Emma Sheldon

Written by Millan Chauhan.

Last week, we saw the third US bank seized by regulators since March with First Republic Bank being the latest casualty of higher interest rates and tighter monetary conditions. This marks the largest US banking casualty since 2008 and was driven by losses in their loan book combined with a run on their deposits. US interest rates currently sit between a target range of 4.75% and 5% and banks that have not been offering competitive enough deposit rates, in order to facilitate cheap loans, have been suffering outflows as savers transfer to money market funds paying higher rates. JP Morgan have since acquired First Republic’s deposits and a large proportion of its assets in a deal which was coordinated by the Federal Deposit Insurance Corporation. Jamie Dimon, JP Morgan CEO announced that they will not retain the First Republic brand but instead a large majority of the deposit base will move directly into their retail banking arm called Chase.

The fate of First Republic was outlined last week as they announced that $100 billion of deposits had been withdrawn in the first quarter of 2023, despite their deposit demographic being somewhat more diversified than the likes of Silicon Valley Bank and Signature Bank where deposits were largely derived from a more technology-focused client base. Under normal circumstances, JP Morgan wouldn’t be able to acquire a bank the size of First Republic for competition reasons, however these limits were waived in a bid to reduce further market stress and minimise losses. Some policymakers have criticised this acquisition made by JP Morgan since it has made the largest US bank even bigger and reduced competition further.

Elsewhere, companies continue to report their first quarter earnings and we saw the big US technology companies report last week whereby Artificial Intelligence (AI) was the big topic of conversation. Most of the technology names have implemented cost-cutting policies with thousands of layoffs being made, however they are investing billions as they aim to become market leaders in AI which they believe to enhance their long-term profitability. Meta, Amazon, Google and Microsoft stated the word “AI” a combined 168 times on their earnings call last week.

UK Government borrowing figures in the 2022-23 financial year, published on Tuesday by the Office for National Statistics, came in at £13.2bn less than forecast by the Office of Budget Responsibility, although, overall public borrowing rose compared to 2021-2022.  This was mainly due to lower-than-expected public spending, despite the cost-of-living subsidies that have been provided over the year by the government.  The lower-than-expected borrowing has given the Chancellor some breathing room and could give way to tax cuts later in the year in his Autumn Statement.

Any opinions stated are honestly held but are not guaranteed and should not be relied upon.

The information contained in this document is not to be regarded as an offer to buy or sell, or the solicitation of any offer to buy or sell, any investments or products.

The content of this document is for information only. It is advisable that you discuss your personal financial circumstances with a financial adviser before undertaking any investments.

All the data contained in the communication is believed to be reliable but may be inaccurate or incomplete. Unless otherwise specified all information is produced as of 2^nd May 2023.

© 2023 YOU Asset Management. All rights reserved.

Written by Ilaria Massei.

Last week, equity markets ended mixed with the MSCI All Country World Index +0.1% (in GBP terms), following a week with a relatively light economic calendar. In the US, the weekly jobless claims’ report brought signs of growing weakness in the labour market, but investors appeared divided on whether to treat this as good news. Some viewed this release as a sign that the Federal Reserve might stop hiking rates whereas others viewed it as a further step towards an upcoming recession. Weekly jobless claims rose a bit more than expected and also continuing jobless claims, which measure unemployed people who have been receiving unemployment benefits for a prolonged period, rose well above market expectations, reaching its highest level since November 2021.

In Europe, we are starting to see signs of divergence within policymakers with regards to the decision of hiking rates.  The minutes of the March meeting of the European Central bank (ECB) showed policymakers were split. The majority voted to hike rates, however, some members said they would prefer a pause until calm returns in financial markets.

In the UK, the annual UK consumer price growth in March slowed by less than expected to 10.1% from 10.4% in February, driven by surging food and drink prices. Data from the Office for National Statistics (ONS) indicated that wage growth also showed few signs of moderating in the three months through February. At the last meeting, the 0.25% interest rate rise was passed with seven in favour and two who wanted to hold rates still. However, these continued inflationary forces could lead the Bank of England to raise interest rates once more in its May meeting.

