The World In A Week – Inflation – we’re bubbling hot, hot, hot!
Written by Richard Warne.
For those of you as old as me, you may well remember Pato Banton releasing a song called “bubbling hot” back in 1992, and this is how inflation is acting right now. On Friday, the US Consumer Price Index (CPI) came out at a whopping 6.8% year-on-year increase, inflation is at a 40-year high, and both outcomes probably put to bed the notion that inflation is merely transitory.
As the end of 2021 fast approaches, there are many varying factors that markets are getting to grips with. It has only been a few weeks since the discovery of Omicron, the new COVID-19 variant, and this has naturally caught investors’ attention. At the same time there has been huge attention on the Fed’s taper/rate hike plans. However, against these concerns, it must not be forgotten that markets are performing strongly, anchored by robust consumer strength and continued upside of earnings revisions going into Q4 and next year.
Equity markets have been volatile over the last few weeks, and last week saw volatility swing to the upside with most regions posting returns of at least +2.0%, the MSCI All Country World Index was +3.0%, while the UK market delivered +2.2%. Last week’s recovery not only reflected these strong fundamentals but further indicated that investors may be growing increasingly comfortable with an accelerated taper/rate hike timeline to contain what has been some “hot” inflation prints.
Though last week’s US CPI print of 6.8% was eye-watering, it was perfectly in-line with expectations. So, did investors give a sigh of relief that the number printed was not way beyond expectations? However, the inflationary environment is a new reality, as is the ever-increasing spread of the Omicron variant of the virus, so could this have further impact on supply chain challenges? This is a topic that has had much airtime over prior months. Costco in the US reported Q3 earnings last week and comfortably beat market expectations. The Company did comment that 79% of its import containers had been delayed by 51 days on average.
Earnings, valuations, inflation, Fed policy responses, and the continuation of the virus are just a few of the topics the market continues to grapple with as we see out the year and will possibly have an impact on how investors think about positioning for next year.
As this is the last ‘The World In A Week’ for 2021, may we wish you all a fantastic Christmas and a Happy New Year. We will return on 4th January 2022.
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 December 2021.
© 2021 YOU Asset Management. All rights reserved.
Services sector recovers to pre-pandemic levels
Our Chief Executive, Derrick Dunne comments on the upsides from the poor monthly GDP growth figures:
The World In A Week - Data, data everywhere, but what should we think?
Written by Shane Balkham.
“A turn in sentiment has seen whip-sawing changes in markets and is creating a volatile environment for the end of the year.”
The Rime of the Ancient Mariner seems rather apt at this particular juncture. While the albatross heralded stormy conditions to sailors, data is signalling similar volatile conditions for the coming weeks.
The US employment for November showed that 210,000 jobs were added last month, significantly fewer than the expected 550,000. However, overall unemployment fell to its lowest level since the pandemic began. This was greeted with a sharp drop in US equities, as investors retreated from large technology companies, as evidenced by the fall in the Nasdaq index.
Employment data is a key indicator for the Federal Reserve, so when Chair Jerome Powell gave testimony to Congress last week, in which he signalled his support for an acceleration in the wind-down of their quantitative easing programme, markets concluded that coupled with the jobs data, faster policy tightening was assured. The narrative should be about an economy getting stronger where extreme emergency policy is no longer needed or appropriate. This suggests an environment where we can expect interest rates to rise and tapering to be complete sooner rather than later.
We have the meetings of both the Federal Reserve and the Bank of England next week, where expectations are high for the rhetoric to confirm this story. The Federal Reserve will also publish their updated ‘dot plots’ giving us an indication of where they expect short-term interest rates to be over the coming months.
Before the meeting of minds across both sides of the Atlantic, we have the US inflation reading on Friday where the top end of forecasts has a reading in excess of 7%. This should provide weight to the Federal’s decision, especially now the word ‘transitory’ has been retired from their lexicon. The twist in the tale though is we have the new variant of COVID-19 to concern us. Data surrounding Omicron’s virility and potency has yet to be confirmed, although the latest news suggests that this variant could be milder than Delta.
The move towards normalisation was always likely to be treacherous and fraught with the risk of policy missteps. Celebrations during Thanksgiving might have been premature as there are stormy seas to navigate before the next holiday. With inflation data for the US due this week, and the heavy weight policy makers meeting next week, it pays to be prudent and have an appropriately diversified portfolio.
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 December 2021.
© 2021 YOU Asset Management. All rights reserved.
The World In A Week - The price is right?
Written by Millan Chauhan.
