The World In A Week - Cut above the rest
Written by Millan Chauhan
In the US, we saw the Federal Reserve (the Fed) keep rates within their target range of between 5.25% - 5.50%. Expectations were that the Fed would hold rates steady, however some were concerned we had seen an uptick in inflation earlier in April in March’s CPI print.
Last Friday, the latest US jobs report was announced which showed that 175,000 jobs were added in April, this came in below expectations of 243,000 jobs. Markets reacted buoyantly to this news, taking the view that the data indicated that the labour market could be slowing, that higher interest rates are now slowing down the economy and that some easing could become possible. The Fed have placed priority on two data points in particular, which includes slowing inflation and the strength of the labour market. Hence markets are eagerly looking ahead towards April’s inflation print, which gets released next Wednesday.
Elsewhere in continental Europe, we saw the Euro Area inflation rate slow to 2.4%, which was in line with expectations. The Euro Area core inflation rate (which excludes energy and food prices) also fell to 2.7%. The European Central Bank (the ECB), are set to meet next week to decide on the trajectory of interest rates; and with inflation cooling and moving towards the target rate of 2.0%, the ECB could begin cutting interest rates at their next monetary policy meeting in June.
In Japan, we have recently seen the Japanese yen weaken to levels not seen in 34 years, and there has been speculation that the Japanese authorities would intervene. Some suspect this happened last week, and we saw the Japanese Yen appreciate 1.9% (vs GBP). Japan have held interest rates at very low levels (compared to other developed countries) which has contributed to its weakening.
As ever, we believe diversification within the portfolio is imperative, as we continue to see mixed market narratives and ever-changing macroeconomic 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 7th May 2024.
© 2024 YOU Asset Management. All rights reserved.
The World In A Week - Hold on Till May
Written by Ilaria Massei
The past week was relatively light in terms of data released. Equities returned to positive territory, with the MSCI All Country World Index of global shares gaining +2.4% in GBP terms, and China emerged as a big winner, with the MSCI China Index gaining +8.0% in GBP terms. Global Treasuries have remained under downward pressure, with longer-dated Treasuries being the most affected within the Fixed Income asset class, given their higher interest rate sensitivity.
The most notable surprise came from the U.S, where the Q1 GDP Growth rate unexpectedly fell short, coming in at 1.6%, instead of the anticipated 2.5%. It’s crucial to emphasise that such data points are often volatile and subject to revisions. Conversely, the U.S core Price Consumption Expenditure (PCE) Index, which is a measure of consumer spending on goods and services excluding food and energy, surged to an annualised rate of 3.7% in 1Q24 from 2.0% in 4Q23, confirming concerns that escalating services inflation might further postpone Fed rate cuts. When we look deeper into the data however, we can see that items like “portfolio management costs”, which are simply a reflection of the strength of the S&P 500, drove all of the upside inflation surprise. It is unlikely that these elements will persist.
Chinese equities saw their strongest weekly performance since December 2022, with the MSCI China Index rising by +8.0% for the week, taking the index return to +6.9% in GBP terms year-to-date. This rebound was supported by better-than-expected macroeconomic performance in the first quarter and an upward adjustment of the consensus forecast for 2024 real GDP growth.
Recent developments in Japan, particularly following last week’s Bank of Japan (BoJ) policy meeting, have captured investors' attention as the Yen faced renewed downward pressure. The substantial interest rate differential between the US and Japan continues to weigh on the currency. Despite discussions of potential currency intervention by the BoJ, no action has been taken thus far.
Lots of different economic and market cycles appear to be playing out globally, making the case for a strong element of geographic diversification in client’s portfolios.
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 29th April 2024.
© 2024 YOU Asset Management. All rights reserved.
The World In A Week - Hunting for safe havens
Written by Chris Ayton
Last week was a negative week for both bonds and equities, as geopolitical worries dominated the headlines. There were few hiding places for investors, although lower valuation markets like the UK (FTSE All Share Index -1.2%) and continental Europe (MSCI Europe ex-UK -0.6%) outperformed the wider MSCI All Country World Index’s -2.9% on a relative basis. Recent strong performers, like the Nasdaq Index (-5.3%) and the MSCI Japan Index (-6.0%) were the laggards.
The bond markets’ travails were resulting from a growing belief that, due to a continued stream of more positive than expected economic data, interest rates in the US and elsewhere will not come down as fast as originally hoped. This meant longer dated bonds, which are more sensitive to interest rates, underperformed. Conversely, the positive economic data helped more economically sensitive short dated credit indices to outperform, albeit they were still marginally in negative territory for the week.
China was a rare bright spot with both its domestic “A-share” equity and bond markets in positive ground over the week. This was supported by news of China’s Q1 GDP growth coming in at 5.3%, which topped forecasts. However, underlying this positive headline data it was evident that retail sales growth remains benign, leading to further calls for stimulus to enhance demand.
