The World In A Week - Takeovers and tariffs
Written by Ashwin Gurung
Last week was a negative week for global equities, as the MSCI All Country World Index of equities fell by -0.7% in GBP terms. While the index performed well in local currency terms, returning +0.3%, a stronger Pound Sterling reduced returns when converted to GBP. Meanwhile, it was a positive week for fixed income, with the Bloomberg Global Aggregate GBP Hedged Index delivering a +0.5% return in GBP terms, as interest rates declined.
In the UK, mergers and acquisitions activity continues to rise, with both domestic and overseas companies targeting UK-listed businesses they see as attractively priced. Last week, Aviva had a bid for Direct Line rejected, while US private equity firm Fortress Investment Group offered £338m to acquire Loungers, a café and restaurant chain. Australia’s Macquarie also joined the activity, bidding for UK-listed waste management firm Renewi. On the other hand, Just Eat announced plans to delist from the UK stock exchange by year-end and trade exclusively in Amsterdam, citing “administrative burden, complexity, and costs,” as well as “low liquidity and trading volumes.” This highlights the challenges the UK government faces in restoring its reputation as a business-friendly hub. Nonetheless, we continue to see significant value in the UK market, both on an absolute basis and relative to other regions.
In the US, incoming President Donald Trump announced plans to impose 25% tariffs on imports from Mexico and Canada, along with an additional 10% tariff on imports from China. This move impacted companies that rely on cross-border trade. However, investors welcomed the appointment of Trump’s new Treasury Secretary, Scott Bessent who is a veteran hedge fund manager and who is expected to prioritise economic stability and inflation control with a more balanced approach to tariffs. The Federal Reserve’s preferred inflation gauge showed a 0.3% increase from the previous month in October 2024, in line with expectations.
Meanwhile, in France, the government coalition is facing collapse after Prime Minister Barnier received strong opposition to his latest budget proposal. Barnier had planned to reduce the country’s debt by €60bn through spending cuts and tax increases but has now backed down on a proposed electricity tax hike. Marine Le Pen, leader of the far-right National Rally, is expected to back a no-confidence vote, which could lead to the government’s collapse.
In Japan, the Japanese Yen strengthened over the week due to increased demand for safe-haven currencies amid rising geopolitical risks. Higher-than-expected inflation, with the Tokyo-area core consumer price index (CPI) rising 2.2% on a year-over-year basis, also supported the Yen, raising expectations of another interest rate hike by the Bank of Japan. While the stronger Yen was positive for GBP-based investors, it had a negative impact on Japan’s export-driven industries. The MSCI Japan index ended the week flat in GBP terms.
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 December 2024.
© 2024 YOU Asset Management. All rights reserved.
The World In A Week - All eyes on 2025
Written by Shane Balkham
Inflation readings still capture the headlines, albeit with less urgency than a year ago. Inflation in the majority of developed economies is at or approaching target levels, but it is interest rates that remain elevated as central banks wrestle with the timing of cuts.
UK inflation ticked upwards to 2.3% in October (year-on-year), largely driven by the increase in energy prices after government subsidies were reduced. The consensus among most market commentators is that the Bank of England will look through this minor surprise and keep its trajectory for rate cutting, with the next easing expected at the meeting on 6th February, which will be the first meeting of 2025.
The path to normalising interest rates appears to be bumpier than the Bank of England and the US Federal Reserve may have expected, with policymakers juggling the unknown outcomes from rate cuts and the policy changes emanating from the changes in governments. Caution appears to be the preferred option.
The dilemma for the central banks is the desire to reduce interest rates to a level that is considered more normal, without reigniting the threat of inflation. This seemed relatively straightforward until the UK budget threw different assumptions into the decision-making process. While the Bank of England is committed to reducing interest rates, it is a trickier path to plot.
The Federal Reserve also have the same dilemma, as a new presidency will bring with it new challenges. Last week saw Donald Trump start to set up his cabinet and there were fears that individuals would be placed into roles that did not match real-life experience or expertise. One of the key positions is treasury secretary, where markets prefer orthodoxy and predictability. Scott Bessent has been picked, who was one of Trump’s biggest financial backers and a well-regarded investor on Wall Street.
