The World In A Week - The Bear of Recession

Written by Ilaria Massei.

Last week’s focus was once again on Central Banks. Despite the Federal Reserve’s largest interest rate increase since 1994, the Fed’s Chair Jay Powell warned that a US recession is “certainly a possibility”. He argued that the US has been resilient to action a tougher monetary policy trying to avoid a downturn. However, this depends on factors that can no longer be controlled, such as rising commodity prices following Russia’s invasion of Ukraine and further disruptions to supply chains.

The European Central Bank (ECB) warned the Eurozone that food prices will keep rising at near-record rates for at least another year. The Economic bulletin published by the ECB on the 23rd June stressed the fact that “already existing price pressures in the food sector have intensified following the Russian invasion of Ukraine”. One of the main points to be considered is that Russia exports more than a quarter of the fertiliser of the Eurozone’s consumption, however the Eurozone’s direct dependence on the region involved in the war is overall limited. Additionally, reduced supply from Russia and Ukraine can be compensated by greater supply from other countries. However, this solution could lead to higher prices and will likely increase inflation pressures in the upcoming months.

Elsewhere, the Bank of Japan (BoJ) is sticking with its ultra-loose policy which consequently is weakening the yen against the dollar. However, the BoJ made it clear that its policy is not going to change, but it will pay attention in case of further developments. Russia is now at risk of default as the deadline for payment on Russia’s foreign debt has passed. Russia has reserves, thanks to oil exports, but many sanctions are excluding Russia from the global financial system, and this could possibly lead the country to default.

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 June 2022.
© 2022 YOU Asset Management. All rights reserved.


The World In A Week - Data is driving the decisions

Written by Millan Chauhan.

Last week saw Boris Johnson win the vote of confidence from the Conservative MPs, claiming a 59% majority.  Despite the majority, this was less than his predecessor Theresa May, who claimed a 63% margin before resigning months later amid the Brexit negotiations deadlock. Johnson’s handling of the COVID-19 pandemic and actions during national lockdowns has put into question his leadership, all of which instigated the vote of confidence last Monday.

Elsewhere, global markets continue to price in new releases of economic data with the US headline Consumer Price Index (CPI) at 8.6% at the end of May 2022. Core CPI (that excludes food and energy) rose 6.0% a year ago.  If we take a more intrinsic look at headline inflation figures, this has largely been driven by Oil prices soaring by 48.7% which has impacted the prices of other areas such as Airline fares and Transportation which have risen 37.8% and 19.4% respectively. The acceleration of headline inflation keeps the pressure on the Federal Reserve who are set to meet over the next two days (14th – 15th June). Current rates in the US are at 1% with a further 0.50% rate rise expected to be announced this week.

Elsewhere, the Bank of England Monetary Policy Committee is set to meet on Thursday and expected to raise interest rates by 0.25%, with UK CPI at 9.0% at the end of April 2022.  Central banks continue to contend with several macroeconomic factors, including the effect of rate rises on the economy. The UK economy contracted by -0.3% month-over-month in April 2022. Ultimately, Central banks face a balancing act between how quickly existing rate rises can slow down inflation and not materially stall economic growth.

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 13th June 2022.
© 2022 YOU Asset Management. All rights reserved.


The World In A Week - Jubilee celebrations, but will markets have anything to celebrate?

Written by Richard Warne.

Economic fine-tuning is difficult. Markets continue to hope that central bankers will weave a path in terms of controlling inflation, while not having to aggressively increase interest rates, thereby potentially leading to a steady glide path for economies. Of late, there have been many commentators shouting about hard landings and heightened recessionary fears. So far this year, these fears have dominated markets and returns for both equities and bonds have been challenging.

The prevailing question now seems to be “are we there yet”? Have we reached the other side of the market reset? As we sit today sentiment seems very negative, but have these recessionary fears been baked into markets? The Fed in the US has made it abundantly clear that curtailing inflation is their number one goal, but it appears that markets have moved on to absorb expectations for several further rate hikes. This is probably best highlighted by the fact that the yield on the 10-year US treasuries has settled below 3% for some time.

