The World In A Week - Moving in the right direction
Written by Millan Chauhan.
In the UK, headline inflation for June was lower than expected at 7.9% year-on-year, the lowest level since March 2022, and ended a five-month run where inflation came in higher than consensus expectations. As a result, UK assets performed strongly, with the FTSE All Share Index up +3.1% for the week.
The 7.9% Consumer Price Index (CPI) reading for June was down from 8.7% in May and its peak of 11.1% in October 2022. The significant drop from last month was thanks to a negative contribution from petrol and other liquid fuels. Food prices continue to remain stubbornly high, with a year-on-year increase of 17.3% in June.
Services’ prices also remained sticky, up 7.2% year-on-year. This is partly explained by labour making up a considerable amount of the overall cost within services and the high wage growth in the UK being a major activity behind this persistent element within core inflation. Labour markets are strong in many developed economies around the world, but the UK also faces a labour supply issue which has not recovered to its pre-pandemic peak, unlike in the US and the Eurozone.
While inflation remains high, the direction of travel saw a positive reaction in markets, as expectations for the Bank of England to hike rates by 0.5% in August dropped. Longer-term, market expectations still assume further rate hikes from the Bank of England but hopes are for a less aggressive approach as we near the end of the rate hiking cycle.
Japan also reported inflation numbers last week. CPI for June was 3.3% year-on-year, slightly ahead of expectations, however, the Bank of Japan appears to be more than happy to allow inflation to run ahead of target after several decades of deflation.
This policy appears to be aimed at allowing inflation to become part of Japanese consumers’ and companies’ mindsets, so that spending is not continually deferred in expectation of lower prices. This is almost the exact opposite of adjusting the UK consumers’ mindsets to reduce immediate spending in the expectation of higher prices.
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 24th July 2023.
© 2023 YOU Asset Management. All rights reserved.
The World In A Week - A Mix Of Opportunities And Challenges
Written by Cormac Nevin.
Markets were rather muted in Europe and the US last week, with the FTSE All Share Index of UK Equities up +0.3%, the MSCI Europe Ex-UK Index of Continental European Equities up by the same amount, and the S&P 500 Index of US Equities up +0.9%, all in GBP terms. However, greater action was found in markets in the Far East, as the MSCI China Index of stocks listed in both mainland China and Hong Kong rallied +6.6% over the week.
The Chinese equity market has been in the doldrums since peaking in early 2021. Since then, a combination of government regulatory crackdowns, a broadly botched COVID response, and increased trading restrictions stemming from geopolitics have taken their toll and the index is now at levels witnessed in 2017. Chinese equities are now arguably at attractive valuations having been among the weakest global equity markets for the first half of 2023, although risks remain.
The Chinese economy failed to roar back to the degree that many market participants expected following its re-opening in January 2023 after the abandonment of their zero- COVID policy. The market staged a strong rally last week, following Monday’s meeting of the politburo of the Chinese Communist Party, whereby President Xi Jinping announced support for “countercyclical” measures from government as a form of stimulus to support the flagging economy. While property related stocks soared on this announcement, policymakers have a fine line to tread between supporting the economy and discouraging the sort of speculative frenzy that has gripped the nation’s property market recently.
Japan was also a source of interesting newsflow towards the end of last week as Kazuo Ueda, the relatively new Governor of Japan’s central bank, announced a policy tweak which would loosen the Bank of Japan’s control over the country’s bond market. This sent Japanese 10-year government bond yields sharply higher, although they are still far below yields in other markets.
Our team are following the policy developments in Asia with great interest and as a potential source of future returns within a globally 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 31st July 2023.
© 2023 YOU Asset Management. All rights reserved.