The World In A Week – Cautiously hiking through a storm
Written by Millan Chauhan.
Last week in the US, the Federal Reserve announced a 0.25% increase in interest rates which was in line with some expectations. This was despite suggestions that the Federal Reserve would pause its tightening cycle amid the banking crisis which has seen the collapse of several regional US banks including Silicon Valley Bank, Signature Bank and Silvergate Bank. The European Central Bank (ECB) also moved ahead with a 0.5% interest rate rise at a point where UBS was agreeing to buy-out its Swiss rival Credit Suisse in an emergency deal aimed to stabilise financial markets. UBS has agreed to buy Credit Suisse at 60% less than its previous week’s market value.
The Office for National Statistics announced that the UK Inflation rate unexpectedly increased to 10.4% in the 12 months leading to February 2023 which was 0.5% above expectations. Inflation had been slowing down over the last three months; however, the latest inflation figure has interrupted this trend and was largely driven by upward pressure from the rising costs of vegetables/salads which was caused by shortages and bad weather. Food prices during the month of February rose 18.2% which is the largest increase since the 1970s.
Following the UK inflation data announcement last Wednesday and the banking crisis that has unfolded during March, the Bank of England also raised interest rates by 0.25% which was in line with expectations. Interestingly, out of the nine voting members within the Bank of England’s Monetary Policy Committee, two voted to keep rates unchanged but seven voted to hike rates which was identical to February’s meeting.
UK interest rates now sit at 4.25% as the Bank of England continues to seek to slow down inflation levels towards target levels of 2%. Whilst another interest rate rise, given the banking crisis may appear surprising to some, the Bank of England had been raising interest rates in a series of 0.50% and 0.75% instalments since mid-2022 with the latest rate rise being the smallest rate rise for 9 months and could signal that it is slowing the aggression of its hikes.
As ever, diversification is paramount within a portfolio when navigating periods of market stress and volatility which often present new 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 27th March 2023.
© 2023 YOU Asset Management. All rights reserved.
The World In A Week - A week to remember
Written by Ilaria Massei.
Turmoil in the banking sector became the main focus over the last week, diverting attention from economic data releases for the first time in several months. A rapid outflow of customer deposits from Silicon Valley Bank (SVB) led to the biggest US bank failure since the global financial crisis. The Fed assured that all SVB depositors would have full access to funds on Monday morning and made additional funding available to banks to safeguard deposits and to address any potential liquidity pressures. This seemed to provide some confidence to markets that rebounded on Tuesday and coincided with the release of the annual inflation rate in the US which slowed to 6% in February from 6.4% in January.
However, on Wednesday, news broke that another banking giant, Credit Suisse, was experiencing problems and sent equity markets lower once again. In an environment, which is quite unlike 2008, where most European banks have strong capital cushions and are buying back stock, Credit Suisse was known to be more fragile. News that their core wealth management business was suffering major outflows led to a crisis of confidence and a rush of deposit withdrawals. The Swiss central bank stepped in with a £44bn credit line but the measure failed to stem the rush of withdrawals. Yesterday evening it was finally announced that UBS will take over the bank, trying to stop what could have triggered a global crisis of confidence in the banking sector.
Credit Suisse’s fall dragged down European Equities with the MSCI Europe Ex-UK and the FTSE All Share Index closing the week at -4.1% and -5.1% in GBP terms. On Thursday, the European Central Bank (ECB) raised interest rates by 0.50% to 3.0%, pressing ahead with its drive to combat elevated inflation. Policymakers also said that “the euro area banking sector is resilient, with strong capital and liquidity positions”, and that they were monitoring current market tensions closely. In the UK, the unemployment rate came out at 3.7 percent for the three months to January 2023, unchanged compared with the previous quarter. Total pay growth eased to 5.7% year-on-year in the three months to January from 6.0%.
Although banking stocks struggled, growth-oriented equities benefitted from a belief that the above may lead to a slowdown in the path of higher interest rates. In a flight to safety, bonds also performed much better with Barclays Global Aggregate Index up +1.4% for the week in GBP hedged terms. This reaffirms the benefit of maintaining an appropriately diversified portfolio by style and by asset class. We are also strong believers that taking a long-term investment perspective is the best way to navigate such uncertain and turbulent market conditions.