Eurozone inflation came into focus last week, with the Consumer Price Index (CPI) prints being higher than was forecast. Germany’s year-on-year inflation was the highest with a 7.9% increase. The focus here is not on quantitative tightening, as Christine Lagarde, President of the ECB, has already provided colour on this, but whether the first-rate hike will be 50bps. Futures markets are certainly starting to price in this possibility.

Looking ahead, much of this may become a sort of “waiting game” until we see the next meaningful event. The next CPI print in the US is only a week away, with the June Federal Open Market Committee (FOMC) only a few days later. Potentially, a general lapse in headlines might allow for markets to settle into a more subdued pattern. For a data-dependent Fed that everyone has their eyes on, these economic data prints are more important than 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 6th June 2022.
© 2022 YOU Asset Management. All rights reserved.


The World In A Week - The Bottom of the Bear?

Written by Cormac Nevin.

After quite a challenging year to date for both equity and fixed income assets, last week saw a strong risk rally. The S&P 500 Index of US Equities led the charge and rallied +5.3% in GBP terms. Global, Continental European and UK Equities also had a good week, while the riskiest forms of fixed income such as high yield bonds also rallied. High-quality global bonds, as measured by the Bloomberg Global Aggregate Index GBP Hedged, also rallied slightly last week.

This is interesting as it illustrates the continuations of a phenomenon that we have witnessed this year as the performance of equities and high-quality treasury bonds have started to move in the same direction as inflation, and higher interest rates prove to be a challenging environment for both. The MSCI All Country World Index of global equities is now down -6.4% for the year in GBP terms while the Bloomberg Global Aggregate Index GBP Hedged is also down -7.3% for the year. Naïve allocations to treasuries and equities have formed the basis of traditional multi-asset investment over the last three decades, and a reversal of the negative correlation between the two variables could have interesting ramifications.

Many of our portfolio components such as specialist global value equities, Chinese government bonds and Absolute Return strategies have generated positive absolute returns this year as equity and fixed income markets fell. Once again this illustrates the importance of a diversified portfolio which goes beyond traditional stocks & bonds, particularly in the changing macroeconomic landscape we currently face.

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 May 2022.
© 2022 YOU Asset Management. All rights reserved.


The World In A Week - April is the Cruellest Month

Written by Cormac Nevin.

April proved to be another challenging month for investors as the MSCI All Country World Index retreated -3.5% in GBP terms, which admittedly was better than the -6.5% return in local currency terms thanks to the weakening in Sterling. There was a wide spread of outcomes for global investors across different markets. Much of the pain was concentrated in the tech-focused NASDAQ Index of US Equities which lost -13.3% in local currency terms over the month. The UK Equity market, measured by the FTSE All Share Index, was something of a safe haven in this environment, returning +0.3% for the month.  Alongside falls in the equity markets, traditional Fixed Income markets offered little by way of protection as the Bloomberg Global Aggregate Index of investment grade bonds fell -2.8% in GBP Hedged terms, while the High Yield Corporate Index was down -3.3%.

These market ructions are likely symptomatic of the ongoing transition we have witnessed this year from the market exuberance and easy financial conditions which characterised the post-pandemic environment, to an environment with higher interest rates, higher inflation rates and more realistic equity valuations. One of the most notable developments this year has been the continued deflation of speculative equity valuations which reached levels reminiscent of the dot.com boom of the early 2000’s, while the bust has been eerily similar too. Cathie Wood’s much hyped Ark Innovation ETF is now in a -70% drawdown from its pandemic peak. Names that might be more familiar to UK investors, such as the Baillie Gifford suite of products, have experienced similar outcomes.

However, much like in the opening lines of T.S Eliot’s poem from which our title is sourced (ironically written at the twilight of the last great pandemic of 1918), April is also the month in which hope springs eternal. Value equity performance has been robust in recent months, active Fixed Income management has been hugely important and high-tech growth equities are now priced at more reasonable levels. Diligent and open-minded research will likely assist long-term investors to plant the seeds for future returns.

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 3rd May 2022.
© 2022 YOU Asset Management. All rights reserved.


