The World In A Week - Shaken, Not Stirred
Bonds took centre stage last week, and it wasn’t just the premiere of ‘No Time to Die’ at the Royal Albert Hall. The interest rates on global government bonds rose on the back of increased concerns that central banks would raise borrowing costs earlier, in the face of sustained inflationary pressures from the global supply chain issues. This caused jitters in the equity markets, with the MSCI All-Country World Index down -1.4% in GBP terms (-2.2% in local currency terms).
US 10 year treasury yields rose from 1.31% the previous week and peaked at 1.54%. The sell- off in the UK gilt market was even more pronounced, with yields on the 10 year benchmark rising above 1% for the first time since the onset of the pandemic. What has been even more stark in recent weeks is the very sharp rise in UK “breakeven” inflation rates. These are interpreted as market participant’s expectation of what inflation will run at, on average, over a particular period. For instance, the 5 year breakeven market was at one stage forecasting inflation of 4% over the same period. The market is currently heavily impacted by the inflation hedging activities of pension funds, which diminishes its predictive ability, but it is a measure of just how much anxiety about the global fuel shortage is troubling markets.
While panic-buying has made the energy shortage particularly acute in the UK, the effects are very much reverberating globally. Power plants using natural gas were very efficient as stop-gaps for renewable energy sources when there was no wind or sun. A decade of underinvestment in traditional energy sources, in favour of renewables, has made the system more fragile and liable to supply shocks. This has caused the global liquefied natural gas price to round trip from a record low to a record high in less than a year. While we think these bottlenecks will get resolved, they may keep inflation higher for longer than central banks had expected. We would also anticipate this to be relatively accretive to the positions in our portfolios that benefit from higher inflation and interest rates. In the face of the media headlines, challenges, and opportunities posed, it is important that investors keep the same poise and composure of 007, shaken not stirred.
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 04th October 2021.
© 2021 YOU Asset Management. All rights reserved.
The World In A Week - The Dot-Plot Thickens
Last week saw the Bank of England signal their intention to raise interest rates from February 2022 with mounting concerns regarding this “transitory” inflation. Interest rates are currently at 0.1%, having been cut from 0.75% in February 2020 following the COVID-19 pandemic. The emergence of this news resulted in lower demand for UK Government debt which saw the 10-year gilt yield rise to 0.88%, its highest level for over 3 months. The Federal Reserve announced it would keep rates the same at 0.25% and will likely begin raising rates in 2022. The Federal Open Market Committee also stated that it will start pulling back on the pace of its monthly bond repurchases from November and is expected to release a schedule at November’s meeting.
The Bank of England Monetary Policy Committee expect inflation to rise further as we head into the winter season. We are already seeing visual evidence of this from the fuel-driver shortage which has caused mass disruption to fuel supply levels. Brexit is partly to blame for this, given numerous EU-born drivers fled back home to continental Europe, and the pandemic slowed down the ability to get new HGV drivers trained up. The British transport department announced that 5,000 foreign HGV drivers would qualify for temporary visas up until Christmas, to ease the pressure on domestic supply chains, but it remains unclear whether this will be enough to fix the situation. A further 5,500 visas have been made available for poultry workers to protect the food industry from facing similar issues.
The Furlough scheme, that ends on 30th September, has also contributed to the lack of fuel supply with workers not rushing to get back into employment. With the scheme entering its final week of operation, Rishi Sunak hopes this will rectify the supply of labour shortage we are currently experiencing. On paper, the Furlough scheme has cost £70bn over the last 18 months but has supported over 9 million jobs and protected thousands of British businesses that would have otherwise struggled to remain in operation.
Elsewhere, last week saw the climax of the German elections which will see Angela Merkel end her 16-year term as Chancellor of Germany. Expectations are that Germany's centre-left Social Democrats (SPD) will beat the Conservatives (CDU) in federal elections. However, should there be no clear majority, which is the most likely scenario, a coalition deal will have to be struck.
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 27th September 2021.