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 24^th April 2023.

© 2023 YOU Asset Management. All rights reserved.

Written by Chris Ayton.

While President Joe Biden enjoyed himself revisiting his heritage in Ireland, equity markets were also in a good mood with the MSCI All Country World Index +1.2% over the week.  The UK equity market was even stronger, rising +1.9%.  With incremental interest rate rises still expected, fixed income securities were generally more subdued as the Bloomberg Global Aggregate Index dropped -0.6% in GBP hedged terms over the week, although high yield bonds performed considerably better.

UK GDP growth data was released that showed the strike-impacted economy flatlining over February, but an upward revision to January’s growth figure means the size of the UK economy has finally surpassed where it was in February 2020, prior to the Covid pandemic.  Sterling has also continued to be robust against the US Dollar, hitting a 10-month high of $1.2546 during the week, a level more than 20% above where it sat in the nadir of September last year.

In the US, better than expected Q1 earnings results from Citigroup, JP Morgan, and Wells Fargo eased some lingering concerns about the recent banking turmoil.  Despite some signs of a softening labour market, US consumer sentiment also surprised on the upside, reigniting expectations of a further rate hike from the Federal Reserve in May.

China was a rare weak spot for equities, with MSCI China dropping -0.4% over the week.  This was despite data showing export growth had surged 15% in March, driven by increasing sales of electric vehicles and their components as well as a surge in trade with Russia.  With exports still a key component of China’s economy, the data provided some renewed hope that China can achieve the Government’s 5% GDP growth target for 2023.

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 17^th April 2023.

© 2023 YOU Asset Management. All rights reserved.

Written by Shane Balkham.

One of the key economic metrics for determining the state of the economy that central banks monitor is employment.  We know that both the Federal Reserve in the US, as well as the Bank of England, would like to see a weakening of employment, as this should in turn have a disinflationary effect on the overall economy.  When employment is strong, it can create upward pressure on wages, and increase consumer demand.

Last week we had two data releases for US employment.  The JOLTS (Job Openings and Labor Turnover Survey) showed that the number of official job vacancies in the US had dropped below 10 million for the first time since May 2021.  The ratio for the number of jobs available compared to the number of people seeking jobs had reached more than 2x at some points last year; the latest measure has this ratio down to 1.7x.  Wage growth has also slowed; on a year-by-year basis, wages have increased 4.2%, the lowest reading since the summer of 2021.

Another measure of the labour market in the US also showed jobs growth had slowed during March.  Non-farm payroll data showed 236,000 jobs were added in March, slightly weaker than the expected 239,000.

Employment data is a lagging indicator and subject to revisions.  The number of jobs recorded by non-farm payroll in February was originally recorded as 311,000 before being upwardly revised to 326,000, while in January the initial number of jobs added was 504,000 before being adjusted downwards to 472,000.  Whilst still elevated, the numbers are trending downwards, which is important for those making decisions about the future of interest rates.

The signs of a gradual weakening in employment does suggest that inflationary pressures are easing in the US.  However, whether this is sufficient for the Federal Reserve to pause its rate hiking cycle at its next meeting in May is unclear.  The extent of the fallout from the banking sector turmoil has not yet been quantified, as the market is anticipating tighter lending standards and a slowdown in economic activity.  Jerome Powell, Chairman of the Federal Reserve, has been quoted as saying that a tightening in financial conditions would be equivalent to another rate hike.

There are three weeks until the Federal Reserve Committee and Bank of England Committee meet to set interest rates.  Whether the decisions are to hike or to pause, it does seem we are close to the peak of the interest rate hiking cycles.

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 11^th April 2023.

© 2023 YOU Asset Management. All rights reserved.

Written by Cormac Nevin.

