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

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 9^th December 2024.

© 2024 YOU Asset Management. All rights reserved.

by Ellen Ward

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 2^nd December 2024.

© 2024 YOU Asset Management. All rights reserved.

by Ellen Ward

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 6^th 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 20^th 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 25^th November 2024.

© 2024 YOU Asset Management. All rights reserved.

by Ellen Ward