Jess Wooler

Written by Cormac Nevin.

Markets continued to stage a broad-based recovery last week, as returns for June continue to be strong in what has been a challenging year to date. The MSCI All Country World Index returned +1.5% last week in GBP terms and was assisted by a rebound in global growth equities. Bonds also rallied as treasury yields fell, and even riskier high yield bonds rallied strongly.

While the debate regarding whether we will see a recession in the US this year is ongoing, it appears more likely that this will come to pass in Europe sooner rather than later. Measures of business confidence have fallen to lows not seen since the depths of the COVID-19 market selloff over 2 years ago. Germany in particular is being hit particularly hard by soaring energy costs due to its reliance on Russian natural gas. Inflation in Germany has risen to 8.2% in June, and is also putting a major squeeze on consumer incomes. In addition, the recent dry spell has reduced the water level on Germany’s main rivers which has caused shipping disruptions on the Rhine.

In Italy, the Eurozone’s third largest economy, the spectre of political uncertainty has returned. Mario Draghi resigned as the Prime Minister last Thursday which triggered the dissolution of parliament after three of the largest parties in parliament boycotted a confidence vote in his leadership. This led to a sell-off in Italian debt, and cost of borrowing vs German debt costs has been widening in what is a heavily indebted economy.

There is now a scramble across Europe to build up stores of energy in advance of winter, as it is not apparent how much energy Russia will be willing or able to provide given the ongoing war in Ukraine.

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 25^th July 2022.

Written by Millan Chauhan.

Last week, we saw central banks implement another interest rate increase as they attempt to slow down inflation.  In theory, the effective implementation of a higher interest rate depends on how swiftly savers and spenders change their consumption behaviour.  Savers will now be financially compensated and spenders may reduce their consumption levels, especially at company level where borrowing becomes more expensive with higher interest rates. Reduced consumption and demand for goods and services will therefore begin to slow down inflation, but there is a time lag associated while consumer and producer behaviours adjust to the new information.

The Federal Reserve implemented a 0.75% rise, 0.25% above expectations. In the US, the likelihood of a 0.75% raise was priced in at 2% until last Monday when the Wall Street Journal reported that officials from the Federal Reserve were weighing up the possibility of a 0.75% rate rise. Higher mortgage rates are often a very direct consequence of rising interest rates and last week US mortgage rates surged to their highest levels in 35 years with the 30-year fixed rate jumping to 5.78%.  In the UK, the Bank of England raised rates by 0.25%.  As expected, we have begun to see banks and building societies raise their main fixed-rate mortgages as the market expect further rate rises beyond the current interest rates of 1.25%. The Bank of England also announced that it expects inflation to increase further beyond its current level towards 11%.

Global equity markets sold off last week, following the news of the Federal Reserve’s more aggressive stance on interest rate hikes, with MSCI ACWI returning -4.5% in GBP terms. Some sections of the global investment universe remain more sensitive to interest rates and it is most critical to hold a diversified portfolio as the macroeconomic landscape continues to change.

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 20^th June 2022.

© 2022 YOU Asset Management. All rights reserved.

Written by Shane Balkham

Economic data was mainly centred around the UK last week, with the latest inflation, confidence, and employment data being published for April.  The inflation rate for April came in at 9%, which was slightly below the market expectation of 9.1%, but still at a 40-year high, and it was the first month since the end of 2021 that inflation data has been lower than expected.  The monthly increase from March of 2.5% was primarily driven by the surge in energy prices as the domestic price cap was lifted by 54%.  Focus naturally moves to October, when the domestic price cap for energy is scheduled for a further rise.

To muddy the waters further, UK consumer confidence dropped to its lowest level in almost 50 years, driven down by the continuing rise in the cost of living.  The survey measures how people view the state of their personal finances and wider economic prospects, and certainly points to weaker consumer spending going forward.

It is ironic that official data showed UK unemployment falling to the lowest rates in almost 50 years to 3.7%.  In these circumstances, a strong labour market adds to the risk of higher inflation, as workers seek higher wages to combat the squeeze from the cost of living.

In the past, the Bank of England would have preferred to look through the supply shock in energy and commodity markets, however the strength of the labour market is at odds with this plan of action.  These data releases point to one conclusion and that is added pressure on the Bank of England to continue its plan of interest rate hikes in 2022.

The European Central Bank (ECB) is playing catch-up, due to not yet raising its interest rates.  Comments from François Villeroy, the Governor of the Bank of France, has created expectations of 100 basis points (1%) of interest rate hikes from the ECB for 2022.  His remarks about expecting “a decisive June meeting and an active summer” have led to the market’s conclusion.  The taming of inflation is the most significant risk to policymakers and next month’s meetings of the central banks will be closely monitored.

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 23rd May 2022.

© 2022 YOU Asset Management. All rights reserved.