Within commodity markets, gold continued on its bull run with news of Israel’s attack on Iran leading investors to seek out safe haven assets on the back of worries the actions risked dragging the region into a wider conflict. Gold has also been supported by central banks, particularly China, accumulating physical gold bullion in order to diversify their reserves and reduce their reliance on the US Dollar.
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 April 2024.
© 2024 YOU Asset Management. All rights reserved.
The World In A Week - Contrasting Rate Outlooks On Both Ends of the Pond
Written by Dominic Williams
The most recent US inflation data, released on Wednesday, exceeded forecasts for the second consecutive month. The annual inflation rate reached 3.5 per cent, surpassing the expected 3.4 per cent, marking its highest level since September. Core inflation, excluding volatile items like food and energy, rose to 3.8 per cent, exceeding forecasts of 3.7 per cent. This increase was driven by pressures in service sectors, such as healthcare and car insurance. However, it's worth noting that the rise in car insurance is influenced by lagging factors, particularly the previous increase in car prices, which are only now being reflected in insurance prices. The higher-than-expected figures, also observed in January and February, have raised concerns among policymakers that inflation may be persistently high, thereby delaying expectations of an initial rate cut. Nevertheless, Fed Chair Jay Powell maintains optimism that inflation will gradually decline towards the 2.0 per cent target. In GBP terms, the S&P experienced a 0.1 per cent decline over the week, reacting to ongoing inflation concerns and heightened tensions in the Middle East. The stronger Dollar contributed to a less negative return in GBP terms.
On Thursday, the European Central Bank (ECB) opted to maintain interest rates at 4.0 per cent for the fifth consecutive time, a historical high. However, the bank conveyed a strong message indicating potential rate cuts at their upcoming June meeting, contingent upon increased confidence in inflation moving steadily towards the 2.0 per cent target. The latest inflation figures, with March numbers at 2.4 per cent, suggest that their inflation target has almost been achieved. Officials acknowledged there has been a continued decline in inflation, with most indicators of underlying inflation and wage growth showing signs of easing.
MSCI Japan emerged as a top performer for the week, rising by 2.5 per cent in GBP terms. Following the release of US inflation data, the Yen depreciated to a 34-year low against the US Dollar. This decline prompted speculation about potential intervention by the Bank of Japan (BoJ) to support the Yen. However, the BoJ Governor Kazuo Ueda dismissed the idea of supporting the weaker Yen through a rate hike, asserting that the central bank would not alter its monetary policy directly in response to exchange rate fluctuations.
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 April 2024.
© 2024 YOU Asset Management. All rights reserved.
The World In A Week - US Jobs Data: An Economic Enigma
Written by Cormac Nevin
Last week was a broadly weaker one for global markets, following one of the best first quarters for equity markets in five years. While the strong performance of equity markets in the last three and six months is of course very welcome, our team notes the concentrated nature of certain parts of the rally.
Global equities, as measured by the MSCI All Country World Index in GBP, were down -0.7% for the week. The Japanese equity market was the most negative, falling -2.5%, as measured by the MSCI Japan equity index in GBP terms. Japan was one of the most profitable markets in the first quarter of the year, so this probably represents an element of profit taking and rebalancing by global investors. In contrast, Global Emerging Market equities rallied +0.4%, after Chinese shares bounced back from a poor first quarter.
One of the most significant and interesting data releases last week was the “non-farm payrolls report” (NFP) from the US. This showed that the economy created +303k new jobs for the month of March. This was ahead of economists’ predictions of +200k. The US jobs market, which the global economy revolves around to a certain extent, looks robust on the surface based on a high-level reading of this data. However, there are elements within the data which give our team greater pause for thought. Out of the +303k estimated job gains, the Manufacturing sector of the economy added none, while the government sector added +71k, as the government continues to run what many consider is an unsustainable fiscal deficit.
The headline US job growth was also powered by a surge in part-time jobs, while the number of full-time jobs actually shrank in the month of March. Our team note that since 1970, every time US full-time job growth has been negative, the economy has been in recession. It is also interesting to think about how traditional datasets like the NFP report might be failing to capture newer job market dynamics, such as “gig-economy” technologies such as Uber and Deliveroo.
Whatever the true picture of the health of the US, or indeed any other economy, our team retains the view that such ambiguity is best countered with a portfolio which is extensively diversified by geography & 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 8th April 2024.
© 2024 YOU Asset Management. All rights reserved.
