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.
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 5th June 2023.
© 2023 YOU Asset Management. All rights reserved.
Budget Statement Spring 2023 Summary
The “Back to Work Budget” could create a quiet revolution in financial planning outcomes
Chancellor Jeremy Hunt’s Spring Budget 2023 took place against a backdrop of great economic uncertainty, with interest rates rising, inflation stubbornly high and the banking sector beginning to wobble. Uncertainty over inflation, interest rates, the progress of the economy and even the banking sector abounds.
However, despite concerns about how much fiscal power this would leave the Chancellor in the Budget, he managed to introduce a series of measures that could lead to a radical rethink in terms of financial planning strategies.
Spring Budget 2023 – the key measures
Economic forecasts
The Office for Budget Responsibility (OBR) has issued fresh economic forecasts showing a modestly improved outlook for the UK economy.
It predicts the UK will no longer slip into a technical recession – two quarters of economic retraction – in 2023 but growth will instead flatline, before picking up in the middle of the decade: 1.8% in 2024, 2.5% in 2025, 2.1% in 2026, 1.9% in 2027.
Inflation is set to fall to 2.9% by the end of 2023, according to the OBR, down from a peak of 11.1% in October 2022, while it expects the Bank of England base rate to peak at 4.3% in the third quarter of 2023.
The fiscal watchdog has forecast higher-than-expected employment but predicts unemployment will rise to 4.4% in 2024 from 3.7% at the end of 2022, before returning to a structural rate of 4.1% by 2028.
Employment will increase in the long-term thanks largely to the State Pension age increase in 2028 and other measures in the Budget designed to encourage people back into the workforce, it says.
Real household disposable income is expected to fall by 5.7% over two years (2022-23 and 2023-24), 1.4 percentage points less than previously expected. The fall is thanks chiefly to rising energy costs for households and will be the largest decline since 1956-57.
As for the property market, the OBR sees house prices falling around 10% between the fourth quarter of 2022 and the end of 2025. However, it believes prices will have recovered by the end of 2027.
Meanwhile, it sees mortgage rates peaking much lower than previously, just above 4% in 2027 – 0.8 percentage points lower than it predicted in November.
Business and economic measures
The Government has pressed on with the previously announced hike of corporation tax to 25% from 19%. However, Jeremy Hunt stated that just 10% of businesses would end up paying this level of tax.
He also announced the replacement of the business tax super deduction with a ‘full capital expensing’ scheme, worth £9 billion a year over three years to businesses. The OBR forecasts this will increase business investment by around 3% a year.
The Ministry of Defence has had a spending boost of £11 billion over five years, while a new potholes fund of £200 million has been created for local councils to fix roads. The Chancellor is also setting £60 million aside to help local pools and leisure centres in financial straits.
Meanwhile nuclear power will be reclassified as sustainable for tax purposes alongside wind and solar, while a new ‘Great British Nuclear’ institution will be created to oversee a transition to more nuclear power for the country. The government will also tender for the provision of small nuclear reactors.
Personal taxation
Big change comes for pensions. The pensions annual allowance is rising 50% – from £40,000 to £60,000.
The big rabbit from Jeremy Hunt’s hat came with the abolition of the pensions lifetime allowance. It had been expected to be raised from £1.073 million to £1.8 million but it has been removed completely. The charge has been cancelled from the new tax year 2023-24, while it will be abolished entirely in a future finance bill.
Alongside this, the money purchase annual allowance (MPAA) and tapered annual allowance (TAA) have been hiked from £4,000 to £10,000.
Plus, the adjusted income level required for the tapered annual allowance to apply to an individual increases from £240,000 to £260,000. However, the pensions tax-free lump sum has been capped at 25% the original lifetime allowance or £268,275.
All these changes will take effect from 6 April this year. There are no changes to income tax thresholds or ISA allowances for the new tax year. There are also no new reductions to dividend or capital gains tax allowances, other than those already announced for the new tax year.