© 2021 YOU Asset Management. All rights reserved.
The World In A Week - All Over the Shop
After a sedate summer, August has proved to be a bit more of a challenge for markets as global equities (as measured by the MSCI All Country World Index in GBP) lost -0.2% last week and are now down -1.3% for the month to date. Japanese equities have massively bucked the global trend this month, rallying +7.2% in GBP as the market cheered the resignation of Yoshihide Suga from the position of Prime Minister following a disappointing initial vaccine roll-out. We have benefited from our overweight to Japanese Equity and believe many of the reasons we have liked the market are now being given more attention by other global investors.
Market commentators are of course always on hand to offer explanations for the softness in performance we have witnessed this month. Our view is that it is likely a confluence of factors, after a period whereby equity returns have essentially gone in a straight line up and to the right this year.
Inflation is the most important topic that is being debated, and the debate is likely to rage for longer than most anticipated. Inflation data is all over the shop (pun intended). “Core” inflation in the US, which excludes volatile food and energy prices, was up only +0.1% in August, but this was supressed by airline tickets and used cars (which had risen sharply in prior months) rolling over, likely due to the persistent but manageable COVID-19 delta wave in the U.S. For September to date, used cars are once again looking like a positive contributor, as are energy prices, given the brewing energy shortage we are witnessing in Europe. Sky-high shipping costs, as well as labour and delivery shortages, across the globe give credence to our view that inflation might stick around a bit longer than expected. Indeed, the Nespresso capsules which power this update took over a week to deliver for that very reason(!).
Given our steady but pro-active approach, there are already multiple exposures in our portfolios that actually stand to benefit from higher inflation and the resulting higher interest rates, including our short-dated inflation linked bonds, Property & Real Assets and value equities.
Further afield, coffee is not the only thing that has been brewing, as there could be potential trouble on the horizon from the anticipated default by Evergrande, the world’s most indebted property developer. The Chinese behemoth owes more than $300bn to creditors, including a crucial interest payment due on Thursday. One of our Absolute Return managers has been buying protection against the consequences of such a default getting out of hand. As ever, challenges present opportunities.
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 2021.
© 2021 YOU Asset Management. All rights reserved.
Daniel Craig’s kids won’t see any of his money, but there are ways to bequeath responsibly
With the release of ‘No Time To Die’, James Bond star Daniel Craig says he’d prefer to spend or give his money away than leave it to his kids.
Actor Daniel Craig announced in an interview that he intends to give away most of his wealth when he dies, rather than leave it to his kids.
The James Bond actor went as far as to call inheritance ‘distasteful’. In his interview with The Telegraph, he did however demure slightly saying he does not intend to leave “great sums.”
Craig explained he intended to give away his money to charitable causes, and to otherwise spend his wealth before he dies rather than bequeath it to his children.
The James Bond actor’s approach could be seen as a noble one – his wealth will go to good causes and his kids won’t have the poison chalice of unearned wealth thrust upon them.
But there needn’t be such a gulf between approaches. There are several, arguably more responsible, ways to see that loved ones are looked after outside of the ‘traditional’ inheritance.
Gifts
Regular gifting is a great tax efficient way to use some of your wealth to help out loved ones. The rules are pretty straightforward, and the allowances not so high that you’ll need to worry about spending splurges.
The annual limit for gifting is £3,000, known as your ‘annual exemption.’ You can gift up to £3,000 to one person, or split this amount between as many people as you want.
It is also possible to carry forward the allowance for one year if you don’t use it in the previous tax year – meaning you could give £6,000 away.
You can also give up to £250 to anyone with no limit on how many £250 gifts you give – as long as you don’t use any other allowance to give to that person.
Finally, if your child is getting married you can gift them up to £5,000, separate from the above allowances. For a grandchild the marriage gift can be up to £2,500. Anyone else and you can write off a gift of up to £1,000 for a wedding.
JISAs
If you would like to share wealth with a child over time but they’re still too young to take responsibility for the cash, a Junior Isa (JISA) could be a fantastic option to help grow a nest egg for them.