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 March 2023.
© 2023 YOU Asset Management. All rights reserved.
The World In A Week - It’s a Wonderful Life (When you are appropriately diversified)
Written by Cormac Nevin.
Markets were rattled last week, with the MSCI All Country World Index down -4.5% in GBP terms. What was different to the reaction vs the sell off we witnessed last year, however, was that high quality bonds had a very respectable rally at the same time, with the Bloomberg Global Aggregate Index up +1.1% in GBP Hedged terms. Japanese Equities were also up +0.9% over the week.
The source of the worry was a bank that you will not typically find on the high street, but which is very important to high-growth tech companies both in Silicon Valley and across the globe. Silicon Valley Bank (SVB) was the bank of choice for venture capital funds investing in high growth tech companies. The bank received massive inflows in deposits during the tech boom we witnessed over 2020/2021. They needed to find safe assets to invest these deposits into and made concentrated investments in US Treasury Bonds. Crucially, they failed to hedge these bond exposures against rising interest rates which is what most banks would have done. As the Federal Reserve raised rates hard and fast over the last year, SVB’s bond portfolio took large losses leading to a flight of deposits and a crash in the share price. This is the standard-issue reflexive loop of a traditional bank run, made worse by lack of diversification in the bank’s depositor base which was concentrated in VC Funds and tech start-ups.
After much speculation while markets were closed over the weekend, it transpired on Sunday night that banking regulators in the US would make depositors whole in an effort to stop the doom loop in its tracks. All depositors, including those whose funds exceed the maximum government-insured level, will be able to access their deposits in full, according to a joint statement by U.S. Treasury Secretary Janet Yellen, Fed Chair Jerome Powell and Federal Deposit Insurance Corp Chair Martin Gruenberg. In the UK, HSBC announced that they would buy the UK arm of SVB for the notional amount of £1. This underscores how healthy the rest of the global banking system is and leads us to believe that while this event is largely the consequence of higher interest rates and poor risk management from SVB, the contagion effects will likely be limited.
As ever, never neglect diversification, even if you are a tech whiz in Silicon Valley.
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 March 2023.
© 2023 YOU Asset Management. All rights reserved.
The World In A Week - Every little helps
Written by Shane Balkham.
Every month starts with a surge of surveys to provide an update on the health of global economies. The current wave would suggest that global manufacturing is picking up slightly, which is good news, but that in itself would imply higher price pressures, which is bad news, especially with central banks’ decision meetings fast approaching next week.
It is no surprise that central bankers were busy last week reinforcing the view that fighting inflation remains the single most important task ahead of them. Managing inflation expectations, and with it rate hike expectations, has become a core skillset for members of the world’s central banks. They are haunted by inflationary mistakes made in the 1970s when monetary policy was eased too quickly.
With policymakers making all the noise, it was a much quieter week for politics, however in the UK we did see a breakthrough in the long drawn out talks between the UK and EU over the Northern Ireland Protocol. This was part of the Brexit withdrawal agreement, which was agreed in 2019 and rushed through Parliament to meet the legal deadline date of Brexit.
The difficulty was in designing a set of rules to avoid a hard border between Northern Ireland and the Republic of Ireland. The original Protocol ended up leaving Northern Ireland with access to the EU Single Market and effectively created a border between Northern Ireland and the rest of the UK. This resulted in a raft of inefficient red tape and some products were unable to be sent across to Northern Ireland from the mainland as negotiations continued.
Prime Minister Rishi Sunak met with the European Commissioner President Ursula von der Leyen last week and agreed to reforms under the ‘Windsor Framework’ which will allow goods travelling between the mainland and Northern Ireland that are not bound for the EU. These will pass through a green lane, largely avoiding custom checks. Although a minor issue to some, it has been a significant stumbling block for Northern Irish political stability.
The friendlier tone between Sunak and von der Leyen could present a more constructive relationship going forward between the UK and the EU. With Northern Ireland now being able to legally buy mainland sausages, this may mark the start of putting Brexit in the archives and allowing UK equities to be seen in a more positive light by global investors.
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 March 2023.
© 2023 YOU Asset Management. All rights reserved.
