Ellen Ward

The World In A Week - “America has no permanent friends or enemies, only interests”

Written by Cormac Nevin

Markets appeared relatively quiet last week, particularly from the vantage point of a GBP-based investor. The MSCI All Country World Index of global stocks rose +1.4% in local currency terms, but only +0.3% in Pound Sterling terms as GBP rose against other global currencies due to stronger than anticipated (but still weak) economic growth being reported. Bonds took a bit of a round trip last week, the US 10-Year bond yield jumped on Wednesday when the consumer price index measure of inflation came in a little hotter than expected. However, this jump was more than reversed on Thursday when the producer price index showed much better data. It appears the disinflation process remains on track in the US, and bond yields finished the week lower than where they started meaning the price of bonds increased.

What was perhaps more eventful last week was the geopolitical spectacle emanating from the Munich Security Conference. JD Vance, the new US Vice President, delivered a speech which provoked an indignant response from many European politicians. He made it clear that the new US administration has far less patience for guaranteeing the security of Europe than in past decades and even went so far as to criticise forces which he viewed as the “enemy within” many European nation-states. It appears the world is moving toward a dynamic whereby countries pursue their own self-interest more rapaciously. As the relatively wealthier, more innovative and militarily powerful member of the Western Alliance, the US seems to want to flex these muscles.

Politics aside, something that jumps out from a long-term study of markets and asset classes over the past 150 years is the degree to which sufficient geographic and style diversification provides the best probability of navigating a changing geopolitical landscape. The best way to achieve consistent returns to build & preserve wealth is to build portfolios which are resilient to a range of outcomes and with exposure to opportunities that are not concentrated in one geography. A globally diversified portfolio would have offered a great deal of aid to investors in managing through events as different as the Russian Revolution, the two World Wars, the 1970s inflation shock or the 2000s tech blow-up*. Perhaps this is particularly pertinent at this point in time, when many portfolios are heavily concentrated in rather expensive US assets.

*Source: Saphier, M., Karniol-Tambour, K. & Margolis, P, (February 2019) - Geographic Diversification Can Be a Lifesaver, Yet Most Portfolios Are Highly Geographically Concentrated. [Report]  

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 17th February 2025.

© 2025 YOU Asset Management. All rights reserved.

by Ellen Ward

The World In A Week - Trump’s tariffs vs. the world

Written by Ashwin Gurung

Last week, President Donald Trump imposed steep tariffs on Canada, Mexico, and China, marking the beginning of a new era of trade tensions between the US and three of its largest trading partners. The executive order includes a 25% tariff on most imports from Canada and Mexico, with an additional 10% tariff on Chinese goods.

In response, Canadian Prime Minister Justin Trudeau announced 25% tariffs on $107 billion worth of US goods, including alcohol, clothing, and lumber. He cautioned that these tariffs could hurt US jobs and raise costs for consumers, including higher prices for food and gas. Likewise, China retaliated with tariffs on US energy exports and farm equipment. Although Chinese tariffs are now in effect, President Trump has agreed to hold off tariffs on Canada and Mexico for 30 days while negotiations continue. President Trump has also hinted that the European Union (EU) may face tariffs next but stated that trade issues with the UK “can be worked out”. These actions reflect rising global trade tensions among major economies. As a result of these uncertainties, global markets saw a sharp decline on Monday but mostly recovered over the remainder of the week.

The release of US Nonfarm Payrolls (NFP) report further contributed to market volatility. While the data showed 143,000 jobs were added in January, which was below expectations, the revised December figure was more notable, increasing from 256,000 to 307,000. Additionally, the unemployment rate decreased from 4.1% in December to 4% in January, indicating the continued resilience of the US economy. This caused both US stocks and government bonds to come under pressure, as it suggests the US Federal Reserve may be forced to cut interest rates more slowly this year. However, it’s important to remember that these short-term figures are subject to multiple revisions and may not fully reflect long-term trends. Overall, it was a negative week for US stocks as measured by the S&P 500 which returned -0.2% in GBP terms, however, global bonds still ended the week in positive territory with the Bloomberg Global Aggregate Index up +0.4% in GBP hedged terms.