Households, lifestyle and sins
Among the Chancellor’s banner announcements were big changes to how childcare provision is funded and regulated in England and Wales. The childcare staffing ratio is being aligned with Scotland at 5:1 while nurseries will receive a significant funding uplift and all schools will begin to offer wraparound care from September 2026.
Hunt also announced a giveaway worth more than £6,500 a year on average for young families with the extension of free childcare hours to children aged nine months and over.
Any child over two years old will be able to receive 15 hours of free childcare a week from April 2024. From September 2024 this will be extended to nine months and over and from September 2025 this will increase to 30 hours. The policy is expected to cost the Government around £4 billion a year, according to the OBR.
The energy price guarantee (EPG) has been extended for a further three months. This will cap the average household energy bill at £2,500.
It is expected that the price of energy will fall below the guarantee level in the intervening period, making further guarantees from the Government unnecessary as average bills reach £2,200 by year end according to the OBR.
Fuel duty has been frozen for another year while the 5p reduction – introduced last year amid soaring prices – has been maintained for another 12 months.
As for sin taxes, alcohol duty is increasing in line with RPI. The Government is increasing draught relief – the level of tax on fermented alcohol bought from a pub (i.e., beer, cider and wine) – giving pubs an 11p tax advantage over supermarkets. Tobacco duties are increasing again by RPI + 2%.
High earners are failing to claim pension tax relief – how to claim
High earners have failed to claim around £1.3 billion in pensions tax relief in the last five years, according to figures obtained by pension provider PensionBee.
While the number of people failing to claim has fallen in the past five years, the amount of money going unclaimed is still too high. In 2020/21, the average amount that taxpayers failed to claim was £425 for basic rate payers, and £527 for higher rate payers. Anyone can claim tax relief on pension contributions, up to 100% of their income with a cap of £40,000. If you are a basic rate taxpayer, you’ll get a 20% top-up on your pension contributions, while if you’re a higher rate taxpayer, this increases to 40%. Additional rate taxpayers receive 45%.
The reason why higher rate taxpayers miss out on valuable extra contributions comes down to a technical way in which employers pay their staff. Those who pay to a pension provider using a “net pay” or “gross tax basis” arrangement will earn tax relief automatically. However, if your employer and pension provider operate on a “relief at source” method, the pension provider will claim 20% of the tax relief from HMRC and pay it into the pot. If you’re paying the higher rate of tax, the relief isn’t automatically applied at the higher level.
How to claim for higher rate relief
The first thing to do is check with your employer whether your pension payments are paid under relief at source. This also includes self-invested pension pots (SIPPs) that you contribute to independent of your employer. If that is the case, then to claim the additional tax relief you’ll need to fill out a self-assessment tax return. If you already do this annually that is good, you can use the form to make the claim. PensionBee says around 75% of higher rate payers already do this. However, this leaves one in four not claiming, while around half of additional rate taxpayers don’t either.
You can either fill out a self-assessment tax return, or instead contact HMRC to claim. Claims can be backdated for up to four years, which could add up to a highly valuable extra amount into your pension pot.
Pension savings are especially valuable because unlike in ISAs, your wealth is given a head start thanks to the tax-free element. This means over years of contribution and investment; your money will have more resources to grow with over time.
Of course, a pension is just one aspect of an overall wealth growth strategy. If you would like to discuss this or your options more broadly, don’t hesitate to 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 14th March 2023.
The pros and cons of getting a smart meter
Smart meters have been a contentious program encouraged by the Government as it looks to make the way households record their energy usage more efficient.
According to the most recent data from the Government, there are now over 30 million smart meters installed in homes and businesses around the country. Over half (54%) of all energy reading meters are now smart. Conversely, energy firms have been accused of pushing too hard on customers to install such meters, and much scepticism remains about their usefulness.
What do smart meters do?