The World In A Week - Minute by Minute
Written by Chris Ayton.
After a strong start to the year, equity markets took a pause for breath last week with the MSCI AC World Index down -2.1% in Sterling terms and the FTSE All Share Index down -1.4%. The picture was similar globally as MSCI Europe ex-UK was down -2.4%, S&P 500 Index down -2.2%, MSCI Japan down -1.4% and MSCI Emerging Markets down -2.3% on the week. Fixed income securities held up a little better but the Barclays Global Aggregate Index GBP Hedged was still down -0.2%.
Investors responded negatively to the release of the minutes from the latest Federal Reserve meeting which showed a clear consensus across the Committee members to raise interest rates last month and to keep fighting inflation with further hikes as required. The minutes also noted that some members voted for higher increases than the 0.25% rise that was finally agreed. Economic data released post this meeting has done little to suggest the previous rate rises are beginning to bite sufficiently in order to bring US inflation or the US economy under control. This backdrop held back equity markets globally.
Away from equity and fixed income markets, we noted with interest that the price of the EU’s Carbon Allowances (EUAs) climbed above €100 a tonne for the first time, representing a 20% rise since the start of the year. This is the price that European companies within designated polluting industries, such as gas, coal power generation and industrial manufacturing, have to pay to buy credits to allow them to create the carbon emissions that are a by-product of their businesses. One allowance allows the purchaser to emit 1 tonne of carbon dioxide or equivalent. The higher these prices are, the higher their operating costs become and the greater the financial incentive for them to invest in more environmentally friendly solutions. More and more industries are being brought into this regime by the EU, forcing companies to buy EUAs on the open market if they want to operate legally. In addition, the supply of these credits is designed to structurally fall over time which forces polluters to compete for an ever-reducing amount of credits, or switch to cleaner solutions. Moving through the threshold price of €100 a tonne may turn out to be a watershed moment on the long-term path to achieving the EU’s ambitious environmental goals. Our Multi-Asset Blend Funds have held a small exposure to these EUAs since June 2022 and are therefore benefitting from the price rise as well as the indirect positive environmental impact of taking these credits out of the market.
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 February 2023.
© 2023 YOU Asset Management. All rights reserved.
Use it or lose it: last financial orders before the end of the tax year 2022/23
The tax year is soon to come to a close, and with it, any allowances that may have gone unused. This year is possibly the most important of recent times as a number of important tax changes are coming into force from 6 April 2023. Time is running out to use allowances and give your wealth the best prospects for the year ahead.
Here are the key changes you should be aware of, and where to maximise your allowances before they’re gone forever.
Dividend allowances
The dividend allowance is being slashed in half from 6 April to just £1,000. This will then be halved again from April 2024 to just £500. Above this allowance you pay dividend tax on any earnings. Dividend tax is calculated at 8.75% for basic rate payers, 33.75% for higher rate and 39.35% for additional rate payers, potentially taking a big chunk out of any income that isn’t protected by a tax wrapper.
Where possible to bring forward the taking of a dividend, for example out of a profitable business you have a share in, it is essential to max out this allowance or else face paying tax on those earnings from April.
Capital Gains Tax allowance
The Capital Gains Tax (CGT) allowance is currently set at £12,300 but this is being more than halved to just £6,000 from 6 April. From April 2024 this is going to be slashed even further to just £3,000. Maximising the CGT allowance this year is therefore crucial. You pay CGT when you dispose of an asset that has grown in value, including stocks and bonds, property (that isn’t your primary residence) or even personal possessions such as jewellery, paintings or antiques.
This means if you have any assets that you were considering selling to cash in on the growth gains, then the allowance should be used now before it is effectively gone. This is relevant for assets held outside of a tax efficient ISA or pension as those assets inside these accounts won’t be liable for CGT.
Inheritance and income
Both inheritance tax (IHT) and income tax aren’t having any changes to their allowances or thresholds per se, but the thresholds have been frozen. This means if you receive a pay rise, or assets inside your estate rise in value, then you’ll see less benefit from those increases in earnings or value.
