The World In A Week - Bank of England Headache
Written by Chris Ayton.
It was a positive week for global equity markets with the MSCI All Country World Index rising +1.3% in Sterling terms. Global bonds collectively declined with the Bloomberg Global Aggregate Index -0.3% in GBP hedged terms although credit and high yield fixed income indices ground out small gains.
UK economic data released over the week provided the Bank of England with a bit of a headache for its upcoming interest rate decision. Average pay increased 8.5% year-over-year, which was higher than expected, and will be considered quite inflationary. Although this is partly due to one-off payments to public sector workers, the data excluding such bonuses was also higher than expected. However, UK GDP data released last week was worse than expected, contracting 0.5% between June and July. The services sector was particularly weak, although notably this was impacted by strikes by NHS staff. Markets read this as a positive sign that any incremental rise in interest rates from the Bank of England this week is likely to be the last in this cycle and helped the FTSE All Share Index to a +2.9% weekly gain.
Similarly in Europe, the European Central Bank raised interest rates to an all-time high although, with growth stalling and inflation starting to fall, it also signalled that its cycle of rate increases was likely nearing an end. After a strong start to the year, growing concerns about the growth outlook in Europe has seen sentiment towards European equities start to wane and Europe ex-UK is one of the few regional equity markets to be down over the third quarter so far.
Japan was the standout performer over the week, with MSCI Japan up +3.8% in Sterling terms as both the equity market and currency strengthened. The rise came on the back of the Bank of Japan’s Governor, Kazou Ueda, signalling Japan could end its negative interest rate policy when achievement of its 2% inflation target is in sight, citing year-end as a potential point for them to have sufficient data to make this determination.
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 September 2023.
© 2023 YOU Asset Management. All rights reserved.
The World In A Week - Continental Slowdown
Written by Cormac Nevin.
Markets were flat last week, with the MSCI All Country World Index of global equities down -0.3% in GBP terms. What was notable was the continued underperformance of Continental European equities, which are down -1.6% in GBP for the quarter to date, compared to a +1.5% gain for global equity markets. After a strong start to the year, Europe ex-UK equity markets have given up their relative gains vs global equities and are now up only +8.0% vs 9.7%.
Economic data from the continent continues to come in weak as the diverse set of economies which constitute the Eurozone face an array of challenges. Purchasing Managers Indices (PMIs) are broadly tracked as a forward-looking measure of economic performance and these have been undershooting already low expectations across countries such as France, Germany, and Italy for both the manufacturing and services sectors of each economy. Consumer price inflation continues to come in higher than the European Central Bank’s (ECB) target of 2%, with readings of +6.4% year-on-year recorded in Germany last week.
However, a more leading measure of input inflation, the Producer Price Index (PPI) for the Eurozone, is now recording very steep declines in input prices falling -7.6% year-on-year as of last week. This is the most negative PPI reading since the global financial crisis in 2008/09 and ought to really give the ECB pause to consider whether inflation is the most pressing issue on a forward-looking basis and if interest rates are now so high that they are excessively restricting economic growth.
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 September 2023.
© 2023 YOU Asset Management. All rights reserved.
The World In A Week - Interesting Developments in Asia
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.
The World In A Week - Game, Set & Match for Inflation in US?
Written by Chris Ayton.
As a classic but relatively wet Wimbledon fortnight ended, with nearly 200,000 servings of strawberries having been eaten, global equity markets were in no mood to be dampened with the MSCI All Country World Index up +1.1% in Sterling terms. Asian equity markets led the charge with MSCI AC Asia Pacific ex-Japan Index up +3.7% for the week, closely followed by Continental Europe with MSCI Europe ex-UK up +3.6% for the week. Japan was the laggard, as MSCI Japan fell by -0.3% over the week in Sterling terms.