Nonetheless, corporate earnings in the US have remained strong this earnings season. Over half of the companies in the S&P 500, representing a significant portion of its market capitalisation, have reported their fourth-quarter results, where more than 60% exceeded sales estimates, while approximately 75% beat earnings forecasts. However, the most notable outlier was Google’s parent company, Alphabet, whose share price fell by 8% on the day of their results following weaker-than-expected revenue numbers and significant AI spending plans.

Meanwhile, here in the UK, the Bank of England (BoE) reduced its 2025 growth forecast and cut interest rates by 25bps to 4.5%, the lowest level in 18 months, with two of the committee members voting for an even greater cut. The BoE now expects just 0.75% growth in the UK economy this year, down from its previous forecast of 1.5%, and anticipates inflation to rise before falling back. However, BoE Governor Andrew Bailey stated that the BoE did not factor in the potential impact of tariffs on inflation forecasts, as the situation remains highly uncertain.

Although the week started negatively, with investors worried that US tariffs could spark a global trade war, expectations of lower interest rates helped drive the FTSE 100 Index of large-cap UK listed stock to a record high, ending the week with a +0.3% gain. However, more domestically focussed mid-cap stocks reacted more negatively to the economic growth downgrade, with the FTSE 250 Index returning -0.6% for the week.

With ongoing uncertainty, we believe maintaining diversification across multiple asset classes, market caps, and investment styles is crucial for navigating these risks more effectively.

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 10^th February 2025.

© 2025 YOU Asset Management. All rights reserved.

by Ellen Ward

The World In A Week - The AI race intensifies

Written by Dominic Williams

The week began with news that the Chinese startup, DeepSeek, had released its latest AI model, which performs at a level comparable to ChatGPT, a product developed by US-based OpenAI. DeepSeek stated its model was built at a fraction of ChatGPT’s cost using significantly fewer of Nvidia’s chips. This announcement sent shockwaves through the market, particularly affecting technology stocks that have been central to the AI boom over the past year, a trend that has contributed towards excessive index concentration within US markets.

AI-focused firms like Nvidia and Microsoft, which have pledged billions to the future of AI development, saw their stock prices fall on Monday. The Nasdaq 100, a technology-heavy index, still only ended the week marginally lower, down -0.9% in GBP terms. This development raises questions about whether the billions earmarked for AI investment are necessary, given that DeepSeek has managed to achieve comparable progress with far fewer resources.

Amid the AI-driven market shifts, two key central bank decisions took place last week, with interest rate announcements from the US Federal Reserve (Fed) and the European Central Bank (ECB).

The Fed held rates steady at a range of 4.25%-4.5%, marking the first pause after three consecutive rate cuts. A more hawkish stance had emerged in the Fed’s December meeting when policymakers indicated they expected to implement only a couple of rate cuts in 2025. Following last week’s meeting, Fed Chair Jerome Powell reiterated that the central bank is in no rush to lower rates, emphasising that they were awaiting further economic data and assessing potential policy changes under President Trump. President Trump reacted by criticising the Fed, blaming it for failing to contain inflation, which he argued was a problem of its own making. Markets responded neutrally to the decision, as it had been widely anticipated. The S&P 500 ended the week slightly lower, down -0.5% in GBP terms.

On Thursday, the ECB met and cut its key interest rate by 0.25% to 2.75%, as markets had forecasted. Economic growth across the Eurozone has remained weak, and the central bank warned of continued headwinds that could further constrain expansion. The prospect of US tariffs presents an additional challenge, with uncertainty over whether their impact would be inflationary or deflationary for the Eurozone. Despite these concerns, European equities have performed well, both in January and over the past week. The MSCI Europe ex-UK index rose +0.8% last week and has returned +8.3% in January, both in GBP terms. A driver of this performance could be related to investor unease over market concentration in the US, particularly regarding the “Magnificent 7” stocks that dominated in 2024. As a result, some investors have taken profits and reallocated capital into other regions, including Europe.

Back on home soil, Chancellor Rachel Reeves delivered a speech announcing a series of major infrastructure projects aimed at boosting economic growth in the UK. Key proposals included the expansion of Heathrow Airport with a third runway and new transport links between Oxford and Cambridge, intended to establish “Europe’s Silicon Valley.”

