The World In A Week - Fear of retaliation
Written by Shane Balkham
Iran launched the biggest attack on Israel in over 50 years, coinciding with the eve of the Jewish New Year. This rapid escalation of geopolitical risks in the Middle East saw the oil price climb around 5%, the biggest weekly move in the past 12 months. This surge in oil prices came as markets braced for the possibility that Israel’s retaliation would be focused on Iran’s energy infrastructure.
While oil’s sensitivity to geopolitical risks is nothing new, broad market concerns are focused on whether the conflict will cause a significant interruption to oil supply and have inflationary consequences.
Now that the Federal Reserve (Fed) has started its rate-cutting cycle, the focus for the rest of the year is on data pertaining to the US labour market. The Fed has signalled that its focus has shifted from inflation to the strength of the US labour market. That means the market will give a lot of attention to the Nonfarm payrolls data (a key indicator of the strength of the US labour market), the latest of which was published on Friday.
Good news for Jerome Powell, the chair of the Fed, as the number of jobs created in September exceeded expectations: 254,000 jobs versus the consensus forecast of 150,000. Equally significant was a revision to July’s job figure, up to 144,000 from 89,000, and August’s revision up to 159,000 from 142,000.
Add to this that the headline unemployment rate dropped from 4.2% to 4.1%, which leads to a conclusion that the US looks to have a robust employment backdrop and reaffirms that the US economy remains strong. While the probability of a consecutive half percent rate cut at the Fed’s next meeting has been reduced to almost zero, the expectation of a quarter percent cut in November, just two days after the US Presidential Election, is still firmly on the cards.
In the Eurozone, the focus remains firmly on inflation, with the European Central Bank (ECB) hinting at a rate cut at its next meeting. Inflation for the Eurozone was below expectations on a year-on-year basis, with headline inflation dipping below 2% for the first time since 2021. A decline in energy prices helped bring Eurozone inflation down to 1.8% and should provide comfort to the ECB that further rate cuts are appropriate.
With inflation seemingly under control and the majority of central banks in a rate-cutting cycle, outside of the conflict in the Middle East, the other unknown of 2024 rests firmly with the US Presidential Election. We are only four weeks away from the US electorate going to the polls, and most forecasts continue to suggest a close race.
While the focus will be on who wins The White House, the importance of which party or parties control Congress is arguably just as important. While the President has significant power, Congress will dictate how much legislation can be passed and ultimately how much of an effect politics will have on the US economy.
The importance of having an appropriately globally diversified investment 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 7th October 2024.
© 2024 YOU Asset Management. All rights reserved.
The World In A Week - Stimulus in China
Written by Millan Chauhan
The People’s Bank of China announced a series of measures to support the economy, including cutting a key lending rate by 0.3%, the biggest reduction since 2016. The goal is to stabilise the property market and boost consumer spending to achieve a 5% annual GDP growth target. In addition to rate cuts, the bank lowered the minimum deposit requirement for second home purchases from 25% to 15%. These measures are expected to create a more positive outlook for the economy, which has struggled in recent years. The news caused a strong reaction in the stock market, with the MSCI China Index gaining +16.1% in GBP terms last week.
The positive news from China and its potential to boost Chinese consumer confidence also benefited luxury brands like LVMH and Burberry, as Chinese consumers tend to spend heavily on high-end goods. This momentum also helped the broader MSCI Europe ex-UK Index gain +2.4% in GBP terms, which has a modest exposure to luxury goods.
Meanwhile, economic activity in Europe continued to slow, as shown by a drop in the Eurozone’s Purchasing Managers’ Index (PMI), which measures business conditions. A PMI reading below 50 signals a contraction, and this month’s score of 48.9 suggests economic activity is declining. Inflation in France and Spain also came in lower than expected, increasing the chances of a rate cut by the European Central Bank at its October meeting.
In the US, the Commerce Department reported that core personal consumption expenditure (PCE), the Federal Reserve’s preferred measure of inflation, rose by only 0.1% in August, suggesting a slight easing of inflationary pressures.
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 30th September 2024.
© 2024 YOU Asset Management. All rights reserved.
