Fresh news this Friday has seen the release of UK GDP for Q4 2022. The UK economy flatlined for the final three months of 2022; investors and policy makers have taken the positives from this as the UK avoided entering a recession (for now). GDP (Year on Year) for December came in at -0.1%, narrowly beating the forecast of -0.2%, with the main detractor being the widespread strikes in the public sector, rail and postal services.
The Chancellor of the Exchequer, Jeremy Hunt, responded immediately to the data release stating the economy has an “underlying resilience”, however he followed this with a warning that “we are not out of the woods yet”. Inflation is still too high and output in the fourth quarter was still 0.8% below pre-pandemic levels, lagging other countries which are now back above pre-pandemic size. This news will still offer some short-term relief to Mr Hunt and Prime Minister Rishi Sunak as they seek measures to spur a rebound in the upcoming annual budget set to be announced in early March.
Last week we saw energy firm Shell report record profits and this week was BP’s turn to announce their blockbuster profits. $28 Billion was their record profits for 2022 setting a new record from 2008, however they have since come under fire for pushing back on plans to reduce carbon emissions by 2030. The target has been lowered from 35-40% of emissions cut to 20-30% and this is one of the main factors for BP’s valuation lagging competitors such as Shell and Exxon.
In the US, the news of a Chinese spy balloon being shot down almost overshadowed the staggering non-farm payroll data from last Friday afternoon. The 61-metre surveillance balloon which flew over the Atlantic Ocean to the US before being shot down was downplayed by Biden as “not a major breach” but a violation of international law. This hence allowed the US to act accordingly once it crossed into their airspace.
Labour hoarding has been a term used to describe the US non-farm payroll data as a stunning 517,000 jobs were added to the economy in January. This figure smashed the forecast of 188,000 with jobs being created in almost every sector – strongly in services, leisure and hospitality, and education and health. Investors are led to believe that labour hoarding exaggerated the strength of the jobs market and will likely reverse in Q2 of this year if economic growth continues to slow. Hoarding is common for employers that are uncertain about the outlook, leading them to hold onto labour, which has been very difficult and costly to recruit recently.
US Fed Chair Powell spoke at a Q&A session on Tuesday evening. Despite the very strong jobs data Powell did not appear to significantly change his interest rate outlook. This was well received by markets, which advanced on the back of this news.
After a very strong start to the year, equity markets have paused for breath this week. The extremely strong US jobs data, coupled with expectation beating services data has led investors to question whether central banks will be able to ease up on their fight against inflation. It appears we are currently in the strange environment of good news for the economy being bad news for stock markets!
We are sad to hear the news of Monday’s earthquake in Turkey and Syria which has led to over 20,000 deaths. Hundreds of thousands of households have been left homeless this winter. President Tayyip Erdogan of Turkey is expected to face his toughest challenge yet as there has been anger over the delays on deliveries and rescue efforts. In Syria, relief efforts have been hindered by conflicts in rebel held districts. Our thoughts go out to all affected.
In these uncertain times we as always maintain our message on diversification and ensuring portfolios are not overly exposed to particular risks. It is important to focus on the long-term opportunities that are created in markets, with the saying “slow and steady wins the race” underlining this.
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.