The World In A Week - Contrasting Rate Outlooks On Both Ends of the Pond

Written by Dominic Williams

The most recent US inflation data, released on Wednesday, exceeded forecasts for the second consecutive month. The annual inflation rate reached 3.5 per cent, surpassing the expected 3.4 per cent, marking its highest level since September. Core inflation, excluding volatile items like food and energy, rose to 3.8 per cent, exceeding forecasts of 3.7 per cent. This increase was driven by pressures in service sectors, such as healthcare and car insurance. However, it's worth noting that the rise in car insurance is influenced by lagging factors, particularly the previous increase in car prices, which are only now being reflected in insurance prices. The higher-than-expected figures, also observed in January and February, have raised concerns among policymakers that inflation may be persistently high, thereby delaying expectations of an initial rate cut. Nevertheless, Fed Chair Jay Powell maintains optimism that inflation will gradually decline towards the 2.0 per cent target. In GBP terms, the S&P experienced a 0.1 per cent decline over the week, reacting to ongoing inflation concerns and heightened tensions in the Middle East. The stronger Dollar contributed to a less negative return in GBP terms.

On Thursday, the European Central Bank (ECB) opted to maintain interest rates at 4.0 per cent for the fifth consecutive time, a historical high. However, the bank conveyed a strong message indicating potential rate cuts at their upcoming June meeting, contingent upon increased confidence in inflation moving steadily towards the 2.0 per cent target. The latest inflation figures, with March numbers at 2.4 per cent, suggest that their inflation target has almost been achieved. Officials acknowledged there has been a continued decline in inflation, with most indicators of underlying inflation and wage growth showing signs of easing.

MSCI Japan emerged as a top performer for the week, rising by 2.5 per cent in GBP terms. Following the release of US inflation data, the Yen depreciated to a 34-year low against the US Dollar. This decline prompted speculation about potential intervention by the Bank of Japan (BoJ) to support the Yen. However, the BoJ Governor Kazuo Ueda dismissed the idea of supporting the weaker Yen through a rate hike, asserting that the central bank would not alter its monetary policy directly in response to exchange rate fluctuations.

 

Any opinions stated are honestly held but are not guaranteed and should not be relied upon.

The information contained in this document is not to be regarded as an offer to buy or sell, or the solicitation of any offer to buy or sell, any investments or products.

The content of this document is for information only. It is advisable that you discuss your personal financial circumstances with a financial adviser before undertaking any investments.

All the data contained in the communication is believed to be reliable but may be inaccurate or incomplete. Unless otherwise specified all information is produced as of 15th April 2024.

© 2024 YOU Asset Management. All rights reserved.

 


Two Minute Missive - 10th April 2024

In this video our Client Investment Director, Shane Balkham, explores today's market trends and considers how our team safeguard client investments through smart diversification strategies, ensuring peace of mind and steady growth.


The World In A Week - US Jobs Data: An Economic Enigma

Written by Cormac Nevin

Last week was a broadly weaker one for global markets, following one of the best first quarters for equity markets in five years. While the strong performance of equity markets in the last three and six months is of course very welcome, our team notes the concentrated nature of certain parts of the rally.

Global equities, as measured by the MSCI All Country World Index in GBP, were down -0.7% for the week. The Japanese equity market was the most negative, falling -2.5%, as measured by the MSCI Japan equity index in GBP terms. Japan was one of the most profitable markets in the first quarter of the year, so this probably represents an element of profit taking and rebalancing by global investors. In contrast, Global Emerging Market equities rallied +0.4%, after Chinese shares bounced back from a poor first quarter.

One of the most significant and interesting data releases last week was the “non-farm payrolls report” (NFP) from the US. This showed that the economy created +303k new jobs for the month of March. This was ahead of economists’ predictions of +200k. The US jobs market, which the global economy revolves around to a certain extent, looks robust on the surface based on a high-level reading of this data. However, there are elements within the data which give our team greater pause for thought. Out of the +303k estimated job gains, the Manufacturing sector of the economy added none, while the government sector added +71k, as the government continues to run what many consider is an unsustainable fiscal deficit.

The headline US job growth was also powered by a surge in part-time jobs, while the number of full-time jobs actually shrank in the month of March. Our team note that since 1970, every time US full-time job growth has been negative, the economy has been in recession. It is also interesting to think about how traditional datasets like the NFP report might be failing to capture newer job market dynamics, such as “gig-economy” technologies such as Uber and Deliveroo.

Whatever the true picture of the health of the US, or indeed any other economy, our team retains the view that such ambiguity is best countered with a portfolio which is extensively diversified by geography & investment style.