The speech appeared to be aimed at reassuring investors about the UK’s economic prospects. Since Reeves’ first budget, which outlined significant public spending alongside tax increases, government borrowing costs have risen. However, the latest speech seems to have calmed markets. The yield on UK 10-year gilts, a key measure of government borrowing costs, remained stable at around 4.6%, a decline from the sharp selloff in October, which had pushed borrowing costs to multi-decade highs.

As a result, the FTSE 100 rallied +2.0% over the week, meanwhile, the announcement seemed more helpful for domestically focused companies as measured by the FTSE 250 index which also performed well, rising +2.2%.

The significant market movements in tech stocks this week highlight the importance of maintaining a well-diversified portfolio across both countries and sectors. Diversification helps protect against sharp shocks in specific industries, as evidenced by this week’s volatility.

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 3^rd February 2025.

© 2025 YOU Asset Management. All rights reserved.

by Ellen Ward

The World In A Week - Trump 2.0 is off to a quick start

Written by Shane Balkham

Trump’s second term as President of the United States has already proven exhausting for those trying to keep up with his rhetoric and actions. Within the first few days of his presidency, there has been wave upon wave of unilateral actions that represent a significant expansion of White House power to satisfy his supporter base. Some of his policies and reforms will take time and require congressional legislation to enact, but that has not stopped Trump from commanding the spotlight over key areas that brought him back to power.

Nowhere has this display of presidential authority been more prominent than on the topic of immigration, which polls suggest was a significant concern for many voters. Within hours of taking office Trump declared an emergency at the US/Mexico border, allowing him to deploy more US military personnel to the area. He has effectively closed the country to all new asylum-seekers, as well as suspending already approved resettlement flights for refugees.

President Trump also ordered authorities to cease the granting of automatic citizenship to the children of undocumented migrants who are born on American soil. This is arguably one of his most controversial actions and is seen as unconstitutional. Lengthy legal battles will undoubtedly ensue, as well as the potential impact that these policies will have on the US’s economic growth.

While immigration was a prominent issue with voters, it was overshadowed by concerns about the economy and inflation. Trump has focused on energy prices as the key catalyst in bringing down prices of everyday goods and services. He also declared another emergency; the ‘national energy emergency’, which reversed protections for fossil fuel extraction in Alaska and coastal waters that outgoing president Joe Biden had put in place.

The one area that was top of Trump’s list was tariffs, where he pledged to focus on some of America's biggest trade partners from day one, in order to both protect American industries and generate new revenue to fund his favoured government programmes. It could be a reason why Trump, with his eye on the stock market and economic growth, is treading more carefully when it comes to trade.

However, many have cautioned that tariffs could drive up consumer costs and hurt American businesses that rely on imports in their supply chain. With the Federal Reserve meeting this week, inflation will once again be the hot topic. While the Federal Reserve’s last update in December looked towards having two interest rate cuts in 2025, President Trump declared he knew interest rates better than them.

Fact-checking is becoming important for any rhetoric, as Trump also declared that the recent inflation was probably the highest in US history. In actual fact, US inflation was higher four times during Trump’s lifetime (in the 1940s, 1950s, 1970s, and 1980s). This highlights the importance of the independence of the Federal Reserve, as well as an understanding of inflation which is needed to understand the importance of interest rates.

The markets were mixed last week, with European equities posting the best returns from the major developed markets, while US equities were negative. The MSCI Europe ex-UK index was up +1.3%, with the S&P 500 and Nasdaq 100 down -0.6% and -0.8% respectively, all in GBP terms. The MSCI Japan index also rose, +0.8% in GBP terms, as the Bank of Japan (BoJ) raised interest rates a quarter point, as had been signalled in advance.  The expectation is for one further rate increase this year.

While it is important to monitor the antics of arguably the world’s most powerful individual, it is equally important to ensure you have an appropriate level of diversification, that will allow you to stay invested during these uncertain weeks and months.

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 27th January 2025.