While we wait for President Trump to take his second term, institutions start playing the prediction game for 2025. It is incredibly difficult to predict economic growth rates and market levels; this year we saw revisions to end-of-year predictions as early as Easter. A predicted reduction in tax rates is currently powering US equity expectations, as one of the key proposals of Trump’s campaign was a cut to the corporate tax rate for domestic production from 21% to 15%. During Trump’s previous term, the broad corporate tax rate was reduced from 35% to 21% and boosted business investment and profits.
The actual impact is certainly unclear, as the tax cuts would only apply to US-based production, with Trump adding that firms that outsource, offshore, or replace American workers would not be eligible for the tax cuts. According to J.P. Morgan Asset Management, only 18% of the companies in the S&P 500 by market cap derive more than 80% of their revenues domestically and would therefore qualify for the 15% tax rate.
There is naturally a level of uncertainty regarding the US until Donald Trump is inaugurated on 20th January. While markets are posturing, geopolitics are also moving for position. The conflict in Ukraine intensified with the doubling down of support from the international community. Longer-range ordnance from the US and UK has helped Ukraine extend its attack. If Trump does seek an end to the conflict, the big unknown is how he will achieve this, and the escalation, to some degree, is seeking to ensure Ukraine is in a strong position when the negotiations begin.
With such uncertainty ahead, sticking to your discipline is critical. The importance of having an appropriately globally diversified investment portfolio is as strong as ever.
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 November 2024.
© 2024 YOU Asset Management. All rights reserved.
Two Minute Missive 22 November
Watch the latest 'Two Minute Missive' from our Client Investment Director, Shane Balkham.
https://youtu.be/WIJ3avWX1Sg?si=MB1e3Q3rdcOQ1d1C
This video contains the opinions and views of Shane Balkham. Please work with your adviser before undertaking any investments.
The World In A Week- Markets in flux amid political shifts
Written by Dominic Williams
This past week, markets have been navigating the implications of Donald Trump securing another term as US President. With President Trump beginning to shape his administration, his policies are expected to maintain a focus on protectionism, deregulation, and tax reform, continuing the themes of his previous term.
In the US, the S&P 500 Index saw a modest decline of -2.0% in local currency terms. However, the strengthening US dollar turned this into a slight gain of +0.4% in GBP terms. The US dollar strengthened significantly, rising +2.4% against Sterling this week and gaining +6.0% over the month. Smaller, domestically focused companies performed worse, with the Russell 2000 Index down -1.6% in GBP terms. Healthcare stocks were particularly hard hit on both sides of the Atlantic, following Trump’s nomination of Robert F. Kennedy Jr. - a known vaccine sceptic - as the next US Health Secretary.
The possibility of renewed trade tensions weighed heavily on China. Trump’s foreign policy appointees have reiterated his tough stance, with proposals to impose tariffs exceeding 60% on Chinese imports. These developments weighed on investor sentiment, causing the MSCI China Index to drop -3.8% in GBP terms.
European markets also felt the pressure of potential US tariffs, with the MSCI Europe ex-UK Index slipping by -0.3% in GBP terms. Concerns about how tariffs could impact European manufacturers dampened investor confidence further as Trump’s administration signalled a more combative approach to trade.
In the UK, GDP growth figures for the third quarter were disappointing, showing an increase of just 0.1%, below the consensus forecast of 0.2%. This slowdown highlights the challenges facing the UK economy amidst weakening momentum in key sectors. Sterling bonds remained largely stable, measured by the Bloomberg Sterling Aggregate index, dipping by only -0.1% over the week. Meanwhile, unemployment figures delivered another unwelcome surprise, climbing to 4.3% in September, above the expected 4.1%. This uptick indicates mounting pressures in the labour market, particularly as economic growth falters. However, it’s important to note that these unemployment figures rely on survey data, which has seen declining response rates recently, warranting cautious interpretation.
In the US, inflation data released midweek revealed a 0.2% month-on-month increase, in line with expectations, while annual inflation rose to 2.6%, up from 2.4% the previous month. Certain components of inflation continue to weigh heavily on the overall figure. Shelter, which includes Rent and Owners’ Equivalent Rent, remains high. However, these metrics are heavily lagging indicators and may not accurately reflect current housing costs. Speaking on Thursday, Federal Reserve Chair, Jerome Powell indicated no urgency to lower rates further, a stance that weighed on bond markets. As a result, US long-term bonds, as measured by the Bloomberg US Treasury 20+ Years Index, fell by -2.6% over the week in USD terms.
Amid global market volatility, maintaining a well-diversified multi-asset portfolio remains essential for effectively managing risk.