 

Any opinions stated are honestly held but are not guaranteed and should not be relied upon.

The information contained in this document is not to be regarded as an offer to buy or sell, or the solicitation of any offer to buy or sell, any investments or products.

The content of this document is for information only. It is advisable that you discuss your personal financial circumstances with a financial adviser before undertaking any investments.

All the data contained in the communication is believed to be reliable but may be inaccurate or incomplete. Unless otherwise specified all information is produced as of 8th April 2024.

© 2024 YOU Asset Management. All rights reserved.


The World In A Week - Fed Confidence, UK Recession Confirmation, and Stock Gains

Written by Ashwin Gurung

In the US, The Federal Reserve’s (the Fed) preferred inflation measure, the core Personal Consumption Expenditures (PCE) price index, which excludes food and energy, rose in line with market expectations by 0.3% month-over-month. The annual PCE inflation rate for February remained steady at 2.5%, also in line with market expectations. The Fed Chair, Jerome Powell, stated that he is more confident that inflation is falling towards their 2% target, and that the Fed expects to cut interest rates this year. However, Powell acknowledged the strength of the current economy and the labour market, emphasising the need for caution in their decision-making. Additionally, the S&P 500 hit a new high over the week, returning +0.2% in GBP terms. This increase was largely driven by companies outside of the usual dominant performers known as the “Magnificent 7”.

Across the Atlantic, the UK’s Office for National Statistics revised GDP figures confirmed last month’s initial figure that the country had entered a technical recession for the first time since early 2020. The economy contracted by 0.3% in the final quarter of 2023, following a 0.1% decline in the third quarter. Nonetheless, it was a favourable week for the UK stocks, particularly for the smaller companies. The FTSE UK Small Cap Index outperformed the FTSE 100, returning +1.4% and +0.3%, respectively. Meanwhile, in the Euro Area, the European Commission reported a rise in consumer confidence across the European Union, reflecting improved sentiments regarding the economic outlook.

In Japan, monetary authorities held an emergency meeting to address concerns regarding the Yen’s recent decline. They hinted at taking action to stabilise the currency after it hit a 34-year low. The weakening Yen has been beneficial for many of Japan’s major exporting companies, as a big part of their profits comes from overseas sales. MSCI Japan returned -1.1% in GBP terms, over the week.

Elsewhere, the Chinese equity market remains volatile. While the Year of the Dragon began on a positive roar, it has since quietened down somewhat due to scepticism surrounding the earnings recovery, pace of stimulus measures, and the ongoing worries in the property sector. MSCI China returned +0.1% in GBP terms over the week and lagged most of the major indices.

 

Any opinions stated are honestly held but are not guaranteed and should not be relied upon.

The information contained in this document is not to be regarded as an offer to buy or sell, or the solicitation of any offer to buy or sell, any investments or products.

The content of this document is for information only. It is advisable that you discuss your personal financial circumstances with a financial adviser before undertaking any investments.

All the data contained in the communication is believed to be reliable but may be inaccurate or incomplete. Unless otherwise specified all information is produced as of 2nd April 2024.

© 2024 YOU Asset Management. All rights reserved.


The World In A Week - Two become none

Written by Shane Balkham

Following on from last week’s update, there was some good news on inflation in the UK, with a downward surprise for the headline Consumer Price Index (CPI) rate.  Wednesday’s data publication showed CPI dropping to 3.4% year-on-year to the end of February, however 3.4% is still markedly above the Bank of England’s (BoE) target rate of 2%.

Additionally, there is further good news on the horizon, with expectations that UK inflation will continue to fall over the coming months.  Drops in both energy and food prices are expected to take inflation much nearer to the 2% target, which matches the BoE’s own projections that were published last month.

Coincidentally, we had the BoE’s Monetary Policy Committee (MPC) meeting the following day, where expectations were for rates to remain on hold, but hoping for clearer signs of when the Bank would consider rates to be cut.  Expectations were met, with the Committee voting to keep rates on hold, however there were significant changes to how the individual members voted.

Since the previous meeting, two members moved from preferring to raise rates to joining the majority for keeping rates on hold.  One member continues to be an outlier, preferring a rate cut for the second consecutive meeting.  This shift could move momentum towards a rate cut being sooner rather than later.  Whilst Andrew Bailey, Governor of the BoE, refused to be drawn on when the first rate cut would be actioned, he has previously been quoted as saying that cuts could come before the inflation rate hits target.

In comparison to the decision to keep rates on hold in both the UK and the US, the Swiss central bank cut rates, and in Japan we had the first rate rise for 17 years.  For all major central banks there is a tightrope balancing act between creating price stability and encouraging economic growth.  In this environment, where global economies and central banks are moving different cycles, a diversified portfolio is crucial.