If the lay observer had followed the headlines on BBC News over the course of March, and attempted to apply them to what they could reasonably expect from markets over the course of the month, they might well end the month a little bit perplexed. One of the top performing market components over the month was the NASDAQ 100 Index of US technology companies, which returned +9.5% in local terms (+7.3% in GBP) during a month whereby the specialist Silicon Valley Bank collapsed into ignominy. While larger tech names have proved to be a safe haven of sorts, it does beg questions of the operating environment for some of their smaller and more dynamic peers.

This was followed by ongoing distress in multiple other small- and medium-sized US lenders such as Signature Bank. In Europe, the knock-on effect in confidence culminated in the coerced purchase of Credit Suisse by UBS, a bank which is one of the largest in the world. Again, markets were not particularly fazed by this, with the S&P 500 Index of broad US equities finishing the month strongly and returning +1.5% for the month and the MSCI Europe Ex-UK Index up +1.3%, both in GBP terms.

While markets in recent weeks were up despite negative headlines, it remains critical to not be complacent and retain diversified exposures. Macro volatility could be back.

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 3^rd  April 2023.

© 2023 YOU Asset Management. All rights reserved.

Written by Millan Chauhan.

Last week in the US, the Federal Reserve announced a 0.25% increase in interest rates which was in line with some expectations.  This was despite suggestions that the Federal Reserve would pause its tightening cycle amid the banking crisis which has seen the collapse of several regional US banks including Silicon Valley Bank, Signature Bank and Silvergate Bank. The European Central Bank (ECB) also moved ahead with a 0.5% interest rate rise at a point where UBS was agreeing to buy-out its Swiss rival Credit Suisse in an emergency deal aimed to stabilise financial markets. UBS has agreed to buy Credit Suisse at 60% less than its previous week’s market value.

The Office for National Statistics announced that the UK Inflation rate unexpectedly increased to 10.4% in the 12 months leading to February 2023 which was 0.5% above expectations. Inflation had been slowing down over the last three months; however, the latest inflation figure has interrupted this trend and was largely driven by upward pressure from the rising costs of vegetables/salads which was caused by shortages and bad weather. Food prices during the month of February rose 18.2% which is the largest increase since the 1970s.

Following the UK inflation data announcement last Wednesday and the banking crisis that has unfolded during March, the Bank of England also raised interest rates by 0.25% which was in line with expectations. Interestingly, out of the nine voting members within the Bank of England’s Monetary Policy Committee, two voted to keep rates unchanged but seven voted to hike rates which was identical to February’s meeting.

UK interest rates now sit at 4.25% as the Bank of England continues to seek to slow down inflation levels towards target levels of 2%. Whilst another interest rate rise given the banking crisis may appear surprising to some, the Bank of England had been raising interest rates in a series of 0.50% and 0.75% instalments since mid-2022 with the latest rate rise being the smallest rate rise for 9 months and could signal that it is slowing the aggression of its hikes.

As ever, diversification is paramount within a portfolio when navigating periods of market stress and volatility which often present new opportunities.

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 27^th March 2023.

© 2023 YOU Asset Management. All rights reserved.

Written by Ilaria Massei.

Turmoil in the banking sector became the main focus over the last week, diverting attention from economic data releases for the first time in several months. A rapid outflow of customer deposits from Silicon Valley Bank (SVB) led to the biggest US bank failure since the global financial crisis.  The Fed assured that all SVB depositors would have full access to funds on Monday morning and made additional funding available to banks to safeguard deposits and to address any potential liquidity pressures. This seemed to provide some confidence to markets that rebounded on Tuesday and coincided with the release of the annual inflation rate in the US which slowed to 6% in February from 6.4% in January.