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 November 2024.
The World In A Week - Media narrative vs market reality
Written by Ashwin Gurung
Following last week’s victory in the US presidential election for Donald Trump, US equities, as measured by the S&P 500, rallied +4.8% in GBP terms. The impact of this victory was especially evident in more domestically focused US smaller companies, which gained +8.8% over the week, as measured by the Russell 2000 Index, in GBP terms. Trump’s policies are considered more favourable to small companies due to proposed lower personal and corporate taxes, a looser regulatory environment for corporations such as banks, which creates a better climate for deal-making and lending, and high tariffs on foreign goods entering the US.
However, some see aspects of Trump’s policy as inflationary, with interest rates remaining higher for longer and potentially limiting future economic growth. We note that substantial research has been conducted on this issue, including studies from the International Monetary Fund. These studies indicate that, in the medium term, tariffs and reduced free trade tend to lead to lower output, decreased consumption, reduced spending power, higher unemployment, and exchange rate appreciation, all of which are deflationary forces. Ultimately, the negative long-term impact of tariffs on economic growth outweighs the initial one-off impact on prices.
Nevertheless. due to the more inflationary narrative, Trump’s victory initially had a negative effect on US government bonds. However, the losses were reversed later in the week following the Federal Reserve’s (Fed) decision to cut interest rates for the second time this year. The Fed reduced rates by 25 basis points to 4.5%-4.75%, but the Fed Chair Powell emphasised that they will remain data-dependent and noted that the election will not influence future policy decisions, reaffirming their independence. US long-dated government bonds, as measured by the Bloomberg US Treasury 20+ Years Index, ended the week up +1.8%, in USD terms.
We continue to believe that US interest rates remain elevated and that the full impact of higher rates has yet to be fully felt in the economy. Highly indebted small businesses in the US continue to face mounting financial pressures, as do lower-income consumers, as evidenced by rising auto loan and credit card delinquencies. Additionally, savings rates have fallen to very low levels, making it difficult for these consumers to sustain spending.
Similarly, here in the UK, the Bank of England (BoE) also cut interest rates for the second time this year by 25 basis points. BoE Governor Andrew Bailey indicated that future rate cuts are likely to be gradual if inflation falls as expected. Regarding Labour’s budget, Bailey stated that the BoE 'will need to see more' to assess its impact on inflation. This rate cut also supported Sterling bonds, as the Bloomberg Sterling Aggregate Index returned +0.2% over the week, in GBP terms.
While the effects of Trump’s policies and Rachel Reeves’s budget outcomes are yet to be seen, it is important for us to maintain highly diversified portfolios across various asset classes, market caps, and styles to capture opportunities while effectively managing risk.
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 November 2024.
© 2024 YOU Asset Management. All rights reserved.
The World In A Week - Seeking perfection
Equity and fixed income markets fell over the week. The MSCI All Country World Index fell -1.0% and, in fixed income markets, the Bloomberg Global Aggregate Index was -0.5% in GBP hedged terms.
In the UK, the FTSE All Share Index was down -1.0% over the week, with the more domestic- oriented mid and small-cap indices down even more. The UK bond market was also down, with the Bloomberg Sterling Aggregate Index falling -1.7% over the week. The negativity driving the above returns primarily came on the back of Chancellor, Rachel Reeves’, first budget where she attempted to perfectly navigate the government’s desire to raise taxes and borrow more to fund huge new spending commitments without spooking the markets. However, the eye-watering sums involved stoked fears that higher borrowing would lead the bond market to require higher yields on government debt and that the potentially inflationary impact of greater spending could hamper the ability of the Bank of England to reduce interest rates as fast as hoped going forward. The announcement of higher minimum wages and higher employer national insurance contributions, combined potentially with the prospect of interest rates staying higher for longer, was also expected to be greater felt in the pockets of medium and small businesses, hence the underperformance of mid and small capitalisation equities.