 

Any opinions stated are honestly held but are not guaranteed and should not be relied upon.

The information contained in this document is not to be regarded as an offer to buy or sell, or the solicitation of any offer to buy or sell, any investments or products.

The content of this document is for information only. It is advisable that you discuss your personal financial circumstances with a financial adviser before undertaking any investments.

All the data contained in the communication is believed to be reliable but may be inaccurate or incomplete. Unless otherwise specified all information is produced as of 25th March 2024.

© 2024 YOU Asset Management. All rights reserved.


The World In A Week - Print Preview

Written by Millan Chauhan

This edition marks almost exactly 12 months since the US banking crisis unfolded, which saw three mid-size banks fail after the mismanagement of their portfolio construction. Since then, we have seen inflation slow down significantly to 3.2%, the S&P 500 hit all-time highs and the Federal Reserve finish their interest rate hiking cycle. Markets have been driven by several themes, which have included greater capital expenditure on semi-conductors and graphic processing units (GPUs), as demand for AI infrastructure increased. There has also been very strong trial results from GLP-1 drugs, which can be used to treat obesity, and markets are excited by the expectations of future interest rate cuts.

Last week, we saw the US Labor Department’s consumer price index in the 12 months to February come in at 3.2%. Core inflation (which removes energy and food) came in slightly above expectations at 3.8%, in the 12 months to February. This was largely due to the higher shelter costs, which include rental costs and house ownership costs which increased by 5.7% in the 12 months to February. The Federal Reserve are due to meet this week to make their interest rate decision, expectations are that the Federal Reserve will keep rates at their current range of between 5.25% and 5.50%.

Elsewhere, there was some positive news that the UK could be recovering from recession, as GDP increased by 0.2% in January. In addition, the UK inflation rate is expected to fall to 3.6% in the 12 months to February, when data is released on Wednesday morning. These are certainly encouraging signs for the UK economy but expectations are that the Bank of England will keep rates steady when they meet this Thursday.

 

Any opinions stated are honestly held but are not guaranteed and should not be relied upon.

The information contained in this document is not to be regarded as an offer to buy or sell, or the solicitation of any offer to buy or sell, any investments or products.

The content of this document is for information only. It is advisable that you discuss your personal financial circumstances with a financial adviser before undertaking any investments.

All the data contained in the communication is believed to be reliable but may be inaccurate or incomplete. Unless otherwise specified all information is produced as of 18th March 2024.

© 2024 YOU Asset Management. All rights reserved.


The World In A Week - It’s Coming Home

Written by Chris Ayton

As well publicised, the UK equity market has been unloved for many years now, particularly if you look at the more domestic mid and small capitalization universe.

Although clearly biased, a sizeable group of leaders and fund managers in the UK investment industry have been lobbying the Treasury to provide more encouragement for UK investors to invest in UK listed companies. Why, they argue, should the Treasury provide the same tax break to UK retail investors for providing capital to overseas companies like Apple or Tesla, as they get for providing capital to UK listed companies?  This has prompted the Chancellor, in his Budget last week, to announce the launch of a new British ISA that will provide an additional £5,000 of tax-free ISA allowance to invest solely in UK equities or UK equity funds.

In reality, the flows that are likely to result from this measure are unlikely to significantly move the needle in monetary terms, however it is more about elevating the debate about how to get UK investors, retail and institutional, to better support UK businesses.  More critical in this crusade is likely to be the government’s efforts to get the UK pension fund industry to also raise its allocation to UK companies.  When I started in the investment industry, it was not unusual for UK pension funds to have 40% or more of their assets in UK equities.  Today that figure, according to data from the Capital Markets Industry Taskforce, is just 2.7%.  Contrast this to Australian pension funds that invest 38% of their assets in Australian equities, France that allocates 26% to French companies, Japan that allocates 49% to Japanese equities and Italian pension funds that allocate 41% to its domestic market.  Less well publicised than the new British ISA, was the announcement that, going forward, UK pension funds will be forced to publish how much they have allocated to UK companies, with the additional suggestion from the government that further action will be taken if allocations are not increasing.

In the meantime, with UK equities trading at extremely cheap valuations, corporate UK is seemingly taking matters into its own hands.  A standout feature of recent company earnings announcements from many of our UK equity managers’ portfolio holdings has been the prevalence of share buybacks, i.e. companies using their profits to buy their own undervalued shares, thereby increasing Earnings (profit) Per Share for the remaining shareholders.