The UK FTSE All Share Index was up a healthy +2.6% over the same period, despite news that UK GDP had contracted 0.1% in May. This data was marginally better than expected and came alongside other data showing that UK wages grew faster than expected in the three months to May. The inflationary impact of these wage hikes fuelled further fears of more interest rate rises in the UK and helped push Sterling up to more than $1.31 against the US Dollar. It’s hard to believe this exchange rate was just $1.07 in September of last year.
Conversely, in the US we saw further signs that inflation there is coming under control. The annual inflation rate in the US fell to 3% in June, which was below expectations and the slowest increase since March 2021. This has sparked some speculation that the Federal Reserve could soon be done with its interest rate tightening cycle, although policy makers are saying they are open to further action.
The technology dominated Nasdaq Index in the US crept up another +1.2% over the week, taking its rise to an astonishing +31.1% for this year so far in Sterling terms (and +42.9% in US Dollar terms!). As discussed here previously, this rise has been driven by the six largest index constituents, namely Apple, Microsoft, Amazon, Alphabet, Tesla and NVIDIA. So dominant has their collective size become that Nasdaq announced last week that it would be undertaking a “special rebalance” to redistribute some of their index weightings to smaller constituents, cutting their combined weighting from over 50% of the Nasdaq Index to just 40%. Clearly, this will have implications for the hundreds of billions of Dollars that are invested in ETFs and index funds that track the Nasdaq Index, but it remains to be seen if this will have any impact on the relative performance of the Big Six 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 17th July 2023.
© 2023 YOU Asset Management. All rights reserved.
The World In A Week - Minutes change by the hour
Written by Millan Chauhan.
Last Wednesday, we saw the Federal Reserve’s meeting minutes released which provided further insight into policymakers’ decision making and outlook. In June, Federal Reserve officials paused the interest rate rising cycle to subsequently reassess the impact of their hikes on the economy. This followed ten straight interest rate hikes which have raised rates to 5.25% over the course of the last 15 months. The minutes stated that further monetary tightening is likely but at a slower pace going forward with all but two of the eighteen officials foreseeing rates to be higher by the end of the year. Global equity markets reacted negatively to the Federal Reserve’s indication that it will likely have to continue to raise rates with the MSCI All Country World Index returning -2.2% last week in GBP terms.
We also saw US employment data released last week which showed that an additional 209,000 jobs were added in June 2023, missing expectations for the first time in 15 months, indicating a modest slowdown in US employment and that hiring could be beginning to slow. Consensus forecasts were expecting 240,000 jobs to be added in June with the actual figure considerably lower than that and also significantly below May’s revised figure of 306,000 jobs. However, the unemployment rate remained at 3.6%, in line with expectations. US payroll data is an important factor for policymakers and is one of many economic indicators the Federal Reserve consider as part of their decision-making process.
The Bank of England’s Monetary Policy Committee is not set to meet again until early August, however markets are now forecasting UK interest rates to climb towards 6.5% by early 2024. We saw the average 5-year fixed rate mortgage eclipse 6% and there are expectations this could climb higher if inflation continues to remain elevated. The next UK inflation data release isn’t due until the 19th July and will provide the Bank of England’s Monetary Policy Committee with another data point to make their decision.
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 10th July 2023.
© 2023 YOU Asset Management. All rights reserved.
The World In A Week - US data spreading optimism
Written by Ilaria Massei.
Last week saw a heavy economic calendar in the US, with the release of many economic indicators contributing to a boost in market sentiment. Inflation data showed a fall in the year-over-year increase in the Personal Consumption Expenditures Price Index (PCE), calming concerns about rising prices. Weekly jobless claims dropped significantly and continuing claims also surprised on the downside and fell back to a four-month low. Consumer sentiment also improved, attributed to the resolution of the debt ceiling standoff and positive feelings regarding softening inflation. Durable goods orders and new home sales both exceeded expectations, indicating strength in business investment and the housing market.