In the US, the S&P 500 index fell -1.4% over the week in local terms. The technology-heavy Nasdaq 100 index was down even further at -1.6% for the week, also in local terms. For UK investors, the declines were dampened in Sterling terms by the Pound’s weakness against the Dollar. Microsoft fell approximately 6% on the day of its earnings results while Facebook owner, Meta, fell 4% on the same day. Although current quarter earnings results were still robust, warnings of rising costs for artificial intelligence led to some dampening of future expectations. Apple also produced strong quarterly sales numbers, but the market was disappointed with the accompanying future revenue forecasts. With many leading technology and AI-related stocks trading on elevated valuations, the market will likely continue to seek perfection to justify current share prices. In brighter news, Amazon posted third quarter profit numbers that were above Wall Street estimates, helped by strong retail sales. The latest US GDP Growth data release also indicated that the US economy grew at an annualised rate of 2.8 per cent in the third quarter, supported by ongoing strength in consumer spending.
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 4th November 2024.
© 2024 YOU Asset Management. All rights reserved.
The World In A Week - “Trump Trades” and other Lazy Labels
Written by Chris Ayton
Last week fixed income markets witnessed a continuation of the selloff we have seen over the course of this month, with this sell-down largely focused on high-quality longer-dated government bonds which are sensitive to interest rates. Equity markets also became involved in the selling but are still mostly positive for the month to date in GBP terms due to a decrease in the value of Sterling, particularly versus the US Dollar.
The prevailing narrative around why fixed income markets have been selling off has been centred around the rapidly approaching US election and the growing view in betting markets that Trump’s chances of victory have been increasing. While we know betting markets often don’t reflect the eventual outcome of elections, we are also naturally sceptical about investment analysis centred around politics, particularly simplistic narratives such as the “Trump Trade” or “Harris Trade” propagated by investment banks who are in the business of generating revenues from trading and hedging activity around events.
We think this view is validated by past events, such as the aftermath of the 2016 US election. In the lead-up to that event, the popular narrative was that Hilary Clinton was the “status quo” candidate and that a victory for Trump would be a “risk-off” event which would be terrible for stocks. The exact opposite transpired. While there was a sharp drop in S&P 500 futures overnight as more and more states reported and a Trump victory became likely, by the time the market closed the day after the election, the S&P 500 index was up.
There has also been a great focus on the economic impact of Trump’s promise of much higher tariffs on imports from China and elsewhere. The conventional wisdom in much of the mainstream press is that tariffs immediately result in higher prices so they must be inflationary. However, we think this is quite lazy, headline-grabbing reporting as there is a wealth of research from groups such as the International Monetary Fund that shows what the medium-term effects of tariffs and less free trade tend to be; lower output, lower consumption, reduced spending power, higher unemployment and exchange rate appreciation, all of which are deflationary forces. In effect, the negative ultimate impact of tariffs on economic growth outweighs the immediate one-off impact on prices.
Elsewhere, in its worst result since 2009, Japan’s ruling Liberal Democratic Party (LDP) lost its parliamentary majority in the lower house elections over the weekend. This leaves the LDP desperately scrambling for new coalition partners to form a government and creates increased policy uncertainty and meaningful question marks over Prime Minister Ishiba’s future, less than a month after coming into office.
This reaffirms why we believe trying to formulate a short-term investment view based on politics and expected policies is a flawed strategy. Maintaining a diversified portfolio and staying invested, on the other hand, is a proven investment strategy that has been enduring over many decades and through many political regimes. That will continue to be the strategy employed within the YOU Asset Management portfolios.
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 28th October 2024.
© 2024 YOU Asset Management. All rights reserved.
Two Minute Missive 23 October 2024
Watch the latest 'Two Minute Missive' from our Client Investment Director, Shane Balkham.
This video contains the opinions and views of Shane Balkham. Please work with your adviser before undertaking any investments.
https://youtu.be/MiutaVEmCz4?si=y3qvOSb-YZtGllky
The World In A Week - Navigating mixed signals of slowdown and acceleration
Written by Ilaria Massei
In the UK, the annual inflation rate dropped to 1.7% in September 2024, with a decline in transport costs making the largest downward contribution. This provided some relief amid concerns that persistently high inflation could limit theBank of England's ability to reduce interest rates further. UK retail sales unexpectedly increased 0.3% month over month in September, driven mainly by increased sales of computers and telecommunications equipment. Underpinning the uptick in retail sales has been the return of real wage growth and fading worries about mortgage interest rates. The Monetary Policy Committee’s August interest rate cut seems to be quickly stimulating the housing market, with the Royal Institution of Chartered Surveyors’ September survey showing UK house prices rising at their highest annual rate for 2 years. These factors contributed to the FTSE All Share's gain of +1.3% last week.