© 2025 YOU Asset Management. All rights reserved.

by Ellen Ward

The World In A Week - The banks are back

Written by Millan Chauhan

Last week was a positive week for global markets, with the MSCI ACWI index returning +2.8% in GBP terms. Both the UK and the US markets were lifted by encouraging inflation reports last week, which helped the FTSE All-Share return +3.3% and the S&P 500 return +3.2% respectively over the week.

UK inflation, as measured by the Consumer Price Index (CPI), was reported at 2.5% year-over-year in December 2024, which came in lower than expectations of 2.6%. However, it was the core CPI rate (which excludes food and energy prices) which was the most encouraging data point, coming down to 3.2% year-over-year, versus expectations of 3.4%. This tends to be a less noisy measure of inflation and can be a better guide for policymakers since food and energy prices tend to be more volatile. Furthermore, UK retail sales also fell short of expectations with the quarter-over-quarter level falling by 0.8% for Q4 2024. The FTSE 250 index returned +4.4% last week and is an index of mid-sized companies that are more exposed to domestic corporate earnings and historically more sensitive to interest rates. The latest economic data increased the probability of a 0.25% interest rate cut at the Bank of England’s next Monetary Policy Committee meeting on the 6^th of February 2025.

Within the US, we saw CPI come in at 2.9% year-over-year in December which was in line with expectations. However, the core CPI figure came in below expectations, rising 3.2% year-over-year in December 2024. The Federal Reserve is set to meet next week to decide the trajectory for interest rates with this latest report appearing not to be significant enough to cause the Federal Reserve to cut interest rates at this meeting. Markets are now expecting the Federal Reserve to maintain interest rates between the target range of 4.25-4.50%. Nevertheless, markets reacted positively to December’s inflation report with the S&P 500 index returning +3.2% last week, in GBP terms.

However, it was the large US banks that outpaced wider US stocks, following bumper earnings reports from the likes of JPMorgan Chase, Goldman Sachs and Citigroup. Several of the banks confirmed their earnings were supported by a sharp rise in trading and dealmaking in November 2024, around the time of the US election, with Donald Trump’s victory boosting investor sentiment and appetite for risk. As a result, it was the widest weekly differential between US value and growth equities since September 2024. We also saw US small caps (as measured by the Russell 2000 index) outperform large caps, as the Russell 2000 index returned +4.2% last week in GBP terms. Specific styles of investing exhibit periods of outperformance at points in time that are different to other investment styles and is particularly difficult to time, which is why we continue to believe that diversification across investment styles remains highly appropriate, particularly within US Equities, where index concentration risk issues remain.

Elsewhere within Continental Europe, the European Central Bank released minutes from their December meeting, where they reduced interest rates for a third time in a row. It emerged that policymakers are determined to lower interest rates cautiously and gradually with expectations now leaning towards a further 0.25% interest rate cut next week. In the minutes, it was noted that the case for a 0.50% interest rate cut was considered. The economic backdrop within Europe still remains weak, as confirmed by Germany’s economy contracting by 0.2% in 2024, having fallen by 0.3% in 2023. From an asset allocation perspective, we remain less constructive on European Equities for partly this reason, and we see better opportunities elsewhere.

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 20th January 2025.

© 2025 YOU Asset Management. All rights reserved.

by Ellen Ward

The World In A Week - Gilts under pressure

Written by Ilaria Massei

Last week, the UK bond market made headlines again, reminiscent of the aftermath of the 2022 Autumn Budget under former Prime Minister Liz Truss. Rising concerns over persistent inflation, sluggish economic growth, and increasing government borrowing drove bond investors to demand higher interest rates to buy gilts, leading to a -1.7% decline in the Bloomberg Sterling Aggregate Index as UK bond prices fell.

Pension funds and other Liability Driven Investment (LDI) companies were better prepared this time to manage bond market volatility, with stronger liquidity buffers to avoid the same level of distress seen in 2022. Nevertheless, inflation remains elevated, and the UK economy is grappling with slow growth. This leaves the Bank of England in a challenging position, as it must navigate the delicate balance of setting interest rates that can avoid a prolonged period of stagflation, which is the condition of an economy with high inflation and low economic growth. Higher borrowing costs also feed back into a deteriorating fiscal profile, and there is a growing sense that the Labour government will be forced to renege on its promise not to raise taxes further, given the high sensitivity around additional borrowing and cuts to public spending.