In the Eurozone, annual inflation continued to slow in June from 6.1% in May to 5.5%, marking the third consecutive month of deceleration. Reports from the European Central Bank’s annual Forum on Central banking suggested the likelihood of another interest rate increase in July, acknowledging that the battle against high inflation is proceeding.
On the same note, the Bank of England Governor Andrew Bailey said that the UK interest rates are likely to stay higher for longer than financial markets expect.
Elsewhere, China’s economic data are only showing a partial recovery, with domestic travel increased by 89.1% compared to the previous year but remaining 22.8% below pre-pandemic levels in 2019. Industrial profits are also not encouraging , with a decline of 18.8% year-over-year in the first five months of 2023.
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 3rd July 2023.
© 2023 YOU Asset Management. All rights reserved.
The World In A Week - The BoE threads the needle
Written by Cormac Nevin.
The Monetary Policy Committee of the Bank of England (BoE) met last week at Threadneedle Street and decided to raise the Bank Rate by 0.5%, from 4.5% to 5.0%. This was most likely in response to an unchanged UK inflation rate of 8.7% which was published the day before, as well as strong employment and wage data released the prior week which the BoE likely interpreted as the signs of an economy which is running hot. While we have seen sustained falls in inflation in Europe and the US (which we suspect could continue and indeed accelerate) we think inflation could remain relatively higher in the UK due to the unique challenges faced by the economy. These include a labour shortage as well as a multi-decade inability to build sufficient housing or energy infrastructure. These forces will likely see inflation in the UK remain higher than it ought to be, while few of these problems will be solved by higher interest rates. The BoE is threading a precarious needle between its use of interest rates to attempt to cool inflation (compounded by sustained political pressure for them to do something) and inflicting significant damage on the disposable incomes of the portion of the population with variable rate mortgages. While more people own their homes outright than in the 1980s, the size of the outstanding mortgages are far larger for today’s generation of young homeowners.
Elsewhere in the world, we saw evidence that economies are really starting to weaken in Continental Europe and the US. The Purchasing Managers’ Index (PMI) came in significantly lower than expected which suggests to us that higher interest rates in those economies is raising the probability of a recession. Geopolitical risks also remained elevated, as the weekend saw an attempted coup against Vladimir Putin’s Russian regime by a band of Russia’s mercenaries employed on the Ukrainian frontline.
While markets were broadly down over the course of last week, many components of markets appear to be disregarding the growing list of potential challenges. This leaves us comfortable with our preference for substantial diversification in the face of a wide range of potential outcomes.
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 June 2023.
© 2023 YOU Asset Management. All rights reserved.
The World In A Week - Enjoy the silence
Written by Shane Balkham.
Another week was dominated by central bank meetings, interest rate decisions, and inflation forecasts. The underlying commentary remains unerringly similar, and it would have been a simple exercise to simply rehash a previous ‘The World In A Week’ from earlier this year.
The European Central Bank raised rates and signalled that further rate rises are likely. The Federal Reserve paused its rate hiking cycle, allowing it time to gather more data and reflect on its next actions. This was caveated with the likelihood that more rate rises could be needed in 2023. Mixed signals indeed.
The Bank of Japan meeting concluded with another month of inactivity, whereas the People’s Bank of China moved in the opposite direction and cut short-term borrowing rates, reacting to a broad slowdown in domestic retail growth.
Not every week delivers headlines that grab our attention, and it is important not to try and create or manufacture a story, as equally as it is not to become complacent. Maintaining an appropriately diversified outlook is critical to navigate turbulent and quickly changing markets and that is something we are highly committed to at YOU Asset Management.
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 19th June 2023.
© 2023 YOU Asset Management. All rights reserved.
The World In A Week – The trillion dollar question?
Written by Millan Chauhan.
