, fuelled by hawkish language from US Federal Reserve Governor Lael Brainard. The bond market is now pricing in around nine 0.25% hikes for the remainder of this year. The 10-yr US Treasury yield rose on the back of Brainard’s comments to reach a three-year high and continued to push higher throughout the week, currently standing at 2.68%. The implications of higher rates are not just felt in bond markets. Within the US housing market, the interest rate for the popular 30-year fixed mortgage broke through 5%, the highest level in a decade. Higher rates will make affordability tougher for home buyers and if this continues it will likely act as a headwind to the currently red-hot US housing market.
Economic data from UK and Europe was surprisingly strong this week, with Services PMI data coming in ahead of expectations and showing both areas firmly in expansionary mode. UK Construction PMI data was also strong, showing the fastest rise in orders since August 2021.
China’s zero-Covid policy continued this week with Shanghai remaining in a form of lockdown. Nomura estimated that there have now been 23 cities placed into lockdown in China in the last month. As a result of these lockdowns, we have seen Chinese GDP growth downgraded to 5% this year by the World Bank. There could also be spill-over effects to the global economy, with the lockdowns contributing to supply issues. Shipping bottlenecks have been worsening, with around 30% lower ship traffic in the Port of Shenzhen compared to this time last year.
Twitter shares spiked on the back of news that Elon Musk has taken a 9% stake in the company and has been added to the board. The shares rose 27% on the news, leading a rally in US tech stocks at the start of the week. Shell had less positive news, when it stated it is likely to take a $4bn-$5bn hit on its exit from Russian assets. Despite this news the shares have performed very strongly in 2022, rising around 26% this calendar year.
This week’s data has highlighted that despite the apparent headwinds, the global economy is still growing, and this should create opportunities for investors. However, it’s clear that the impact of higher inflation is yet to be fully felt by consumers and businesses. Given this mixed backdrop, we continue to maintain a balanced approach in portfolios.
Football fans will be eagerly anticipating Sunday’s big match between Manchester City and Liverpool. Interestingly, neither team operates with a traditional number 9, both managers challenging the status quo, and producing stellar results. We think a willingness to challenge conventional thinking and to operate outside the box is key to investing, as well as it seems, success on the football pitch.
Andy Triggs | Head of Investments, Raymond James, Barbican
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.