The World In A Week - Nothing to See Here
Written by Chris Ayton
It was a tough week for global equity markets with the MSCI All Country World Index -2.7% in Sterling terms. Bonds also declined with the Bloomberg Global Aggregate Index -0.3% in GBP hedged terms. Credit and high yield indices were down even more.
Expectations of a huge post COVID bounce in China’s economy have proved fruitless with it instead showing increasing signs of strain and, within China’s property market in particular, clear signs of distress. On the back of large property developer, Country Garden, recently missing coupon payments on two US Dollar denominated bonds, last week saw further news of some retail wealth management products that are exposed to the Chinese property market failing to make scheduled payouts. Youth unemployment (16-24 year olds) also reached such a worryingly high level (over 20%) that authorities concluded the data “needed improving” and the National Bureau of Statistics decided to stop reporting it. Clearly nothing to see here! This challenging backdrop led to the People’s Bank of China unexpectedly cutting a benchmark interest rate by the biggest margin since the start of the COVID pandemic and further stimulus is expected to be needed to get China back on track to hit its GDP growth targets.
In the UK, inflation came down from an annual rate of 7.9% in June to 6.8% in July aided by lower gas and electricity prices. However, inflation stripping out food and energy was unchanged and combined with the news that UK wage growth hit approximately 8% is maintaining pressure on the Bank of England to continue on its path of increasing interest rates to cool the economy. This is despite retail sales in the UK declining by a higher than expected 1.2% in July, suggesting the past rate rises are already starting to take effect.
The UK housing market was also a hot topic of discussion last week. Pressured by a lack of rental supply and landlords facing higher mortgage repayments, UK residential rents rose by an annual rate of 5.3% in the year to July, the highest rise on record. House prices, however, have been faring less well as the Nationwide Building Society reported that UK house prices fell at an annual rate of 3.8 per cent in July, the largest decline since 2009. However, in a small piece of brighter news it was reported that for the fourth week in a row, UK banks and building societies were set to reduce interest rates for fixed rate mortgages, potentially signalling that the slowdown in mortgage applications is starting to lead to some competition for the business that remains.
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 21st August 2023.
© 2023 YOU Asset Management. All rights reserved.
The World In A Week - A mix of opportunities and challenges
Written by Ilaria Massei
Fitch Ratings downgraded the credit rating of US government debt from AAA to AA+, citing governance and fiscal challenges. The news encouraged some investors to take profits from their investments and pushed the S&P500 down to -2.3% in local currency terms last week. Additionally, the Labor Department reported moderate job growth in July, indicating that the economy is cooling but only slowly.
In the eurozone, annual inflation remained well above the European Central Bank's (ECB) 2% target, although it declined slightly from the previous month to 5.3%. The second-quarter GDP data indicated overall economic expansion, but Germany's economy remained stagnant, and Italy experienced a contraction. This highlights the difficulty faced by the ECB in setting a single monetary policy for a group of quite different underlying economies.
The Bank of England raised its key interest rate to 5.25% and expressed the intention to keep rates higher to control inflation. Consequently, the UK housing market continued to weaken, with declining house prices and a decrease in the value of net mortgage lending.
Elsewhere, the Chinese Government introduced measures to boost consumption by removing restrictions in sectors like autos, real estate, and services. With new home sales also continuing to be weak, the People's Bank of China also pledged support for the real estate market, although policymakers still want to avoid the excessive speculation that was previously rampant within this segment of the Chinese economy.
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 [07/08/2023].
© 2023 YOU Asset Management. All rights reserved.
The World In A Week - Moving in the right direction
Written by Millan Chauhan.
In the UK, headline inflation for June was lower than expected at 7.9% year-on-year, the lowest level since March 2022, and ended a five-month run where inflation came in higher than consensus expectations. As a result, UK assets performed strongly, with the FTSE All Share Index up +3.1% for the week.
The 7.9% Consumer Price Index (CPI) reading for June was down from 8.7% in May and its peak of 11.1% in October 2022. The significant drop from last month was thanks to a negative contribution from petrol and other liquid fuels. Food prices continue to remain stubbornly high, with a year-on-year increase of 17.3% in June.
Services’ prices also remained sticky, up 7.2% year-on-year. This is partly explained by labour making up a considerable amount of the overall cost within services and the high wage growth in the UK being a major activity behind this persistent element within core inflation. Labour markets are strong in many developed economies around the world, but the UK also faces a labour supply issue which has not recovered to its pre-pandemic peak, unlike in the US and the Eurozone.
While inflation remains high, the direction of travel saw a positive reaction in markets, as expectations for the Bank of England to hike rates by 0.5% in August dropped. Longer-term, market expectations still assume further rate hikes from the Bank of England but hopes are for a less aggressive approach as we near the end of the rate hiking cycle.
Japan also reported inflation numbers last week. CPI for June was 3.3% year-on-year, slightly ahead of expectations, however, the Bank of Japan appears to be more than happy to allow inflation to run ahead of target after several decades of deflation.
This policy appears to be aimed at allowing inflation to become part of Japanese consumers’ and companies’ mindsets, so that spending is not continually deferred in expectation of lower prices. This is almost the exact opposite of adjusting the UK consumers’ mindsets to reduce immediate spending in the expectation of higher prices.
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 24th July 2023.
© 2023 YOU Asset Management. All rights reserved.
The World In A Week - Fly Me To The Moon
Written by Shane Balkham
Last week was naturally focused on the opening speeches at the Jackson Hole symposium, an annual gathering of policymakers from around the world, to discuss topical financial events and trends. The Federal Reserve Bank of Kansas City was hosting as normal, with the theme for this year’s event being “Structural Shifts in the Global Economy.”
As many suspected, there were no surprises coming from this year’s conference. Dusting down much of 2022’s speech, Jerome Powell, the Chair of the US Federal Reserve, reiterated the fight against inflation, with an emphasis on risk-management in restoring price stability across the globe. This could mean we are close to peak rates in many developed economies, but it could also mean leaving rates on pause for longer to ensure the battle has been won.
Winning the battle for dominance of supplying the burgeoning demand for AI systems was Nvidia, which became the first semiconductor company to pass $1 trillion market cap. The chip manufacturer gave another strong quarterly revenue forecast as orders for its AI processors, adept at handling the heavy workloads required by AI, surged allowing it to create a market leading position.
Forecasts do get revised, and the US gave a downward revision to the March jobs’ forecast that was originally reported. It was initially estimated that around 300,000 fewer jobs were created, which could be good news for central banks, as they would like to see a slightly weaker labour market. The balance between fighting inflation and supporting economic growth is becoming increasingly difficult. This is starting to show in the US retail sector, where excess consumer savings built up during the pandemic are perceived to be running out as the interest rate hikes are starting to pinch. Department stores are seeing a fall in sales and a worsening in their credit card delinquencies.
Something that cannot be ignored for too long is Russia. Last week saw the Wagner mercenary group founder Yevgeny Prigozhin killed, as the plane he was on exploded killing all that were aboard. Putin’s comment on the crash saw him describe Prigozhin as “a man with a complicated fate.”
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 29th August 2023.
© 2023 YOU Asset Management. All rights reserved.