The World In A Week - Return of the Mac-ron?

Written by Millan Chauhan.

Last night saw the conclusion of the French Presidential election, with Emmanuel Macron delivering a convincing victory over his far-right challenger Marine Le Pen. Macron has become the first French leader to win a second term in 20 years, taking 58.5% of the vote. Macron stated, “our country is beset by doubts and divisions”, which is well supported by the highest abstention rate in 50 years @28% and the immediate rise of the far-right nationalist party. Macron faces several tests going forward, including reconciling the indifference of opinion in France and trying to work towards a ceasefire between Russia and Ukraine.

Elsewhere, we are in the middle of US earnings season where companies report on their results from Q1 of 2022. With US inflation currently at 8.5% and supply chains remaining tight, we will begin to see the impact of rising prices and slowing consumer demand on bottom-line financial results and forecasts. One stock that was a direct beneficiary of the global pandemic was Netflix, as the world was forced to stay indoors. Netflix grew its subscriber base by 18.2m in 2021 and is the world’s leading entertainment service with approximately 222 million paid memberships. However, slowing growth, price rises, and fierce competition from rivals such as Disney+ and Amazon Prime Video saw the share price of Netflix fall 35% cent on Wednesday, erasing all its gains during the pandemic. Netflix reported they had lost 200,000 subscribers in the first quarter of 2022 with the market becoming more saturated, particularly in the US and Canada. Netflix is set to clamp down on the ability to share passwords which was a component of the slowing demand for its service.

The S&P 500 returned -1.2% last week in GBP terms, a week that also featured the largest one-day loss since March on Friday as investors anticipated the raising of interest rates by central banks. The Federal Reserve’s Chair, Jay Powell, stated that the Fed could raise rates more aggressively and begin raising rates in increments of 0.50% compared to its previous stance of increasing by 0.25%.

Any opinions stated are honestly held but are not guaranteed and should not be relied upon.
The information contained in this document is not to be regarded as an offer to buy or sell, or the solicitation of any offer to buy or sell, any investments or products.
The content of this document is for information only. It is advisable that you discuss your personal financial circumstances with a financial adviser before undertaking any investments.
All the data contained in the communication is believed to be reliable but may be inaccurate or incomplete. Unless otherwise specified all information is produced as of 25th April 2022.
© 2022 YOU Asset Management.  All rights reserved.


The World In A Week - Tournez à droite?

Written by Shane Balkham.

The Federal Open Market Committee (FOMC) will meet at the beginning of May, and we are already seeing the rhetoric in order to manage market expectations.  From the minutes and forecasts from the March meeting, we know that there is the prospect of six further rate rises this year.

Setting the scene for these rate hikes, we had a speech from James Bullard, President of the St. Louis branch of the Federal Reserve, and most importantly a voting member of the FOMC.  On the back of March’s inflation reading in the US of 8.5%, he is calling for an increase in the speed of executing the hikes and is likely to vote for a larger hike than the previous 0.25% move.  It is expected that several members will call for a rise of 50-75bps next month.  For Bullard, there is a critical importance of the Fed maintaining its creditability in combating inflation, as monetary policy decisions walk a difficult and fine line in taming inflation without causing a recession.

The Bank of England also faces the same navigation problem, as inflation in the UK rose to 7% for March adding pressure for interest rates to rise.  In the minutes from March’s Monetary Policy Committee meeting, the Bank of England expects inflation to peak at around 8% in Q2, recognising the large shock to the economy from the war on Ukraine.  The Bank of England also meets at the beginning of May, and we might have a fourth consecutive meeting where interest rates are hiked.

Before the central banks have their next meetings, we have France deciding on their next President.  On Sunday, French voters will choose between the incumbent President Emmanuel Macron, or the far-right rival of Marine Le Pen.  It is expected to be an extremely tight election race, with both contenders looking to secure the voters from the ten eliminated candidates from the first round.  Will Le Pen’s manifesto of protectionism and localism see France turning to the right?

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 April 2022.
© 2022 YOU Asset Management.  All rights reserved.