The World In A Week - Fed Confidence, UK Recession Confirmation, and Stock Gains
Written by Ashwin Gurung
In the US, The Federal Reserve’s (the Fed) preferred inflation measure, the core Personal Consumption Expenditures (PCE) price index, which excludes food and energy, rose in line with market expectations by 0.3% month-over-month. The annual PCE inflation rate for February remained steady at 2.5%, also in line with market expectations. The Fed Chair, Jerome Powell, stated that he is more confident that inflation is falling towards their 2% target, and that the Fed expects to cut interest rates this year. However, Powell acknowledged the strength of the current economy and the labour market, emphasising the need for caution in their decision-making. Additionally, the S&P 500 hit a new high over the week, returning +0.2% in GBP terms. This increase was largely driven by companies outside of the usual dominant performers known as the “Magnificent 7”.
Across the Atlantic, the UK’s Office for National Statistics revised GDP figures confirmed last month’s initial figure that the country had entered a technical recession for the first time since early 2020. The economy contracted by 0.3% in the final quarter of 2023, following a 0.1% decline in the third quarter. Nonetheless, it was a favourable week for the UK stocks, particularly for the smaller companies. The FTSE UK Small Cap Index outperformed the FTSE 100, returning +1.4% and +0.3%, respectively. Meanwhile, in the Euro Area, the European Commission reported a rise in consumer confidence across the European Union, reflecting improved sentiments regarding the economic outlook.
In Japan, monetary authorities held an emergency meeting to address concerns regarding the Yen’s recent decline. They hinted at taking action to stabilise the currency after it hit a 34-year low. The weakening Yen has been beneficial for many of Japan’s major exporting companies, as a big part of their profits comes from overseas sales. MSCI Japan returned -1.1% in GBP terms, over the week.
Elsewhere, the Chinese equity market remains volatile. While the Year of the Dragon began on a positive roar, it has since quietened down somewhat due to scepticism surrounding the earnings recovery, pace of stimulus measures, and the ongoing worries in the property sector. MSCI China returned +0.1% in GBP terms over the week and lagged most of the major indices.
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 April 2024.
© 2024 YOU Asset Management. All rights reserved.
The World In A Week - Two become none
Written by Shane Balkham
Following on from last week’s update, there was some good news on inflation in the UK, with a downward surprise for the headline Consumer Price Index (CPI) rate. Wednesday’s data publication showed CPI dropping to 3.4% year-on-year to the end of February, however 3.4% is still markedly above the Bank of England’s (BoE) target rate of 2%.
Additionally, there is further good news on the horizon, with expectations that UK inflation will continue to fall over the coming months. Drops in both energy and food prices are expected to take inflation much nearer to the 2% target, which matches the BoE’s own projections that were published last month.
Coincidentally, we had the BoE’s Monetary Policy Committee (MPC) meeting the following day, where expectations were for rates to remain on hold, but hoping for clearer signs of when the Bank would consider rates to be cut. Expectations were met, with the Committee voting to keep rates on hold, however there were significant changes to how the individual members voted.
Since the previous meeting, two members moved from preferring to raise rates to joining the majority for keeping rates on hold. One member continues to be an outlier, preferring a rate cut for the second consecutive meeting. This shift could move momentum towards a rate cut being sooner rather than later. Whilst Andrew Bailey, Governor of the BoE, refused to be drawn on when the first rate cut would be actioned, he has previously been quoted as saying that cuts could come before the inflation rate hits target.
In comparison to the decision to keep rates on hold in both the UK and the US, the Swiss central bank cut rates, and in Japan we had the first rate rise for 17 years. For all major central banks there is a tightrope balancing act between creating price stability and encouraging economic growth. In this environment, where global economies and central banks are moving different cycles, a diversified portfolio is crucial.
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 March 2024.
© 2024 YOU Asset Management. All rights reserved.
The World In A Week - Print Preview
Written by Millan Chauhan
This edition marks almost exactly 12 months since the US banking crisis unfolded, which saw three mid-size banks fail after the mismanagement of their portfolio construction. Since then, we have seen inflation slow down significantly to 3.2%, the S&P 500 hit all-time highs and the Federal Reserve finish their interest rate hiking cycle. Markets have been driven by several themes, which have included greater capital expenditure on semi-conductors and graphic processing units (GPUs), as demand for AI infrastructure increased. There has also been very strong trial results from GLP-1 drugs, which can be used to treat obesity, and markets are excited by the expectations of future interest rate cuts.
Last week, we saw the US Labor Department’s consumer price index in the 12 months to February come in at 3.2%. Core inflation (which removes energy and food) came in slightly above expectations at 3.8%, in the 12 months to February. This was largely due to the higher shelter costs, which include rental costs and house ownership costs which increased by 5.7% in the 12 months to February. The Federal Reserve are due to meet this week to make their interest rate decision, expectations are that the Federal Reserve will keep rates at their current range of between 5.25% and 5.50%.
Elsewhere, there was some positive news that the UK could be recovering from recession, as GDP increased by 0.2% in January. In addition, the UK inflation rate is expected to fall to 3.6% in the 12 months to February, when data is released on Wednesday morning. These are certainly encouraging signs for the UK economy but expectations are that the Bank of England will keep rates steady when they meet this Thursday.