We are also seeing a notable uptick in Mergers & Acquisitions, with UK and Overseas companies seeking to acquire UK listed companies at what they believe to be highly attractive prices. To name a few, we’ve seen Nationwide bid for Virgin Money (sending the shares up 35%), Belgian insurer Ageas making a bid for Direct Line at a 40% premium, UK logistics firm, Wincanton, accepting an offer from a US peer at 100% premium, Spirent Communications accepting a bid from a US rival at a 60% premium and UK retailer, Currys, rejecting a bid from a US private equity firm at a 40% premium, saying this significantly undervalued the company.

We are hopeful this is just the start of a long overdue revitalisation of the UK equity market.  We are overweight the UK equity market in our multi-asset portfolios and we are encouraged to see an increasing number of routes that this value could get realised going forward.

 

Any opinions stated are honestly held but are not guaranteed and should not be relied upon.

The information contained in this document is not to be regarded as an offer to buy or sell, or the solicitation of any offer to buy or sell, any investments or products.

The content of this document is for information only. It is advisable that you discuss your personal financial circumstances with a financial adviser before undertaking any investments.

All the data contained in the communication is believed to be reliable but may be inaccurate or incomplete. Unless otherwise specified all information is produced as of 11th March 2024.

© 2024 YOU Asset Management. All rights reserved.


The World In A Week - Californian Gold Rush.v2

Written by Cormac Nevin

Markets continued their strong run for the month last week, with the MSCI All Country World Index returning +1.4% in local currency terms and up +0.7% in GBP terms; capping a healthy return of +4.7% for the month of February to date in GBP terms. Fixed Income markets were also positive, with global government bonds, corporate credit and high yield bonds generating modestly positive gains across the board.

US Equity markets were once again among the strongest globally last week, with the S&P 500 Index of large cap US stocks returning +1.7% for the week in US Dollar terms and 0.9% in GBP terms, capping a +7.5% return for the year to date in GBP terms. This performance was again led by the largest companies in the index, who are once more dominating the weight in, and returns of, the index. The S&P 500 is now sitting at an all-time high, thanks largely to the contribution of Nvidia and other large-cap technology names. Nvidia, the graphics processor company, whose products are used for building large language models (LLM or commonly referred to as “artificial intelligence” models), announced a +265% jump in quarterly revenues (year-over-year), thanks to surging spending on datacentres for AI LLMs. The resulting surge in the share price propelled Nvidia ahead of Amazon and Alphabet to become the third most valuable listed company in the US, behind Microsoft and Apple. Whether the profits from the AI goldrush currently taking place in Silicon Valley and beyond are made by the companies most closely involved in AI, or those selling them the “picks and shovels” remains to be seen.

Another source of equity market returns last week, and for the month of February to date, has been in the Far East. After a very challenging January, Chinese equity markets appeared to stabilise in advance of the commencement of the Year of the Dragon on the 10th of February and subsequently roared back with a +10.3% gain in GBP terms for the month to the end of last week. Similarly strong gains in the Korean and Taiwanese markets have led the wider Emerging Market index to be the strongest performer for the month of February so far, making it a nice complement to the performance we have seen from the US; particularly as emerging market stocks tend to trade on dramatically lower valuations and potentially have more room to run from this point.

 

Any opinions stated are honestly held but are not guaranteed and should not be relied upon. 

The information contained in this document is not to be regarded as an offer to buy or sell, or the solicitation of any offer to buy or sell, any investments or products. 

The content of this document is for information only. It is advisable that you discuss your personal financial circumstances with a financial adviser before undertaking any investments. 

All the data contained in the communication is believed to be reliable but may be inaccurate or incomplete. Unless otherwise specified all information is produced as of 26/02/2024. 

© 2024 YOU Asset Management. All rights reserved. 


The World In A Week - US markets soar, while Japan reaches new highs

Written by Dominic Williams

Last week, the S&P 500 Index, regarded as the primary gauge for US large-cap stocks, achieved a historic milestone by surpassing the significant 5,000 mark for the first time. This symbolises the strength of the US market, despite a period of elevated interest rates. However, this market upswing continues to be driven by a select few, notably Nvidia and Meta, with small cap indices and equally weighted indices significantly behind.

In Japan, both major indices exhibited strong performance. The Topix, a broad market-weighted index, reached its own record high, hitting a 34-year peak of 2,576 points following a weekly growth of 0.72% in local currency terms. Additionally, the Nikkei 225, a price-weighted index, climbed above 37,000 points for the first time in 34 years, experiencing a growth of 2.04% in local currency terms. These impressive performances were fuelled by strong foreign interest in Japanese stocks and a weakening Yen, which continued its decline against the Dollar following a speech delivered by the Deputy Governor of the Bank of Japan. The governor's subdued outlook on the prospect of rate hikes from the Central Bank contributed to market sentiment, stating, "even if the bank were to terminate the negative interest rate policy, it is hard to imagine a path in which it would then keep raising the interest rate rapidly".

