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.
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 1st November 2021.
© 2021 YOU Asset Management. All rights reserved.
Wealth Manager Top 100 2021: The first 25 heavyweight selectors
The first 25 names to make the cut in Citywire Wealth Manager's annual study into the UK's top fund selectors have been revealed, including YOU Asset Management.
The World In A Week - Pricing in the power
Written by Millan Chauhan.
Last week was a strong week for equities with the MSCI All Country World Index returning +1.2% in GBP terms, largely driven by a good earnings session in the US. The S&P 500 returned +1.6% in GBP terms with earnings momentum driving the S&P 500 to new highs. With supply chain constraints and rising raw material prices, that we have seen in the last few months, investors were anticipating how this would impact companies’ bottom lines. Overall Q3 earnings were reported to have been 33% higher than a year ago, albeit from a much lower base.
Elsewhere, UK inflation marginally fell in September to 3.1% year on year from 3.2% in August. This was an unexpected fall given that there was an extensive oil supply shortage and consumers continue to face rising energy bills. Huw Pill (Chief Economist at the Bank of England) stated that inflation could surge beyond 5% in 2022 as the product and labour shortages continue to hamper the UK’s economic recovery. Policy makers at the Bank of England are set to meet next week, on November 4th, as they will vote whether to raise interest rates from the current 0.1% level.
The giant Chinese property developer, Evergrande, finally repaid its missed interest payment of $83.5 million which had entered its last few days of its 1-month grace period. A month ago, Evergrande failed to pay back the interest on its debt which sparked a sharp selloff in risk assets as concerns regarding the liquidity of the Chinese real estate sector came to light. MSCI China rallied +3.7% last week but remains -10.8% year-to-date following the Chinese Government’s intervention into the generation of certain companies’ excessive supernormal profits.
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 October 2021.
© 2021 YOU Asset Management. All rights reserved.
The World In A Week - Circus Act
Written by Shane Balkham.
Inflation is the lion that every central banker is trying to tame and ahead of the UK’s inflation figures that will be published on Wednesday, the Bank of England readied its whip. Speaking to the G30 group of central bankers last night, the governor of the Bank of England’s rhetoric was aimed at preparing market expectations.
The forward guidance from Andrew Bailey confirmed that the Bank would need to act in order to curb the current inflationary pressures and that might mean an interest rate rise sooner than the general expectations of early in 2022. The role of policymakers during this crisis has been to ensure that nothing was off the table in terms of magnitude and type of action.
In a similar speech at the end of last month, the governor also looked to ensure that the Central Bank was seen as using all the tools at its disposal. Being a policymaker is a subtle game of managing expectations in such a way as not to surprise the markets. In the next fortnight we have the publication of the UK’s inflation rate and the UK’s budget, both are potentially flammable for the policymakers at the Monetary Policy Committee.
The key is to ensure that a strong enough signal has been sent out and understood by the market, and that signal is saying an interest rate raise of 0.15% is not off the table for this year, in order to bring UK interest rates up to 0.25%.
It is unlikely that this decision will be made at the next month’s meeting, as previous minutes have shown that the committee want to see the full effect of the furlough scheme ending before any action is taken. This leaves the December meeting as the earliest most likely meeting if the committee decide to act this year.
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.