Written by Chris Ayton
Last week, global equity markets were in positive territory, with the MSCI All Country World Index (a broad measure of global stock markets) up +0.8%. Global bond markets ended the week flat in GBP-hedged terms.
At home, it was announced that UK retail sales rose more than expected in August, rising 0.5% versus expectations of a small decline. The record-breaking summer temperatures led to higher spending on food, drink and clothing. Fuel spending also rose, but this was entirely driven by price rises, as the volume of fuel sales actually declined, as it was reported that UK motorists had started only partially filling their tanks. As expected, the Bank of England voted to keep interest rates on hold at 3.75%; however, it said inflation would likely exceed 4% next year, and Governor Andrew Bailey warned prolonged conflict in the Middle East may require higher interest rates going forward. The FTSE All-Share Index ended the week up +0.2%.
In the US, the Federal Reserve (“Fed”) proceeded with its widely anticipated 0.25% interest rate hike, with Fed Chief Kevin Warsh indicating that US inflation had been too high for too long. Most believe there will be further rises to come. This clearly irked President Trump, who had picked Warsh to replace Jerome Powell in the hope that he would be more inclined to cut rates, with the president posting “LOWER THE INTEREST RATES FOR THE UNITED STATES OF AMERICA, AND FAST!”. The prospect of higher interest rates also led to a rally in the US Dollar, which meant the small weekly decline in the S&P 500 index in US Dollar terms translated into a +1.2% gain in Sterling terms. Technology companies led the way with the Nasdaq 100 index up +2.2% over the week.
European equities were the laggards, dropping -0.8% over the week and are now down -2.5% in September so far. European government bond yields rose as the market continues to bet that the European Central Bank will continue to raise interest rates, particularly after Saudi Arabia advised they would not be able to supply oil to European buyers next month, raising fears of further inflationary pressures. German automakers, Mercedes, Volkswagen and BMW all fell sharply at the end of the week. Leading European car makers continue to battle the threat of low-cost Chinese competition, which has resulted in Volkswagen dropping out of the blue-chip Euro Stoxx 50 Index for the first time in 15 years.
With global events continuing to create uncertainty, our portfolios remain well diversified and positioned to navigate changing market conditions.
All performance figures are stated in Sterling terms, unless otherwise specified.
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