Last week, UK inflation data came out revealing that the cost of living rose by 4.2% in the 12 months to October 2021 which exceeded initial estimates of 3.9%. The figure is just over double the Bank of England’s target rate and is now at a 10-year high. The Bank of England decided earlier in November to maintain interest rates at 0.1% and is set to meet later next month on 16th December to assess the domestic monetary policy situation. The sharp rise in inflation has been attributed to rising gas and fuel prices but only marginal increases for items such as food. Hence, price rises are being experienced at billed expenditure level which is often paid by direct debits or prepayments and is arguably less immediately noticeable to the end consumer. However, the price increase seen at a weekly grocery shop level has been much less high, hence consumers may not directly be seeing inflation in the market, but it certainly exists.
Elsewhere in the US, President Biden’s new infrastructure bill was successfully approved by the House of Representatives and signed into law, which on paper is a $1.75 trillion spending plan that includes spending of $550 billion on the country’s bridges, airports, waterways, and public transit lines. The bill will also devote resources towards funding new climate control and broadband initiatives which includes creating more electric charging point terminals.
Finally, numerous states in the EU are re-entering lockdowns or implementing social restrictions following a spike in the number of COVID-19 cases as we head into the winter season. European countries are operating a different severity of restrictions with the Czech Republic’s Prime Minister, Andrej Babis boldly stating that non-vaccinated people would be banned from attending public events and services. According to the European Centre for Disease Prevention and Control, 66% of individuals in the EU region are now double vaccinated but this includes countries with a much slower uptake of the vaccine which has resulted in a much higher number of reported cases.
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 22nd November 2021.
© 2021 YOU Asset Management. All rights reserved.
Pressure mounts on BoE for rate ‘lift off’ as inflation jumps to 10-year high
UK inflation hitting a 10-year high means the “way is paved for a rate lift off” to start soon but some commentators think the Bank of England might need yet more persuading before pulling the trigger as early as next month.
The World In A Week - Fowl play
Written by Shane Balkham.
The release of October’s US consumer price index (CPI) data showed that prices rose at their fastest pace since 1990. This figure was above expectations and reflects the ongoing impact of supply shortages. US inflation now sits at 6.2% year-on-year and is looking less transitory with each monthly reading, while political pressure is building for policymakers to act more aggressively.
Not wanting to miss an opportunity to increase his beleaguered approval rating, President Biden used the sharp tick up in inflation to add pressure on Congress to pass his $1.75 trillion spending bill. Biden’s claim is that 17 Nobel Prize winners in economics have said that his plan will ease inflationary pressures. This has been countered by some Republicans who see a huge injection of spending will make matters worse. The partisan politics of the US are not getting any better, which adds further pressure on the President for his nomination for the next Chair of the Federal Reserve.
Earlier in the summer, Jerome Powell looked to have a second term secured, however some unpalatable trading from two senior officials has weakened his position. We know that he has had his discussion with the President, but last week Joe Biden also met with Lael Brainard, an incumbent Governor of the Federal Reserve. This is important, as a new head of the Federal Reserve is an unknown quantity and will affect the market expectations for interest rate rises next year.
2022 already looks to be a difficult year without the weight of a new Chair at the Federal Reserve. There is significant political tension for President Biden, coupled with the Midterm elections less than a year away, suggesting the decision is not as clear as it was a few months ago. Thanksgiving is next week, and the decision over the Chair of the world’s most important central bank was promised to have been delivered before then. At this point, Biden cannot afford to look like a Turkey.
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 15th November 2021.
© 2021 YOU Asset Management. All rights reserved.
UK GDP grows 0.6%
The UK economy grew by 0.6 per cent in September, leaving GDP 0.6 per cent smaller than it was before the pandemic in February last year, with growth estimates for previous months revised lower by the Office for National Statistics. Our Chief Executive, Derrick Dunne's commented on these latest stats saying: 'Consumers could soon shy away from more spending'.
The World In A Week - Remember, remember the 5th of November!
Written by Richard Warne.
Wow! Just like Guy Fawkes night, both equity markets and bond markets have kicked off the month at a rocketing pace, with the MSCI All Country World Index +3.3% in Sterling terms and the Barclays Global Aggregate Bond Index +2.3% (local terms) and +0.8% in Sterling hedged terms. A nice seasonal winter warmer with the days drawing in and getting steadily colder.