Earnings season – when a large percentage of publicly traded companies release their quarterly results, has kicked off in Europe, so far pointing to a slowdown in some key sectors and pushing the MSCI Europe ex-UK down -0.3% last week in GBP terms. Two of the region's largest stocks, ASML, a leading semiconductor supplier, and LVMH, a luxury goods conglomerate, saw their share prices decline after disappointing earnings. While ASML has benefitted from a surge in demand for AI-related chips, other segments of the semiconductor market remain weaker than expected. LVMH reported a 16% decline in sales in Asia (excluding Japan), where China is the dominant market.
Chinese consumers have reduced their spending due to concerns over their country’s weakening economic outlook and housing market. The Minister of Finance announced plans for additional government fiscal support in an effort to boost the economy, but the market was disappointed that they did not specify the level of support that would be provided and the MSCI China returned -2.5% last week in GBP terms.
While earnings were disappointing in Europe, US tech giants NVIDIA and Apple reached new all-time highs. Nonetheless, away from these dominant behemoths, smaller businesses continue to face mounting financial pressures, with nominal sales growth slowing and the average short-term bank loan interest rate hitting a 24-year high in September, according to data from the National Federation of Independent Business, a research centre that collects Small Business Economic Trends data. This highlights the stark contrast in the economic conditions faced by companies, with small businesses grappling with significant challenges while larger firms continue to prosper. On the employment front, the number of Uber drivers and couriers in the US has been on the rise since 2023. Despite positive signals from Non-Farm Payrolls, which measure the number of paid US workers outside agriculture, government, private households, and nonprofit organisations, companies like Uber appear to be taking on individuals who would typically be treated as unemployed. However, with the number of rides not rising as fast, the capacity for absorption is likely to be limited and could ultimately translate into higher unemployment in the future.
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 October 2024.
© 2024 YOU Asset Management. All rights reserved.
The World In A Week - New highs and new flows
Written by Millan Chauhan
Last week we saw US stocks climb to new record highs, with the S&P 500 closing up +0.7% in GBP terms, largely driven higher by technology stocks with the technology-heavy NASDAQ 100 index closing +3.1% higher. Since Trump’s election victory, sentiment towards US equities has increased significantly as Trump’s administration is expected to unleash several “pro-growth” reforms which includes corporate tax cuts. According to the fund flow data provider called EPFR, US Equity funds have seen investment inflows of $140bn since Trump's victory which is the highest monthly net investment flow into US Equities since 2000. Conversely, investment flows into the emerging market region have been weaker with net withdrawals of $8bn from emerging market funds since Trump’s victory, with tariffs and trade wars reducing investors’ appetite towards investment into Chinese companies. Of the $8bn net withdrawals from emerging markets, $4bn of these net investment flows were withdrawn from China-focused funds.
Elsewhere, we saw investment flows into UK Equities turn positive in November for the first time in over three and a half years. This was following record investment outflows from UK Equities in October, ahead of the UK Budget as investors made redemptions in anticipation of expected capital gains tax hikes. Rachel Reeves announced that capital gains tax would rise from 10% to 18% at the lower rate and from 20% to 24% for higher earners. We remain overweight to UK Equities from a tactical asset allocation standpoint with continued takeover activity being a signal that UK equities are attractively priced. We have also seen a greater deal of buyback activity and last week, financial software provider, Sage announced plans for a £400m share buyback and also raised its dividend following stronger-than-expected operating profits, the company’s share price rose +19% following this announcement.
UK house prices rose by +1.3% month-over-month during November and UK lenders approved the highest number of mortgages since August 2022. However, fears remain around how the UK government are expected to increase the domestic housing supply, to meet their target of 1.5mn new homes over the next five years. Since the UK budget was announced, the six largest homebuilders (by market capitalisation) have seen their share prices fall by an average of 18%, with fears around resurgent cost-inflation, rising mortgage costs and increased expectation that the Bank of England Monetary Policy Committee will delay their next interest rate cut to 2025.
Within Continental Europe, markets were in positive territory despite recent political turmoil in France, with the MSCI Europe ex-UK index returning +2.3% last week, in GBP terms. Last week, Michel Barnier resigned as Prime Minister following a vote of no confidence in parliament. President Macron announced he would appoint a new Prime Minister in the coming days. Expectations that the European Central Bank will accelerate their rate-cutting cycle also increased.
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 9th December 2024.
© 2024 YOU Asset Management. All rights reserved.