Two Minute Missive 26 September 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/IoOybv3pHUQ
The World In A Week - The time has come
Written by Ilaria Massei
Last week, the Federal Reserve (Fed) implemented a 0.5 percentage point rate cut, effectively settling the debate over whether a 0.25 or 0.5 percentage point reduction was more appropriate. The decision, supported by 11 of the 12 voting members, boosted US and Global equities last week, with the S&P 500 rising by +0.4% and the MSCI All Country World Index rising by +0.3%, both in GBP terms. Concerns that the magnitude of the cut could fuel future inflation have put pressure on fixed income markets, leading the Bloomberg Global Aggregate Index to fall by -0.2% in GBP hedged terms. However, a closer look at consumer data reveals that nearly all excess savings accumulated during the pandemic have been spent. This raises concerns about US consumers' ability to sustain economic growth.
Meanwhile, on this side of the Atlantic, the Bank of England (BoE) decided to keep interest rates steady at its Monetary Policy Committee meeting. This decision comes as the core Consumer Price Index (CPI), which excludes volatile food and energy prices, rose to 3.6%. This increase was largely driven by a rise in services inflation, particularly in airfares, which increased to 5.6%, contributing to the BoE’s decision to leave rates unchanged. On the consumer front, sentiment in the UK took a hit in September, with the GfK Consumer Confidence Index, which measures expectations on the general economic outlook and households’ finances, dropping by 7 points to -20, back to January’s level. The move comes after warnings from the UK’s fiscal watchdog about the urgent need to address rising debt and the upcoming Autumn budget, which tempered optimism around the economic recovery.
Far in the East, China’s August data highlighted a continuing slowdown in economic momentum, with the country seemingly caught in a deflationary spiral similar to Japan’s experience in the late 1980s and 1990s. Nonetheless, Chinese equities were the best performing asset class last week, with the MSCI China index up +3.6% in GBP terms, supported by looser monetary conditions in the US. However, despite the benefits of US rate cuts, there is growing pressure on Beijing to take further action, as both households and businesses remain in need of additional support.
The Bank of Japan left its key short-term interest rate unchanged at 0.25%, as widely anticipated, maintaining a significant rate differential with other developed central banks. The MSCI Japan posted a strong +2.9% in local terms last week, however, the index gave back all of the gains due to currency weakness, resulting in a -0.8% return 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 23rd September 2024.
© 2024 YOU Asset Management. All rights reserved.
The World In A Week - Markets shrug off cold winds from the East
Written by Chris Ayton
Last week was a positive one for global equities with the MSCI All Country World Index retracing most of its losses suffered earlier in the month, and ending the week up +3.3% in Sterling terms. Large cap US growth stocks bounced back sharply with the NASDAQ 100 index up +6.2% over the week, boosted by Nvidia’s CEO citing at a Goldman Sachs technology conference that there continues to be a frenzy of demand for its products from its large and “emotional” AI focused customers with “everyone wanting to be first and everyone wants to be most”.
In the UK, July’s GDP growth number unexpectedly came in flat for the second month in a row. The economy grew by +0.7% in the first three months of the year and +0.6% in the second quarter but the flat numbers for June and July raised fears that the economy is stalling. This data also slightly raised expectations that the Bank of England could cut interest rates again when they meet on 19th September, although the odds are still in favour of the base rate being left unchanged at 5%.
The FTSE All Share Index ended the week up +1.3%. Takeover activity continued to be prominent in the UK market with the latest bid being by Rupert Murdoch owned REA’s £5.6bn bid for online property portal, Rightmove. The company swiftly rejected the bid, which was at a price 26% above where it started the month, saying it fundamentally undervalued the company’s future prospects.
In the US, away from the headlines from the Presidential debate, the latest inflation data showed inflation falling to 2.5% in August, although core inflation, which excludes food and energy, held steady at 3.2%. This tempered expectations of a 0.5% interest rate cut at the upcoming Federal Reserve meeting, although the markets are still pricing that as the most likely outcome.
Emerging Market equities were the laggards over the week, rising +1%, once again dragged down by Chinese equities which fell back -0.2% as China’s producer prices declined 1.8% year-on-year and raised more concerns that deflationary forces are entrenched in the economy. Data was also released showing that the value of new home sales by the top 100 developers fell 26.8% year-on-year. Although this lacklustre backdrop is far from ideal for equities, it continues to be positive for our funds’ exposure to China government bonds, with the Bloomberg China Aggregate Bond Index up +0.4% for the week and +8.2% for the year-to-date, both in GBP hedged 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 16th September 2024.
© 2024 YOU Asset Management. All rights reserved.