As we near the tail end of the Q3 earnings season in the US, it feels like Groundhog Day, as US indices continued to make new all-time highs. Dovish commentary from the Federal Open Market Committee (FOMC) in the US, and the Bank of England (BoE) meetings in the UK, sent bond yields falling as central banks continue to attempt to control inflation against an uncertain macro backdrop. FOMC Chairman Powell’s ability to weave a fine line, feeding a dovish enough tone, encouraged investors to add risk. However, under the surface, companies that reported last week, certainly delivered a mixed bag of results.
Investors punished any company that missed their earnings. Companies that benefitted from the Work From Home (WFH) last year, during the pandemic, had a chastising week. Roku (TV streaming), Peloton (home fitness) and Chegg (educational services) all sold-off sharply after materially guiding below market expectations. It appears expectations versus reality are starting to bite, with some of the valuations on these WFH themes previously hitting unsustainable highs.
On the flip side, we saw companies that are benefitting from economies reopening, coming to the fore, and beating expectations. Many signalling how they are dealing with supply chain issues or inflation, which are topics hot on the lips of many investors now. Under Armour (sportswear & apparel) beating expectation by cost-cutting and staying tight on inventory. While Nike (sportswear & apparel) had a strong week after they announced that their Vietnamese factories are returning to full operations after the COVID-related shutdowns. Live Nation (live entertainment) rebounded following positive earnings.
A positive week for markets, but not all fireworks. Treason and plot in equal measure.
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 8th November 2021.
© 2021 YOU Asset Management. All rights reserved.
The World In A Week - Metamorphosis & other Market Machinations
Written by Cormac Nevin.
There was a sense of fearlessness in markets last week as we entered the Halloween weekend, with the MSCI All Country World Index returning +0.9% in GBP.
The continuation of the rally we have seen throughout September was largely driven by US equity markets. This is in spite of rather disappointing Q3 results from tech giants Apple and Amazon that were announced last week. The former referenced the global semiconductor shortage, which they anticipate will continue into the festive period, as a reason they missed revenue estimates, while the latter blamed labour shortages and general inflationary pressure for missing earnings’ estimates. Against this backdrop, Facebook rebranded its corporate holding company as “Meta”, while excited promotional videos featuring Mark Zuckerberg and our very own Nick Clegg added a no doubt welcome distraction from the ongoing criticism the Company is receiving on multiple fronts.
While the fundamentals of some large cap US tech names are arguably deteriorating, markets were assisted by the drop in long-term interest rates witnessed last week. However, while long-term rates dropped, short-term rates rose in the UK and US – and in certain markets like Canada and Australia they rose incredibly sharply. This “flattening” of the yield curve is indicative of market participant’s bets that global central banks will start lifting interest rates sooner than they are currently maintaining in the face of persistent inflationary pressures.
Whether central banks are spooked by the ghoulish apparitions appearing in bond market expectations, it is likely to be one of the closest watched developments for the rest of this year.
The World In A Week - Concentrate on the Concentration
Written by Millan Chauhan.
Over the last week, Apple’s market cap has exceeded $3 trillion, the first company to do so in history. In October 2021, Microsoft overtook Apple as the world’s most valuable company before Apple retook the crown following a sharp rally in November 2021. Apple kicked off the first trading day of 2022 with a strong start and briefly eclipsed the elusive $3 trillion market cap threshold. Over the last five years, we have seen the technology manufacturer majorly diversify their product line from the initial personal home computer to the iPod, iPad and iPhone and now, most recently, to the AirPods. Apple’s track record of developing cutting-edge innovative products has underpinned the growth of the Company and they continue to diversify their product range with potential launches of virtual reality devices and an electric car.
However, as such big technology names have grown so rapidly so has their weighting at a benchmark level with Apple being the top weight in the S&P 500 at 6.9% and 11.6% in the technology-heavy NASDAQ. The concentration of the top weights has narrowed tremendously as the mega-cap technology names including Amazon, Alphabet, Microsoft, Meta Platforms, and Apple have outpaced a large proportion of the remaining index and now constitute roughly 22% of the S&P 500 Index. This has become a difficult risk to navigate for active US Growth fund managers as they are almost forced into holding these mega-cap technology stocks since they constitute such a large proportion of their index and not holding the stocks could impact their relative performance.
Elsewhere, cases of the latest strain of the virus Omicron continue to rise with 1.2 million people in the UK testing positive in the last seven days. The number of days needed to isolate was reduced from ten to seven, and now UK businesses have encouraged this to be reduced further as symptoms of the new strain are deemed less severe and would help support the labour shortages the country is facing. The current US health advice is to self-isolate for five days after receiving a positive test which may be several days after the first symptoms.
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 4th January 2022.
© 2022 YOU Asset Management. All rights reserved.