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 18th March 2024.
© 2024 YOU Asset Management. All rights reserved.
The World In A Week - It’s Coming Home
Written by Chris Ayton
As well publicised, the UK equity market has been unloved for many years now, particularly if you look at the more domestic mid and small capitalization universe.
Although clearly biased, a sizeable group of leaders and fund managers in the UK investment industry have been lobbying the Treasury to provide more encouragement for UK investors to invest in UK listed companies. Why, they argue, should the Treasury provide the same tax break to UK retail investors for providing capital to overseas companies like Apple or Tesla, as they get for providing capital to UK listed companies? This has prompted the Chancellor, in his Budget last week, to announce the launch of a new British ISA that will provide an additional £5,000 of tax-free ISA allowance to invest solely in UK equities or UK equity funds.
In reality, the flows that are likely to result from this measure are unlikely to significantly move the needle in monetary terms, however it is more about elevating the debate about how to get UK investors, retail and institutional, to better support UK businesses. More critical in this crusade is likely to be the government’s efforts to get the UK pension fund industry to also raise its allocation to UK companies. When I started in the investment industry, it was not unusual for UK pension funds to have 40% or more of their assets in UK equities. Today that figure, according to data from the Capital Markets Industry Taskforce, is just 2.7%. Contrast this to Australian pension funds that invest 38% of their assets in Australian equities, France that allocates 26% to French companies, Japan that allocates 49% to Japanese equities and Italian pension funds that allocate 41% to its domestic market. Less well publicised than the new British ISA, was the announcement that, going forward, UK pension funds will be forced to publish how much they have allocated to UK companies, with the additional suggestion from the government that further action will be taken if allocations are not increasing.
In the meantime, with UK equities trading at extremely cheap valuations, corporate UK is seemingly taking matters into its own hands. A standout feature of recent company earnings announcements from many of our UK equity managers’ portfolio holdings has been the prevalence of share buybacks, i.e. companies using their profits to buy their own undervalued shares, thereby increasing Earnings (profit) Per Share for the remaining shareholders.
We are also seeing a notable uptick in Mergers & Acquisitions, with UK and Overseas companies seeking to acquire UK listed companies at what they believe to be highly attractive prices. To name a few, we’ve seen Nationwide bid for Virgin Money (sending the shares up 35%), Belgian insurer Ageas making a bid for Direct Line at a 40% premium, UK logistics firm, Wincanton, accepting an offer from a US peer at 100% premium, Spirent Communications accepting a bid from a US rival at a 60% premium and UK retailer, Currys, rejecting a bid from a US private equity firm at a 40% premium, saying this significantly undervalued the company.
We are hopeful this is just the start of a long overdue revitalisation of the UK equity market. We are overweight the UK equity market in our multi-asset portfolios and we are encouraged to see an increasing number of routes that this value could get realised going forward.
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 11th March 2024.
© 2024 YOU Asset Management. All rights reserved.
The World In A Week - Promises of a good summer
Written by Shane Balkham
The Bank of England announced that interest rates would be kept at the current level of 5.25%, but offered respite with assurances that rate cuts were an active part of the policy committees’ discussions. From the committee of seven, two members voted for a cut of 0.25%, a positive move in the right direction. What was more telling was an interview with the Governor of the Bank of England, Andrew Bailey, where he signalled that rate cuts are coming, without actually using those exact words.
Forward guidance is a skill and Andrew Bailey was clever in giving sufficient hints that rate cuts were on the agenda, without being lured into a firm commitment. This has been a consistent message over the past few months and has given the central bank flexibility by not nailing its colours to any particular set of data.
In the US though, the hopes of a rate cut are fading, where the Federal Reserve has tied the decision to cut firmly on data. As commented on last week, one of those data points is the strength of the labour market, and the other is inflation. US inflation has become sticky, so the next data release for US inflation, which is due on Wednesday, will be closely monitored.
As to when we could expect a rate cut from the US, now becomes more complicated with the US Presidential election starting to gather pace. Keen not to be seen as offering any political advantage, the decision to cut could be delayed until after the votes have been counted, making the meeting on the 12th November particularly significant. It now seems as though the US, who were slow to react to rising inflation, will have mirrored this error and has been slow to react to slowing inflation.
Not slow to react is President Biden, who is widely expected to announce new taxes on products from China, specifically on electric vehicles, and solar panels, of which China has a surplus. For electric vehicles (EVs) the import tariff will be raised from 25% to 100%, a clear indication from Biden that protecting America’s industries will be one key area of his election campaigning.
It is a timely reminder of the importance of diversification within portfolios. Relying on a single sector or geographical region can quickly rotate from being beneficial to becoming a hinderance.
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 May 2024.
© 2024 YOU Asset Management. All rights reserved.