In order to mitigate the worst effects of the threshold increases, then for IHT it can be a good idea to bring forward some gifting where possible as you get £3,000 a year to gift without IHT liability. You can carry forward this allowance but only for one tax year – so if you haven’t given a gift in either 2021/2022 or 2022/2023 then you could potentially gift away up to £6,000 before 6 April. If you are married, then combined this could be as high as £12,000 over two tax years.
Use your ISA allowance
The ISA is one of the least complicated investment vehicles for our long-term wealth and one of the most generous is tax-exemption terms. The allowance is £20,000 a year, it can’t be carried forward, and anything inside the ISA is protected from any form of tax including the aforementioned CGT and dividend allowances. This makes the ISA allowance extremely valuable in wealth planning terms and should be taken advantage of where possible.
If you’re looking to mitigate CGT, for example, you can use a method called ‘bed and ISA’. This is where you own assets such as stocks or bonds outside the ISA wrapper – you sell those assets then use the cash to rebuy inside the ISA, effectively inoculating your money from tax liabilities.
Investors are prohibited from buying back assets within 30 days of selling them under CGT rules (in order to prevent gaming of the system), but there is an exemption if you sell them outside an ISA then reacquire them within one. If you have assets outside an ISA, and unused CGT and ISA allowance, then it’s a no-brainer to do this to save on hefty tax liabilities. If you have children under 18 and you’re considering strategies for passing some of your wealth on to them, a Junior ISA (JISA) can be a great product to kick-start this too. Unlike a regular ISA, the JISA has an annual contribution limit of £9,000.
Take advantage of pensions allowance
Pensions allowances are also very generous, with up to £40,000 per year available (assuming you haven’t triggered the money purchase annual allowance), plus tax relief on anything you put in. The tax relief is perhaps the most attractive aspect of a pension as it means you have more money to start with than an ISA as you’re bypassing income taxes using the relief.
However, pensions have more tax implications when it comes to withdrawal which are worth discussing with an adviser where possible.
Now is the time to take advantage of left-over tax allowances that you have yet to use. We are here to advise you, so please get in touch.
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 21st February 2023.
The World In A Week - Not so cheaper by the dozen
Written by Millan Chauhan.
Last week we saw several economic data releases, which included the US Consumer Price Index (CPI) print rising by 6.4% in January 2023 on a year-on-year basis which was slightly above consensus expectations of 6.2%. The main drivers of inflation remain transportation services (namely airfares) and food. Within food prices, the cost of eggs has increased 70% on a year-on-year basis in January which is the most of any grocery item. This is due to the avian-influenza outbreak which has caused a contraction in the supply of chickens.
US Inflation has clearly cooled down as it peaked at 9.1% in June 2022. With the inflation print coming in slightly higher than expected, it could mean that the Federal Reserve continue to hike going further into 2023 as they attempt to curtail pricing pressures. As a reminder, the Federal Reserve has raised interest rates from 0.50% to 4.75% over the last twelve months.
In the UK, CPI rose by 10.1% in January 2023 on a year-on-year basis which was down from 10.5% in December 2022. The print was lower than expected and was further evidence that inflation may have peaked as the print was a five-month low. UK inflation remains much higher than in the Eurozone and the US but has been helped by lower energy price growth.
There are clearly strong signs of slowing inflation and there will be another inflation report due before the next Bank of England Monetary Policy Committee meeting on the 23rd March, when it will make an interest rate decision. Similarly, the Federal Open Market Committee in the US is set to meet on the 21st March where there will be another US Inflation report released mid-March for the Committee to consider going into that meeting.
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 February 2023.
© 2023 YOU Asset Management. All rights reserved.
The World In A Week - Central banks tighten… but markets get looser
Written by Cormac Nevin.
Last week markets continued on their positive trajectory for the year , spurred on by a flurry of central bank interest rate decisions and press conferences from the Bank of England, US Federal Reserve and the European Central Bank (ECB). Growth equities led the way last week, with the MSCI All Country World Growth Index up +4.2% in GBP terms. The more value-orientated FTSE All Share Index of UK stocks was up +1.9%, while Emerging Markets (as measured by the MSCI EM Index) were one of the weakest performers but still up +0.9%. Fixed Income markets also had a strong week, with the Bloomberg Global High Yield Corporate Index up +1.0% and even the safest government bonds (measured by the Bloomberg Global Treasury Index) rallying +0.4% (both in GBP Hedged terms).
