The World In A Week - Witnessing history
Written by Millan Chauhan.
Last week, the US Bureau of Labour Statistics announced that US CPI decelerated to 8.3% which was above estimates of 8.1%. Estimates had predicted a sharper slow-down in the level of inflation and the market reacted negatively to this news with the S&P 500 closing the week down -3.5% in GBP terms. With inflation still persistent and slowing down less than expected, this has increased estimates of a full 100 basis points rise in interest rates. Markets are expecting either a hike of 75 basis points or 100 basis points, which would be the largest rate hike in 40 years and would move the target range to between 3.0% and 3.25%. With further hikes expected, we are on track to see rates reach 4.0% by the end of the year. The Federal Reserve is expected to make its decision on Wednesday evening.
The Bank of England Monetary Policy Committee will make an interest rate decision on Thursday, as inflation came in at 9.9% in August 2022 which was down from 10.1% in July 2022. The expectation is that the policymakers will raise rates by 50 basis points, but they could adopt a similar stance to other central banks and hike more aggressively. The decision comes after the announcement of the Prime Minister Liz Truss’s energy pricing plan that will freeze average energy bills at £2,500 per year.
In the UK, we have observed a period of national mourning over the last 10 days following the death of Queen Elizabeth II, who reigned for 70 years and 214 days, the longest of any British monarch and the longest recorded of any female head of state in history. The state funeral of our late Queen took place in London yesterday, which was followed by a military procession to Windsor Castle where she was laid to rest in St George’s Chapel. Millions of people watched on the streets or on their televisions at home, witnessing a fitting tribute to mark Queen Elizabeth II’s final journey.
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 20th September 2022.
© 2022 YOU Asset Management. All rights reserved.
The World In A Week - A nation in mourning
Written by Shane Balkham.
While we welcomed in the new prime minister, Liz Truss, last week was dominated by the sad news that her majesty Queen Elizabeth II had passed away. It is indeed a sombre occasion and one that will be marked by ten days of official mourning.
It does present challenges for the new prime minister, as from 9th September all parliamentary business is suspended until after the official mourning period has finished. It has been suggested that the official day for parliament to recommence would be 22nd September, however there was a planned recess from that day until 17th October, to allow for political party conferences to be held.
Arguably, the most challenging item to resolve during the mourning period is Liz Truss’s £150 billion energy support package. It is fully expected that the energy price guarantee will be in place for 1st October, however legislation will be needed to extend that support to Northern Ireland.
The Bank of England has also announced the delay of their September Monetary Policy Committee (MPC) until after the official funeral. The MPC will now meet on 22nd September, which is a critical date, putting it after what is widely expected to be an emergency budget announcement on 21st September. That said, it is still unclear how parliamentary business will proceed throughout the period of mourning.
Having a reign that lasted 70 years and 214 days does allow for some interesting reflections; according to a Bloomberg columnist, the British stock market multiplied more than 2,500-fold during the Queen’s reign. It reminds us that long-term decision making is a powerful tool and something we can all adopt for our investments.
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 12th September 2022.
© 2022 YOU Asset Management. All rights reserved.
The World In A Week - In Liz we Truss?
Written by Millan Chauhan.
Last week, the Federal Reserve’s Chair Jay Powell delivered a hawkish stance stating that higher interest rates are needed to combat inflation. With annualised inflation having reached 8.5% in July 2022, the Fed now faces a balancing act between controlling inflation and causing an economic slowdown through aggressive hiking. Following Powell’s address, we saw US stocks tumble with the interest rate sensitive segments of the market the hardest hit. This also quickly spread to other geographical equity markets and stuttered the summer rally we have seen in equity markets. In the US, we also saw new single-family home sales fall to their lowest level in two years as higher mortgage rates make owning a home less affordable.
In the UK, we saw the energy regulator Ofgem announce an 80% increase in the cap of household energy bills to £3,549, effective from 1 October 2022, which has been caused by higher natural gas prices and a more restricted supply following Russia’s invasion on Ukraine. There have been further energy cap increases planned with the cap expected to rise beyond £5,300 by January 2023. We are also in the middle of the Conservative’s leadership contest which has been dominated by the respective cost-of-living stance of Liz Truss and Rishi Sunak. Liz Truss remains the favourite heading into the final week, with the outcome of the race set to be announced on 5th September.
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 30th August 2022.
© 2022 YOU Asset Management. All rights reserved.
The World In A Week - Autumn is coming
Written by Shane Balkham.
Inflation continues to dominate investors thoughts and last week we had the UK’s rate of inflation climbing to 10.1% for July on an annualised basis, the first time the measure has registered a double-digit increase in more than 40 years. Prices rose 0.6% in the month of July, driven by the persistent increases in energy and food. Food inflation recorded 12.7% in the month of July, the highest rate for more than 20 years.
This data will certainly increase the resolve at the Bank of England to continue along the current path of interest rate hikes. Expectations for a further 0.5% hike at the next meeting have solidified. The quarterly analysis from the Bank of England in its Monetary Policy Report published at the beginning of the month, projected inflation to creep higher, with energy prices poised to soar with the energy price cap set to increase in October.
The situation continues to be highly politicised and whoever ascends to become Prime Minister will have to take measures to ease the pain being felt by consumers. This could mean using fiscal measures to subsidise fuel costs, while simultaneously tackling headline inflation. This scenario will undoubtedly add further pressure to an already stressful Bank of England.
The Bank of England is not alone. The minutes from the Federal Reserve’s meeting in July indicated that the Central Bank would continue to prioritise the fight against inflation ahead of economic growth for as long as it would take. Signals have become mixed, with the US inflation measures falling in July and the Federal Reserve minutes confirming a strong line on the battle to control inflation.