The allowance for JISAs is now very generous - £9,000 per year per child. If you contribute regularly to a JISA it is classed as ‘excess income’. As long as it is not materially affecting your lifestyle, it is therefore inheritance tax exempt.
Pensions
The ultimate in responsible inheritance – setting up a pension for your child can be both tax efficient, and will ensure they can’t access in until pension freedom age (currently 55 but set to rise to 57 in 2028).
The Junior Sipp allowance is more restricted at £3,600 a year, but like the JISA is exempt from Inheritance Tax (IHT) as long as you can prove it doesn’t affect your day-to-day finances.
The ultimate benefit of a pension for your child is that they can’t access it until retirement. Plus with so many potential years of gains and compounding to be had, the sum you leave in their account could become extremely valuable over time (performance permitting).
If you would like to discuss any of the above options for inheritance planning, don’t hesitate to get in touch with your adviser.
Is bank account switching back? Here’s what to consider before diving in
Current account switching was until recently a lucrative pursuit which could reward dedicated switchers with hundreds of pounds a year.
But in recent times, and especially during the pandemic, the offers available have collapsed.
That now seems to be changing though as high street banks up the stakes to attract new customers. But anyone thinking about switching their current account should consider a few things first. Some of the best deals, we will caveat, come from providers with the biggest customer loss rates. For example, according to data from the Current Account Switching Service (CASS) owner pay.uk, between April and June this year HSBC lost 26,743 customers.
In August HSBC also had the best current account switch deal on the market, with £140 to move your banking to it. That deal has now unfortunately closed, but will most likely be back when executives at the bank feel they need to 'up' customer numbers again.
The lesson here before making the switch based on a monetary reward, is to ask yourself why so many customers are leaving the bank. HSBC’s net losses were only -2,851 as the provider used switching incentives to gain new customers too. But the biggest net losers were Santander (-10,965), NatWest (-10,605) and TSB (-8,502).
HSBC’s switching offer is masking a bigger picture where many dissatisfied customers are leaving the bank for greener pastures. Before you dive into a new current account then, it is worth keeping these stats in mind – you might be getting a freebie, but you may soon tire of the service from your new provider.
Deals come and go frequently, as mentioned with the above HSBC deal which didn’t last long, so it is worth keeping an eye out if you are keen to get a switching reward.
At the time of writing there are two switching deals on the market.
- Nationwide
Nationwide currently has the only cash offer on the market, with £100 to switch if you’re not a customer. If you are a customer, for instance with a mortgage or a savings product with the Building Society, then you can get £125 for switching your current account.
To qualify for the reward you must complete a switch via the Current Account Switching Service (CASS) and pay out at least two direct debits from the new account.
The account also comes with 2% fixed interest on deposits up to £1,500 for the first 12 months you hold it.
- Virgin Money
Virgin Money isn’t offering a direct cash reward, but it is offering a £150 voucher for Virgin Experience Days. It is however a little complicated to obtain the reward.
You must apply for the account online then switch from your current provider within 45 days including at least two direct debits. Once this is done you’ll need to download and register the mobile banking app for Virgin Money and add £1,000 to the linked savings account.
You’ll need to keep the deposit there until your voucher arrives. The account pays 2.02% interest on balances up to £1,000.
The World In A Week - Wars on all Fronts
Last week was generally negative for equity markets. Most regions sold-off around -1%, with the FTSE All Share Index in the UK down -1.5% and the S&P 500 in the US down -1.6%. There were some exceptions to this, with MSCI Japan +3.6% and MSCI China +1.1%. Our overweight exposure to Japanese equities will have been a positive contributor to performance.
Last week marked the 20th anniversary of 9/11. A terrible event and a scar on human history, one which has left a deep national trauma on the US. The last twenty years has seen the US spend trillions of dollars trying to rid the world of terrorism.