The World In A Week - Sahm Rules are meant to be broken
Written by Cormac Nevin
Last week was a challenging one for global equity markets. The MSCI All Country World Index fell -4.0% in GBP terms, and while all equity markets found themselves in negative territory for the week the worst affected was the U.S market, illustrated by the -4.5% (GBP) fall in the S&P 500 Index.
The source of the volatility we have witnessed over the last two months has been centred around economic data releases in the U.S, primarily around the health of the labour market. As we covered in prior notes, the U.S Non-Farm Payrolls employment report released on the 2nd of August undershot expectations by implying an increase in the unemployment rate and triggered a bout of market panic the following Monday. This was followed up with last week’s report whereby even though the unemployment rate fell back to 4.2% from 4.3%, the report again disappointed expectations.
Market participants are acutely focused on a concept known as the “Sahm Rule”. This metric was devised by the economist Claudia Sahm as an indicator for when the economy enters a recession. It is “triggered” once the 3-month moving average of the unemployment rate rises by half a percentage point or more relative to the minimum of the three-month averages from the previous 12 months. The dynamic which it seeks to capture is that when the labour market weakens, it does so at an accelerating rate as the growing body of jobseekers reduce demand in the economy spurring further job losses. This metric was initially triggered in the August payroll report and was further pushed into recessionary territory by last Friday’s report. Interestingly, Claudia Sahm herself has recently argued that her rule may not apply this time given large numbers of new entrants to the labour market from immigration, however markets appear to be becoming increasingly concerned about the U.S economy from a number of angles.
While the equity market’s reaction to these developments has been negative, the reaction from fixed income markets have been much more amenable, particularly in the highest-quality segments. The Bloomberg Global Aggregate Index of high-quality global bonds rallied +1.0% last week and is now up +3.9% for the quarter-to-date. The long duration U.S Treasury exposure we hold in the MAB Funds has rallied +3.4% last week and has now returned +9.5% for the quarter to date. All returns quoted were in GBP Hedged terms. Fixed income is once again playing its traditional role in providing meaningful diversification to equities, illustrating the value of a globally diverse multi-asset approach.
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 September 2024.
© 2024 YOU Asset Management. All rights reserved.
Two Minute Missive 6 September 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.
The World In A Week - Rate cuts: a step closer
Written by Shane Balkham
In July, the Fed’s preferred measure of inflation, known as the core personal consumption expenditures (PCE) price index, which excludes volatile food and energy items, rose by 0.2% month-over-month. This mild increase has reinforced the Federal Reserve’s plan to start cutting interest rates at the next meeting in September.
Furthermore, consumer spending, which makes up more than two-thirds of US economic activity, saw a notable increase of 0.5% in July. While this may suggest that the economy remains strong and might temper expectations for a significant Fed rate cut, income growth was modest at 0.3%, and the savings rate declined to 2.9% from 3.1% in June. Some arguments suggest consumers are likely tapping into their savings to maintain spending, therefore, future spending may not be sustainable and may reflect ongoing financial stress in a high interest rate environment. However, others argue that the income figures might be understated, as they may not fully account for earnings by individuals working without legal documentation.
Nonetheless, the labour market is another key factor in the Fed’s decision-making process. With some signs of weakness emerging, Fed officials are paying close attention to how employment trends could impact consumer spending, which is the main driver of the economy. The August jobs report, due this week, will be crucial in shaping their decisions at the upcoming September meeting.
Across the Atlantic, the Eurozone is also seeing a slowdown in inflation. In August, year-over-year prices increased by 2.2%, down from 2.6% in July. This marks the lowest inflation rate in three years, and investors are already anticipating that the European Central Bank (ECB) will further reduce interest rates before the year ends. However, some policymakers remain cautious, noting that the battle against inflation isn’t over, particularly in the services sector where prices continue to rise, increasing 4.2% in August from 4.0% in July. Nevertheless, this news has been supportive for European equities, with the MSCI Europe ex-UK returning +0.8% over the last week and extending gains to +1.8% for the month, both 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 September 2024.
© 2024 YOU Asset Management. All rights reserved.
The World In A Week - A cut above the rest?
Written by Millan Chauhan
Last week, Jay Powell delivered his speech at the Federal Reserve’s (the Fed) annual economic symposium in Jackson Hole, Wyoming. Chairman Powell acknowledged that the “upside risks to inflation have diminished and the downside risks to employment have increased” and stated that the “time has come for policy to adjust”, indicating that policymakers would look to cut interest rates at their next meeting in September.