Even if elements of the inflation make-up are seeing signs of reducing pressure, it is clear that central banks will remain focused on fighting inflation, as they continue to play catch-up on a situation where they were caught sleeping. Cognisant of the ghosts of the past, central banks will not want to stop the rate hiking cycle too early and risk losing the loose grip they are perceived to have on inflation.
The end of the summer will be monitored closely, with the central bank committee meetings in September and the economic symposium in Jackson Hole, Wyoming next week. A political autumn of discontent with inflation to fight and a recession to avoid?
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 August 2022.
© 2022 YOU Asset Management. All rights reserved.
The World In A Week - Narrowing the gap
Written by Millan Chauhan.
Last week, the Bank of England (BoE) announced it had raised interest rates by 0.50%, the biggest increase in 27 years. UK interest rates now sit at 1.75% which is still way below the current inflation rate of 8.2%. The BoE has only increased rates in increments of 0.25% thus far since the pandemic, but has now opted for a more aggressive stance following similar moves by both the European Central Bank and the US Federal Reserve. Previous forecasts made by the BoE stated it could expect inflation to reach 11%. However, it has since revised this figure to 13%, as the cost of energy is expected to increase in the autumn. The effect of higher interest rates will increase the cost of borrowing and in theory encourage a consumer behaviour shift from higher spending to higher savings. This would then slow down the demand for goods and services and alleviate the pricing pressures we have seen over the last 12 months.
The BoE also released guidance on its economic forecasts which signalled that the UK would fall into a recession later in 2022 as shrinking demand begins to be priced into the economic data. It also stated the severity of the recession may be longer than its initial forecast.
Elsewhere, we saw the US unexpectedly add 528,000 jobs to the labour market as their unemployment rate fell to 3.5%. Treasury yields rallied strongly following the release of the economic data, in particular the 2-year Treasury which is often regarded as a proxy for interest rate expectations.
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 August 2022.
© 2022 YOU Asset Management. All rights reserved.
BOE's Comments Surprise More Than Its Deeds
BOE’s Accelerated Fight Against Inflation Could Come at a Cost
Following the Bank of England raising its bank rate by 50 basis points, Derrick Dunne commented “Making drastic decisions based on a gloomy outlook will likely cause investors to lose out in the long run”.
The World In A Week - Following the leader
Written by Shane Balkham.
The tightening of monetary conditions continued last week with the Federal Reserve hiking rates by 0.75%, repeating the size of the hike that was made last month. The Fed has raised rates by 2% over the past three meetings, intensifying the efforts to combat inflation and recover some level of credibility. However, during the press conference Fed Chair Jerome Powell alluded to a slowing in the pace of tightening at future meetings, to allow for an assessment on the effect that the rate hikes are having on the US economy. Powell confirmed that future decisions will be wholly data dependent and made on a meeting-by-meeting basis.
This adds pressure to the Bank of England to follow the lead set by the Federal Reserve last week and the European Central Bank the week before. The Monetary Policy Committee has been consistent in raising interest rates by 0.25% for each meeting since December 2021 and has acknowledged that it may need to act more forcefully in response to what they see as persistent inflationary pressures.
Governor Andrew Bailey has made it clear that a hike of 0.5% is one of many options currently on the table for discussion on Thursday. Not only does the Committee have to consider a slowing UK economy, but they also need to be cognisant of political promises being made in the Conservative leadership race. Pledges of tax-cuts could lead to interest rates being hiked further.
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 August 2022.
© 2022 YOU Asset Management. All rights reserved.
‘Downright damning’ UK inflation crisis continues as figures hit new high
June’s UK consumer prices index reached 9.4%, putting further pressure on the Bank of England and on investors’ money.
The World In A Week - The Almighty Dollar
Written by Cormac Nevin.
Last week was another challenging one for markets as the MSCI All Country World Index fell -0.3% in GBP terms. The same index was down -4.2% in local currency terms, which illustrates the continued fall in Sterling vs the US Dollar. The US Federal Reserve’s efforts to combat inflation have led it to tighten interest rates aggressively, which has led to a sharp rise in the dollar vs other major currencies. One of the worst affected currencies has been the Yen, which is now at multi-decade lows. The Pound Sterling and Euro have also been heavily impacted, with the Euro falling to below parity with the US Dollar. As of this Monday morning, 1 US Dollar buys roughly 0.96 Euros and 1.08 Pounds. The Federal Reserve’s reversal of quantitative easing, aptly named quantitative tightening, has also put pressure on the US Treasury market where liquidity conditions have deteriorated significantly.
Other events driving markets have been the “mini” budget announced by Kwasi Kwarteng, the new Chancellor of the Exchequer. In his address to parliament, Kwarteng announced a series of measures aimed at supply-side reform of the economy with tax cuts aimed at incentivising employment and investment. The fact that these tax cuts will be funded by borrowing led to a sell-off in the UK Gilt market and additional Sterling weakness. Only time will tell if these pro-growth measures have the desired impact of raising trend GDP growth.
On the continent, the weekend saw the election of Italy’s first female Prime Minister since the Risorgimento led to the creation of a unified Italy in 1861. Giorgia Meloni’s Fratelli D’Italia party will lead a right-wing coalition with a comfortable parliamentary majority. The prospect of Italy being governed by the most right-wing government since the end of the second world war will likely set the scene for further confrontation within the European Union, at a time when the block faces significant economic and energy security challenges.
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 26th September 2022.
© 2022 YOU Asset Management. All rights reserved.