At the same time the war on COVID-19 continues around the world. As the delta variant wreaks havoc in the US, President Joe Biden has gone on the offensive against anyone who is not willing to be vaccinated and federal employees could be fired if they do not take the vaccine. Israel, which has been one of the leading nations with vaccine rollout, is now one of the world’s biggest pandemic hotspots. There are stark warnings coming out of Africa that the proliferation of COVID-19 variants could lead to vaccine-evading mutations. In the UK, preparations are starting for a program of “mix and match” of coronavirus vaccines as booster shots, to fight against such possible mutations.
In big tech land – Apple has been fighting its own wars in the courts against Epic Games. Apple has been ordered by a federal judge to substantially alter its business model, forcing them to allow its developers to “steer” customers away from Apple’s payment processing service. The ruling, one of the first major legal actions taken against a tech giant in a new era of antitrust scrutiny, is sure to echo loudly in Washington where a legislative effort to rein in the power of Big Tech is underway. This fight could have many ramifications and is one to watch. Apple’s stock price fell -3.5% on the announcement of the ruling.
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 September 2021.
© 2021 YOU Asset Management. All rights reserved.
Wages are rising: here’s how to get yourself a pay rise without leaving your job
Wages are rising at a rapid pace across the economy, latest figures from the Office for National Statistics suggest.
As per the most recent wage growth data, workers are due to get a bumper 8.8% increase in their pay packets. This number has been called into question however, amongst concerns that base effects of falls in wages in 2020 have skewed the comparative data.
That being said, there is no doubt that salaries are increasing across the UK. Worker shortages are biting businesses that are looking to expand after the various lockdowns, while changes to employment visas post Brexit have left many firms with less access to pools of talent from abroad.
But unless your boss offers you a pay rise, or you quit your job for a better paying one – it can be hard to get in on these bumper rises.
The best way to get a pay rise then is to sit down with your manager and explain to them why you are worth it.
There are a few ways to broach the topic though. Here are some ideas.
- Do your research
It can be difficult to find average rates for the type of work you do but do try doing some research. That way you’ll know whether you’re being remunerated fairly or not.
- Don’t use personal issues to bargain
When appealing to your manager for a pay rise, don’t use personal circumstances as a reason to request an increase. As true as it may be, it is not reflecting to them why you are worth more money each month than you currently get.
- Don’t make ultimatums
Threatening to leave your job if you don’t get a pay rise only works if you are prepared to carry it out. Avoid making such ultimatums unless you have a plan to make it happen.
- Don’t use colleagues’ pay rises as an excuse
Although you may have a colleague doing the same job as you, unfortunately the nature of salaries is such that often people earn different amounts for the same work. But if you find this out, using it as a reason to ask for a raise will not necessarily convince your boss you are worth it too.
- Make a positive case
If you feel you deserve a raise for the work you do, be ready to prove it. List the tasks you do and responsibilities you have that you feel go above and beyond your basic job description. Make the case for the value you add to the company and what makes you worth more money to them.
- Make yourself indispensable
If you feel like you could take on more that would lead to your pay packet increasing, dive in. An employer will take no signal better than a sign you’re going above and beyond to deliver for them.
Savings rates are rising – is it time to lock in a deal?
Savings rates have been in the doldrums for some time but are beginning to move upwards across the board for the first time in years.
Unfortunately, though, rates are still historically low, despite the reversal in fortune.
Why do savings rates matter?
The interest rate you get on your cash savings matters principally because of inflation. Inflation is of special concern at the moment as it is rising quickly. This means that any money you have saved that isn’t growing in value at the same as the rate of inflation will essentially be losing its purchasing power.
The Bank of England has an excellent historic inflation calculator to demonstrate this. For instance, £100 in 2010 would have to have grown to £131.13 to match the equivalent purchasing power in 2020.
All this is to say that if your wealth isn’t beating the long-term inflation average (in the case of the example above, 2.7% over 10 years) then your money is ultimately losing value.
What are the current top deals?
The top cash savings deals, while growing in value, are still very low. Data from the Bank Of England shows that rates are only really rising on long-fixed term accounts too.