Previously, there were four other US stocks with a market cap greater than $1 trillion which included Alphabet (Google), Microsoft, Amazon.com, and Apple. NVIDIA has now joined this exclusive club following its immense rally year-to-date. NVIDIA was founded by Jensen Huang in 1993 and it has taken thirty years for it to eclipse the $1 trillion market cap. Its capabilities stemmed from being a dominant player in the video game chips segment which benefitted greatly from the pandemic as demand for gaming increased substantially. However, the Company pivoted into the AI chips market with NVIDIA producing one of the core crucial components which is the graphics processing unit (GPU). With AI’s potential being understood, adopted in practice, and realised, the demand for this type of technology has skyrocketed as companies are devoting significant resource towards increasing their longer-term efficiencies within their business. The stock has returned +175% year-to-date and its valuation has become significantly more expensive but those now willing to pay more than 50x next year’s predicted earnings presumably expect their competitive position to remain unchallenged for years to come.
Last Friday, we saw further signs of a strong labour market in the US with 339,000 jobs added in May which vastly exceeded expectations of 190,000. However, we did see the US unemployment rate increase to 3.7% from 3.5% which was also above forecasts of 3.5%. The next Federal Open Market Committee meeting is in mid-June where the Committee will have received May’s inflation reading by then to make their interest rate decision.
Elsewhere, in Europe we saw eurozone inflation slow to 6.1% in May from 7.0% in April which was below forecasts of 6.3%. Christine Lagarde, President of the European Central Bank (ECB) stated that inflation is still far too high and that it is set to remain elevated for much longer. The ECB is also set to meet next week and will make its interest rate decision.
The World In A Week - UK resilience in August
Written by Dominic Williams.
UK GDP figures were released by the Office for National Statistics last Thursday, showing that the UK economy expanded by 0.2 per cent in August. This marks a reversal from the 0.6 per cent decline observed in July, which had been revised down from the initially reported 0.5 per cent decline. As a whole, the service sector, was the sole positive contributor to this growth, rising by 0.4 per cent in August. However, consumer-facing services experienced a decrease of 0.6 per cent, indicating that the central bank's interest rate increases are beginning to impact consumers. Production output saw the most significant decrease, falling by 0.7 per cent, following a decline of 1.1 per cent in July 2023 (which was also revised down from the initially reported 0.7 per cent). Construction also fell by 0.5 per cent. The three-month average GDP figure for August was also released, indicating a growth rate of 0.3 per cent. This figure can be considered a more stable measure compared to the month-on-month figures. Furthermore, this data suggests that the UK is not likely to enter a recession in 2023, as defined by two consecutive quarters of negative growth.
The world's two largest economies reported contrasting inflation figures over the past week. In the US, September's Consumer Price Index (CPI) exceeded expectations, remaining unchanged at 3.7 per cent year-on-year. However, the core measure, which excludes food and energy, decreased from 4.3 per cent to 4.1 per cent year-on-year, the lowest reading since September 2021. The higher-than-expected headline rate might signal a potential interest rate hike by the Federal Reserve. In contrast, China reported CPI figures that remained unchanged year-on-year, falling short of the consensus expectations of a 0.2 per cent increase. The most significant drop was observed in food prices, which fell by 3.2 per cent, driven by a sharp decline in pork prices (China being the largest consumer of pork globally). These figures suggest persistent deflationary pressures and raise concerns about the strength of the economic recovery due to sluggish demand.
In other news, in Marrakesh, Morocco, the World Bank and the International Monetary Fund (IMF) held their annual meetings. The IMF unveiled their outlook for global economic growth, predicting a slowdown. It anticipates a decline from 3.5 per cent last year to 3 per cent this year, further decreasing to 2.9 per cent next year, marking a 0.1 per cent downgrade from their previous 2024 estimate. Global inflation is also projected to decrease from 6.9 per cent this year to 5.8 per cent next year, however this is an increase of 0.6 percentage points above their previous forecast. While central bank rate hikes are credited with some success in controlling price pressures, the IMF expects that over 90 per cent of economies with an inflation target are expected to remain above target.
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 16th October 2023.
© 2023 YOU Asset Management. All rights reserved.