A weaker economic outlook led to a further decline in the Pound last week, which could increase import costs if the trend persists. On the bright side, the FTSE 100, whose components are large multinational companies that earn a lot of their profits overseas, rose by +0.3% as their overseas revenues are boosted by a weaker GBP. In addition, UK banks, which make up a substantial part of the index, generally benefit from higher interest rates, although concerns about long-term sustainability have emerged as loan demand could weaken due to rising costs for borrowers. It was notable that the prices of more domestic and economically sensitive mid-sized companies fared less well, with the FTSE 250 index down over 4.0% for the week.

On the other side of the Atlantic, the US economy continues to demonstrate positive growth momentum, surpassing market expectations by adding 256,000 jobs in December. This, coupled with an unemployment rate below expectation at 4.1% was perceived as positive news for the US but it’s important to remember that monthly data like this can be volatile and in recent history has been subject to record downward revisions, so it may not always be indicative of the longer-term trajectory.

If the strength of the labour market is confirmed in the coming months, the Federal Reserve may be forced to maintain high interest rates to prevent a re-acceleration of inflation. This prospect led US equities to give back some gains, with small-cap stocks taking the hardest hit. The Russell 2000 dropped by -2.1%, as small businesses are more vulnerable to the pressures of persistent high borrowing costs.

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 13^th January 2025.

© 2025 YOU Asset Management. All rights reserved.

by Ellen Ward

The World In A Week - Currency diversification proves helpful

Written by Chris Ayton

In a shortened week due to the New Year holidays, most global equity markets were down but, when translated into Sterling returns, were positive due to the Pound being very weak against most major currencies, particularly the US Dollar. The MSCI All Country World Index was down -0.3% in local currencies but ended the week up +0.9% in GBP terms. In fixed income markets, the Bloomberg Global Aggregate Index was up +0.1% in GBP hedged terms.

The Dollar-Sterling exchange rate had hit a level as high as $1.34 as recently as September but has subsequently fallen to around $1.25, as UK manufacturing and growth data has generally been lacklustre. At the same time, resilient economic growth and the prospect of higher inflation in the US has led US Federal Reserve officials to suggest that US interest rates may have to stay higher for longer. Higher interest rates in the US boosts demand for US Dollars, hence providing support for their currency.

Perhaps counterintuitively, a weak Pound can be good news for many UK companies as the FTSE 100 has a plethora of large, globally focused companies in the energy, pharmaceuticals, mining and industrials sectors that earn the majority of their revenues outside the UK, often in US Dollars. A weak Pound makes those overseas revenues more valuable. Partially as a result of this, the FTSE 100 Index led the way over the week, rising +0.9% compared to the more domestically oriented FTSE UK Small Cap Index that was only up +0.2%. Stocks like BP and Shell, that earn the majority of their revenues in US Dollars, were particularly strong.

The S&P 500 Index in the US started the week pretty poorly but recovered some ground on Friday, boosted by a rebound in a number of tech-related names. The US equity index ended the week up 1%, although all this return came from US Dollar strength as it was down -0.5% in local terms. Having rallied sharply since the US election, Tesla reported that their annual deliveries declined for the first time in over a decade, coming under pressure from cheaper Chinese competition. That said, Tesla still retains its position as the world’s largest electronic vehicle maker.

China’s stock market struggled over the week, with the MSCI China Index falling -2.3% in local currency and -1.2% in GBP terms. Weak economic data out of China and continued fears over what “China-bashing” policies Trump 2.0 will bring, continue to provide unwelcome uncertainty to both domestic and international investors. Chinese export growth has been quite strong over 2024 but the prospect of the imposition of widespread and sizeable tariffs on exports to the US are driving fears that this will threaten this important source of growth in China going forward.

As we enter the new year, which will no doubt bring a range of uncertainties and challenges, we continue to have strong confidence that the best course of action for generating sustainable long-term, risk-adjusted investment returns involves a global diverse portfolio comprised of multiple complementary investment styles, as well as exposure to multiple different global markets and currencies.

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 6th January 2025.

© 2025 YOU Asset Management. All rights reserved.

by Ellen Ward