The average rate on a three-year fixed savings bond, for example, has risen from 0.57% in March to 0.71% in July. But these are just averages and do not represent the best possible deals.
The current top rate easy access savings account is from Tandem Bank and will earn you 0.65% on your savings.*
When it comes to easy access Cash ISAs, the best rate on the market is even worse at 0.6% from Cynergy Bank.
At the other end of the market, if you lock your money away for five years, Atom Bank will pay you 1.84% interest on your cash. The best Cash ISA over five years is with Furness Building Society, returning just 1.25%.
What should I do with my money instead?
The reality is that cash savings rates are still extremely poor. For your day-to-day money you can get an interest-bearing account with providers such as Nationwide, who will pay 2% on deposits up to £1,500 per month. That rate drops to just 0.25% after 12 months unfortunately.
A rainy-day fund should be in an easy-access savings account. Although this won’t keep up with inflation, it should only be a limited pot of cash anyway. The general rule of thumb is to keep 3-6 months’ worth of expenses in cash.
Over and above this, any money you have set aside could be working harder elsewhere. Think investing in the stock market, either through a stocks and shares ISA or a pension.
If you would like to discuss your options, don’t hesitate to get in touch with your adviser.
*Please note all rates quoted in the article were correct at the time of writing but are subject to change.
What different types of pensions are there?
The information below shows a breakdown of your pension options.
Source: www.finder.com/UK-pension-statistics
Source: https://www.gov.uk/workplace-pensions
Source: https://www.yourpension.gov.uk/
Source: https://www.ipse.co.uk/ipse-news/ipse-blog/how-much-should-i-pay-into-my-pension.html
Source: https://www.raconteur.net/finance/pensions/young-people-pensions/
The World In A Week - Facebook, faceplants
Equity markets were generally flat last week in Sterling terms, with the only real exception being MSCI Japan that sold-off -3.0% in Sterling terms, though a large portion of this was down to Yen weakness, which declined -1.7% versus the pound. The environment continued to be challenging for bond markets, the focus on inflation expectations and the forward-looking interest rate environment drove yields higher. The Barclays Global Aggregate Index and the Barclays Global High Yield Index sold-off -1.4% and -1.3% respectively.
With the third quarter earnings season still a week away, the focus during the week was on the September payroll numbers coming out of the US. The report came as a disappointment, with payrolls rising $194k in September versus expectations of $500k. However, details within the report illustrated bright spots, and likely positive enough to keep the Federal Open Market Committee (FOMC) on track to announce the beginning of tapering at their November meeting. Some of the positive read throughs from the Non-Farm Payrolls (NFP) included an increase in the average work week and average wages, which should ultimately help increase spending. Despite the overall lacklustre report, bond yields reacted in-line with the expectation for the Fed to proceed with tapering, as the US 10-year treasury yield closed above 1.6% for the first time since June.
On the corporate side, we did have a few announcements. PepsiCo, in the US beverages sector, beat expectations as they saw stronger organic sales driven by their international business, which is potentially a positive evaluation for multi-nationals. The Company’s gross margins missed their target due to higher costs/labour, which is not a huge surprise in this extraordinary inflationary environment. Levi’s (US clothing and apparel) also stood out, beating and raising expectations, as they were able to offset cotton price headwinds by pricing power. The moral of the story appears to be that pricing power, and a strong brand, is what is likely needed to win in the current inflationary environment.
Last week was one that founder and CEO of Facebook, Mark Zuckerberg, would probably rather forget. At a U.S Senate hearing, whistle-blower Frances Haugen called out the social media behemoth for allegedly placing profit before child safety, society, and democracy. Amid a storm of criticism, Zuckerberg responded with a “not true”. To compound matters, Facebook services including Instagram and WhatsApp went dark for several hours, making a winner out of Snapchat and helping send Facebook shares down the most since the coronavirus pandemic began.
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 October 2021.
© 2021 YOU Asset Management. All rights reserved.