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 - Have we gone full circle?
Written by Shane Balkham
Last week seemed to be very much the calm after a short-lived storm. Not wanting to tempt fate, the dust seems to have settled again with financial markets back to almost where they started at the beginning of the month. The S&P 500 index is only a few percentage points below its all-time high, while Japanese equities, arguably at the epicentre with the Bank of Japan’s surprise rate hike, have also recovered significantly since the sharp drop.
A timely reminder that trying to time the markets is a fool’s errand and keeping a cool head and maintaining your investment strategy has been a robust process to follow. If your investment time horizon is measured in years and decades, then short-term movements over days and weeks should not be a cause of worry.
What helped quell the recent volatility was that a series of data publications were slightly better than general expectations. In the UK we had a jobs report for the second quarter, which showed a drop in the level of unemployment and slowing wage growth. Inflation was slightly lower than expected at 2.2% year-over-year to the end of July. Although slightly up from June’s and May’s reading, UK CPI is more or less still at the Bank of England’s target rate. For the US, CPI data continued to trend downwards, reaffirming market expectations that the Federal Open Market Committee (FOMC) will cut rates in its September meeting.
The FOMC minutes from the end of July meeting are published this week. Of particular interest will be any commentary around the level of confidence in the decline in inflation and weakening of the US economy. It must be remembered that any details gleaned from these minutes are three weeks old and there has been and will continue to be, a lot of data issued before the next FOMC meeting in four weeks’ time, highlighting the problem of relying on data that is inherently lagged.
The process of bringing down US inflation without causing a recession is a difficult balancing act. The resilience of the US consumer continues to defy gravity, as retail sales data showed a continued willingness to spend. However, with savings that grew during the pandemic largely gone and wage growth cooling, the US consumer is increasingly resorting to credit, raising questions about the longevity of consumer spending, especially as data is showing delinquency on payments are increasing.
While the recent market scares have abated and the US Federal Reserve’s goal of a soft landing looks feasible once again, we have the uncomfortable period of four weeks until the central bank meets to decide whether or not to cut rates. Whatever happens over the remainder of the summer, this demonstrates the importance of holding a diversified investment when the stock market is looking significantly narrow, particularly when we have the annual economic symposium at Jackson Hole this week, which has been the stage for drama in previous years.
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 19th August 2024.
© 2024 YOU Asset Management. All rights reserved.
Two Minute Missive 14 August 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/yQiho7EUa04
The World In A Week - Economic data in the driving seat
Written by Millan Chauhan
Last week, we saw some extended moves across global equities and the return of volatility to markets. Global equities, as measured by the MSCI All-Country World Index ended the week +0.4% in GBP terms. However, beneath the surface we saw several economic data releases which markets reacted to in very different ways.
Earlier in August, we saw US unemployment data come in higher than expected which raised a question as to the state of the US economy and whether interest rates have been too high for too long. Last week, markets reacted positively to the weekly jobless claims figure in the US, as they fell to 233,000, which was marginally below expectations. Following this announcement, US equities rallied on Thursday and the S&P 500 closed with its strongest daily gain since November 2022, finishing the week +0.3% higher in GBP terms.
Following the volatility resulting from the Bank of Japan’s decision to hike interest rates to 0.25% in July, the MSCI Japan index fell -12.5% last Monday in local currency terms. The Deputy Governor, Shinichi Uchida, calmed investors by confirming that the bank would not likely hike further while in periods of market instability. Markets reacted positively to this and the MSCI Japan index recovered +9.6% the following day in local currency terms. The MSCI Japan ended down -1.8% for the week in GBP terms.
This week, markets will turn their attention to UK and US inflation data that are set to be released on Wednesday. The UK inflation rate is expected to be at 2.3% for July’s year-over-year reading. The US inflation rate will also be released on Wednesday with expectations that the CPI rate will slow to 3.0% year-over-year. Over the last week, expectations of Federal Reserve interest rate cuts have also increased with the market now pricing in 1.0% of interest rate cuts before the end of the year.
In periods of market volatility and changing economic backdrops, it is important to have diversification in your portfolio across asset class, region and investment style.
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 12th August 2024.
© 2024 YOU Asset Management. All rights reserved.
The World In A Week - Diversification is your friend
Written by Chris Ayton
Last week was an extremely volatile one for many global equity markets. The MSCI All Country World Index fell -1.6% over the week in Sterling terms. Global fixed income markets delivered some much-needed diversification with the Bloomberg Global Aggregate Index up +1.7% in Sterling hedged terms. Longer-dated bonds, which are more sensitive to interest rate reductions, were up substantially more.
News was dominated by various interest rate decisions. In the US, the Federal Reserve (“the Fed”) decided to keep their headline rate unchanged despite a slew of negative economic data including weaker employment and manufacturing data. This sent jitters through global equity markets as fears grew that the Fed has missed the boat and the US economy is heading towards a hard landing. Weaker-than-expected earnings result announcements from leading tech names like Intel and Amazon did nothing to quell these fears. The S&P 500 Index fell -1.7% over the week with the technology-dominated Nasdaq 100 Index down -2.7%, both in Sterling terms.
In the UK, the Bank of England’s Monetary Policy Committee did announce their first move, voting 5 against 4 to cut the UK base rate by 0.25% to 5%. Although they cautioned that further cuts were far from certain, they also cheered the market by raising their UK economic growth projections for 2024 from 0.5% to 1.25%. Despite this positive news, the FTSE All-Share Index fell -1.4% over the week.
However, in Japan, we saw the Bank of Japan surprise markets with a rise in their headline interest rate to 0.25%, with the implication that there are more rises to come. While this boosted the Yen, it resulted in concerns over the impact of a strong Yen on the profits of large Japanese exporters, a view that was accentuated by growing fears over the weakness of the US economy. The MSCI Japan Index dropped -6.0% in local terms over the week, although the strength of the Yen reduced that loss to just -1.3% in Sterling terms.
As Sir John Templeton said, "The only investors who shouldn't diversify are those who are right 100% of the time." The uncertainty around policy decisions, and the macro backdrop, have resulted in the return of market volatility as well as rapid changes in the dominant investment styles. Heavily momentum-driven markets have been followed by sharp style reversals and periods where smaller companies and value styles have led the way. This volatility in markets and styles is likely to continue and is impossible to time. This is where YOU Asset Management’s approach of always maintaining asset class and regional diversification and, within asset classes, blending managers adopting a range of different investment styles can enhance risk-adjusted returns and reduce the volatility in client outcomes. After some years of a narrowly driven stock market, consistent with empirical evidence over longer time periods, prudent diversification is once again your friend.
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 5th August 2024.
© 2024 YOU Asset Management. All rights reserved.
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.