However, on Wednesday, news broke that another banking giant, Credit Suisse, was experiencing problems and sent equity markets lower once again.  In an environment, which is quite unlike 2008, where most European banks have strong capital cushions and are buying back stock, Credit Suisse was known to be more fragile.  News that their core wealth management business was suffering major outflows led to a crisis of confidence and a rush of deposit withdrawals.  The Swiss central bank stepped in with a £44bn credit line but the measure failed to stem the rush of withdrawals. Yesterday evening it was finally announced that UBS will take over the bank, trying to stop what could have triggered a global crisis of confidence in the banking sector.

Credit Suisse’s fall dragged down European Equities with the MSCI Europe Ex-UK and the FTSE All Share Index closing the week at -4.1% and -5.1% in GBP terms. On Thursday, the European Central Bank (ECB) raised interest rates by 0.50% to 3.0%, pressing ahead with its drive to combat elevated inflation. Policymakers also said that “the euro area banking sector is resilient, with strong capital and liquidity positions”, and that they were monitoring current market tensions closely. In the UK, the unemployment rate came out at 3.7 percent for the three months to January 2023, unchanged compared with the previous quarter. Total pay growth eased to 5.7% year-on-year in the three months to January from 6.0%.

Although banking stocks struggled, growth-oriented equities benefitted from a belief that the above may lead to a slowdown in the path of higher interest rates.  In a flight to safety, bonds also performed much better with Barclays Global Aggregate Index up +1.4% for the week in GBP hedged terms.  This reaffirms the benefit of maintaining an appropriately diversified portfolio by style and by asset class. We are also strong believers that taking a long-term investment perspective is the best way to navigate such uncertain and turbulent market conditions.

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 20^th March 2023.

© 2023 YOU Asset Management. All rights reserved.

Written by Cormac Nevin.

Markets were rattled last week, with the MSCI All Country World Index down -4.5% in GBP terms. What was different to the reaction vs the sell off we witnessed last year, however, was that high quality bonds had a very respectable rally at the same time, with the Bloomberg Global Aggregate Index up +1.1% in GBP Hedged terms. Japanese Equities were also up +0.9% over the week.

The source of the worry was a bank that you will not typically find on the high street, but which is very important to high-growth tech companies both in Silicon Valley and across the globe. Silicon Valley Bank (SVB) was the bank of choice for venture capital funds investing in high growth tech companies. The bank received massive inflows in deposits during the tech boom we witnessed over 2020/2021. They needed to find safe assets to invest these deposits into and made concentrated investments in US Treasury Bonds. Crucially, they failed to hedge these bond exposures against rising interest rates which is what most banks would have done. As the Federal Reserve raised rates hard and fast over the last year, SVB’s bond portfolio took large losses leading to a flight of deposits and a crash in the share price. This is the standard-issue reflexive loop of a traditional bank run, made worse by lack of diversification in the bank’s depositor base which was concentrated in VC Funds and tech start-ups.

After much speculation while markets were closed over the weekend, it transpired on Sunday night that banking regulators in the US would make depositors whole in an effort to stop the doom loop in its tracks. All depositors, including those whose funds exceed the maximum government-insured level, will be able to access their deposits in full, according to a joint statement by U.S. Treasury Secretary Janet Yellen, Fed Chair Jerome Powell and Federal Deposit Insurance Corp Chair Martin Gruenberg. In the UK, HSBC announced that they would buy the UK arm of SVB for the notional amount of £1. This underscores how healthy the rest of the global banking system is and leads us to believe that while this event is largely the consequence of higher interest rates and poor risk management from SVB, the contagion effects will likely be limited.

As ever, never neglect diversification, even if you are a tech whiz in Silicon Valley.

Any opinions stated are honestly held but are not guaranteed and should not be relied upon.

The information contained in this document is not to be regarded as an offer to buy or sell, or the solicitation of any offer to buy or sell, any investments or products.

The content of this document is for information only. It is advisable that you discuss your personal financial circumstances with a financial adviser before undertaking any investments.

All the data contained in the communication is believed to be reliable but may be inaccurate or incomplete. Unless otherwise specified all information is produced as of 13^th March 2023.

© 2023 YOU Asset Management. All rights reserved.