According to the CME FedWatch Tool, the probability of an interest rate cut is now 100% but the magnitude of the rate cut still remains in contention. The probability of a 25 basis points cut currently stands at 70% and the probability of a 50 basis points cut is at 30%. One of the major risks that remain is the speed at which future interest rate cuts are implemented. Whilst a 25 basis points is almost certain, the probability of a 50 basis points rate cut has risen substantially following Chairman Powell’s statement. The Fed’s preferred inflation metric which is the personal consumption expenditures index is expected to be released this Friday, with expectations of the core measure at 2.7%, on a year-over-year basis.
We also saw the release of the Fed’s meeting minutes which stated that the vast majority of participants expecting a September rate cut and that some officials preferred a July rate cut following weaker jobs data releases.
Following Chairman Powell’s comments at Jackson Hole on Friday, the likelihood of an interest rate cut increased which was a tailwind for smaller-capitalised stocks with the Russell 2000 index ending the week +1.3%, outperforming the S&P 500 index (larger-capitalised stocks), which returned -0.8% last week, both of which are in GBP terms.
In Europe, we saw business activity rise in August with the first estimate of the HCOB Eurozone Composite PMI Output Index coming in at 51.2, up from 50.2. The Paris Olympics was a major driver for the services sector however manufacturing production fell for the 17th month running. The governors of the Bank of Finland and the Bank of Italy commented that the case for the European Central Bank (ECB) to cut interest rates further in September has strengthened. Expectations now point towards two further rate cuts this calendar year. In July, the ECB voted to keep interest rates unchanged, but they were concerned about restricting future economic growth prospects.
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 August 2024.
© 2024 YOU Asset Management. All rights reserved.
The World In A Week - A weakening backdrop
Written by Dominic Williams
In the US, markets had a positive week, with the S&P 500 index returning +1.4% in GBP terms. The latest US jobless claims data, which tracks the number of individuals filing for unemployment benefits for the first time, showed an increase of 33,000 from the previous week, bringing the total to 258,000. This figure surpassed market expectations of 230,000, with the rise largely attributed to increased claims in Michigan, where layoffs occurred in the manufacturing and management sectors, as well as the impact of Hurricane Helene. This data contrasts with recent Non-Farm Payroll figures, which have suggested steady job growth in the US economy. While the US economy has certainly been stronger than many might have anticipated, our team are mindful that the quality of many datapoints, such as the Non-Farm Payrolls, has become lower over time and there are currently many contrasting signals to be aware of.
Annual inflation figures were also released, showing a year-on-year increase of 2.4%, down from August’s figure of 2.5%. This marks the sixth consecutive month of declining inflation in the US. Investors remain confident that the Federal Reserve (Fed) will continue its rate-cutting cycle, with a quarter-point reduction widely expected at the November meeting.
In the UK, GDP growth figures for August showed a 0.2% increase, representing a rebound from the previous two months of stagnant economic growth. Output from the production and construction sectors recovered after declines in July, with additional support from the services sector. It is now forecasted that a mild slowdown in GDP growth is more likely in the second half of the year, rather than another recession.
China saw its annual inflation rate fall to 0.4%, below market expectations of 0.6%. This marks a three-month low for the world's second-largest economy and highlights the need for additional policy measures to address deflationary risks. China’s economy continues to grapple with deflationary pressures linked to its ongoing property crisis, which has dampened household spending and weakened consumer demand. On Saturday, China’s Minister of Finance announced plans for additional government support in efforts to boost the economy, but did not specify amounts that would be provided. Ahead of the inflation data, the MSCI China equity index dropped by -6.7% in GBP terms over the week, a sharp contrast to its earlier rally which followed on from the initial government stimulus announcements.
In Europe, the MSCI Europe ex-UK index returned +1.1% over the week. However, key structural challenges persist, and the broader economic environment remains subdued. Germany’s Economy Minister recently announced that the country's economy, Europe’s largest, is now expected to shrink this year, reversing earlier predictions of slight positive growth, this would be the second consecutive annual contraction for the country. This shift underscores some of Germany’s structural challenges, particularly its reliance on manufacturing and the effects of global competition. Germany also reported a decline in its annual inflation rate to 1.6% in September, down from 1.9% in August, driven by a sharp reduction in energy costs and a fall in goods prices. The European Central Bank will likely consider this data in its upcoming interest rate decision, as slowing inflation points to weakening economic activity, making another rate cut increasingly likely.
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 14th October 2024.
© 2024 YOU Asset Management. All rights reserved.