On Thursday, China released its latest inflation figures, revealing year-on-year deflation in January 2024. The Consumer Price Index (CPI) showed a 0.8% decrease in prices, the largest decline in over 14 years, exceeding market forecasts of a 0.5% fall. This deflationary trend was attributed to sectors reliant on consumer demand, such as electrical goods and automotive industries, which have been offering discounts and reducing prices amid declining consumer spending.

At the beginning of the week, the Office for National Statistics (ONS) in the UK released an update to its Labour Force Survey, based on reweighted survey results. The update indicated that for the period spanning September 2023 to November 2023, the unemployment rate stood at 3.9%, which is lower than the previously reported 4.2%. Additionally, the Halifax House Price Index, released last week, indicated a 2.5% year-on-year increase in house prices in January 2024. This follows a recent downtrend in mortgage rates from lenders amid heightened competition, a decrease in inflationary pressures for consumers, and a more resilient labour market evidenced by the previous revisions of unemployment figures.

These data points underscore the UK's unexpected resilience, potentially delaying the Bank of England's plans to reduce rates in response to stronger-than-anticipated data.

 

Any opinions stated are honestly held but are not guaranteed and should not be relied upon.

The information contained in this document is not to be regarded as an offer to buy or sell, or the solicitation of any offer to buy or sell, any investments or products.

The content of this document is for information only. It is advisable that you discuss your personal financial circumstances with a financial adviser before undertaking any investments.

All the data contained in the communication is believed to be reliable but may be inaccurate or incomplete. Unless otherwise specified all information is produced as of 12 February 2024.

© 2024 YOU Asset Management. All rights reserved.


The World In A Week - Some big tech names rallied forwards, while central banks stood still

Written by Shane Balkham

It was mixed results for some of the Magnificent Seven, the name coined to describe the largest of the US technology companies.  Both Meta and Amazon reported strong earnings, which sparked a rally in the share prices of these two companies.  This was in contrast to the fortunes of both Alphabet and Apple, who saw a sell-off in their shares, whose earnings were below the high market expectations.  Meta stole the show though, with an announcement of plans to buy back an additional $50 billion in shares and issue its first ever quarterly dividend.

Aside from the earnings updates from big tech, we had the central banks of the UK and US meeting last week, to decide on the immediate level of interest rates and give guidance on the future path of rates.

The Bank of England announced that it would keep interest rates on hold, citing the need for more evidence that inflation would continue to fall.  However, Governor Andew Bailey did confirm that the central bank has seen good news on inflation over the past few months.  It is likely that the next move from Bank of England will be a cut in rates and the decision is now when and by how much.

This was evidenced by the breakdown of the vote within the Monetary Policy Committee.  It was interesting to see that two members voted to raise rates, and that a majority of six members continued to vote to maintain rates, but we had the first vote to cut rates.

As we wrote last week, the US economy was reported to have grown strongly in 2023, leading to expectations that the US Federal Reserve will hold rates at their current level once again.  On Wednesday, the Federal Open Market Committee did indeed keep rates on hold, commenting on the current market conditions as being too strong to consider a rate cut at this time.

The probability of a rate cut in March was dealt another blow on Friday, as employment data was published showing that the US economy added 353,000 jobs in January, almost twice that of the consensus expectation.  The Fed has consistently put employment as one of the key metrics for measuring policy response to inflation and with such strong numbers, the likelihood of a rate cut in Q1 is as low as it has been.

Although the US Central Bank is politically independent, it did not stop Donald Trump accusing Jermone Powell of helping the Democrats.  Trump is interpreting the forecast of rate cuts this year as aiding Joe Biden, rather than attempting to control inflation.  A clear example of how politics will dominate the headlines this year and we are still nine months away from the election.

 

Any opinions stated are honestly held but are not guaranteed and should not be relied upon. 

The information contained in this document is not to be regarded as an offer to buy or sell, or the solicitation of any offer to buy or sell, any investments or products. 

The content of this document is for information only. It is advisable that you discuss your personal financial circumstances with a financial adviser before undertaking any investments. 

All the data contained in the communication is believed to be reliable but may be inaccurate or incomplete. Unless otherwise specified all information is produced as of 5 February 2024. 

© 2024 YOU Asset Management. All rights reserved.