As mentioned, this price action in markets was largely viewed as the result of the market’s continued game of chicken with global central banks. All central banks raised their policy interest rates in their ongoing fight against inflation, however market participants appeared to be of the view that each policymaker was approaching the end of their rate hiking cycle and responded with a touch of exuberance to the prospect of the end of rate increases (or indeed the commencement of rate cuts). The Bank of England increased rates from 3.5% to 4.0%, the US Federal Reserve moved from 4.5% to 4.75% and the ECB moved from 2.5% to 3.0%.
If you are struck by the paradox of central banks tightening policy (via raising interest rates) but markets responding with looser monetary conditions (via increased equity prices, tighter credit spreads etc.), then you are not alone! We think it is an illustrative reminder of the forward-looking nature of markets as they look through the proximate actions of policymakers and to where “terminal rates” might settle.
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 February 2023.
© 2023 YOU Asset Management. All rights reserved.
The World In A Week - Are we there yet?
Written by Chris Ayton.
After a robust start to the year, global equity markets paused for breath last week with the MSCI All Country World Index down -0.2% in local currency terms. Sterling’s continued strength reduced that to -1.5% for GBP based investors. In fixed income, the Barclays Global Aggregate Index was up +0.2% for the week in GBP Hedged terms.
The FTSE All Share Index dropped -0.9% over the week but remains up over 4% in January so far. UK retail sales volumes were down for a second consecutive month as the increased cost of living continued to take hold on consumers. Forecasts had been for a small rise. However, UK inflation remained sticky at 10.5% in December 2022 which, although down from the 11.1% October high, remains elevated and way above target. It was also notable that UK food inflation increased by 16.9% over the month, the largest rise since records began in 1977. This data is unlikely to ease the pressure on the Bank of England to raise interest rates when it meets again on 2nd February.
In the US, the S&P 500 Index was down -1.9% for the week in Sterling terms. The market reacted negatively to US retail sales and industrial production both declining in December by more than expected, prompting fears of a US recession to rise. At the same time, prominent US companies such as Microsoft and Google’s parent, Alphabet, joined other tech firms by announcing they will be laying off tens of thousands of workers. Whether this will push the Federal Reserve to slow rate rises remains to be seen.
In Europe, the European Central Bank (ECB) president, Christine Lagarde, warned that rate rises in Europe still had much further to go in order to tackle inflation. She encouraged financial markets to “revise their position” that the ECB would soon slow down. MSCI Europe ex-UK finished the week down -1.4% although this index is still up +5.5% for January so far. Bank of America data suggests this is partially down to investors cutting allocations to the US stock market to their lowest level for 17 years, instead of favouring perceived cheaper opportunities in Europe. Assets have also been flowing into Emerging Market equities, which are also collectively up over 5% 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 23rd January 2023.
© 2023 YOU Asset Management. All rights reserved.
The World In A Week – Resilient Markets
Written by Cormac Nevin.
If the lay observer had followed the headlines on BBC News over the course of March, and attempted to apply them to what they could reasonably expect from markets over the course of the month, they might well end the month a little bit perplexed. One of the top performing market components over the month was the NASDAQ 100 Index of US technology companies, which returned +9.5% in local terms (+7.3% in GBP) during a month whereby the specialist Silicon Valley Bank collapsed into ignominy. While larger tech names have proved to be a safe haven of sorts, it does beg questions of the operating environment for some of their smaller and more dynamic peers.
This was followed by ongoing distress in multiple other small- and medium-sized US lenders such as Signature Bank. In Europe, the knock-on effect in confidence culminated in the coerced purchase of Credit Suisse by UBS, a bank which is one of the largest in the world. Again, markets were not particularly fazed by this, with the S&P 500 Index of broad US equities finishing the month strongly and returning +1.5% for the month and the MSCI Europe Ex-UK Index up +1.3%, both in GBP terms.
While markets in recent weeks were up despite negative headlines, it remains critical to not be complacent and retain diversified exposures. Macro volatility could be back.
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 April 2023.
© 2023 YOU Asset Management. All rights reserved.