Smart meters replace traditional meters in homes and businesses and allow for two key processes to take place. Firstly, they communicate directly with your energy provider using a mobile network signal and provide them with real-time information on your energy usage. This has the benefit that you won’t ever have to take a reading and update it manually with your provider. It also means that the energy firm you use can bill you as accurately as possible based on your usage. The second benefit is that you will get a portable monitor for your home that will show you a breakdown of your energy consumption. This has the benefit of showing you in real time how much energy you are using. If you turn on high-usage appliances such as tumble dryers or dishwashers, it should show you how much those appliances are using.
The Government also says smart meters have a benefit at a national level as they help it to ascertain an accurate picture of how the country is using energy. The Government has long-term goals relating to climate change that include reducing overall consumption, so this information is useful to it in this process. It also has secondary benefits such as alerting engineers and providers when there is a power cut and how to localise the issue to resolve it quicker. This saves them time and money, which theoretically ultimately leads to lower energy bills for households.
Can they save you money?
Smart meters can only save you money in the sense that they show you exactly how much you are using, and whether certain appliances in your home are using too much. They can also show you how much your base usage is. In other words, without turning on expensive appliances such as tumble dryers, you can get an idea of how much electricity and gas your home is consuming over the course of a typical day. It may be that you’ve got electronics or lighting that are using large amounts of electricity without you knowing. Or perhaps you’ve got the heating on too high, and this is driving up your gas usage.
In essence, all a smart meter can do to help you save on energy bills is to present you with a more accurate live view through the monitor of your consumption. However, it’s up to you to work out how to reduce that consumption if you feel your bills are too high.
The drawbacks of a smart meter
Smart meters present your energy provider with accurate and up to date information on your energy usage. If your usage goes up, this can lead to the provider adjusting your direct debit upwards to anticipate higher usage. Smart meter technology has also been criticised as unreliable. While less of an issue now, it was the case that when switching providers sometimes smart meters would not be able to carry over to the new provider, effectively turning them back into ‘dumb’ meters where you have to take a manual reading. While this is less of an issue with so-called SMETS-2 meters, ensuring a new provider is receiving the right information – if and when you do switch – is really important.
Smart meters can also suffer from technological foibles such as loss of signal, software issues and other problems that prevent them from accurately providing information to your energy supplier. It is important to keep an eye on it and your bills to ensure they’re charging you fairly and correctly.
Energy firms have also been criticised in the past for forcing smart meters on customers, using heavy-handed and pressure tactics to encourage adoption. The installation of smart meters can also be an issue for renters who manage their own energy bills but have a landlord who might not be willing to have one installed.
The energy outlook
Energy prices for households have been at record levels this winter, leading to eye-watering bills despite the Government’s energy price guarantee – which it has spent lots on protecting consumers from the worst rises. The good news is that gas prices – on which overall energy prices are reliant on – have mostly come down from record levels. This doesn’t unfortunately lead to lower energy bills immediately. This is because energy firms buy their energy from wholesalers on a longer-time horizon over many months.
Currently the energy price guarantee (EPG) ensures the average household will only pay a maximum of £2,500 a year for their energy. This figure can however be higher or lower based on a household’s usage as the guarantee relates to a cap on units of energy rather than the overall bill. The EPG is set to expire after March 2023. Energy consultancy Cornwall Insight has good news, however. It says that energy bills should on average come back down to below the EPG this year. Based upon current gas price levels, it believes average household bills should be around £2,200 by July-September 2023. While this is still well above historic levels, it should help to soften any further blows to household bills.
This outcome is still uncertain as Europe continues to suffer from energy market disruption thanks to the conflict in Ukraine. Much still depends on how governments respond to these ongoing geopolitical issues and how this ultimately affects wholesale fossil fuel prices.
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 14th March 2023.
Could you soon be working a four-day work week?
Four-day work weeks could soon be the norm after a major study found considerable benefits for workers and businesses.
The study, which involved 61 firms from a range of industries, encompassing around 3,000 workers has been hailed as a major success as the majority were convinced of its practical benefits. Not only did worker turnover decrease, employees reported a lower level of burnout while some firms also experienced unusual increases in revenues – suggesting it made those businesses more productive.
The success of the trial has seen politicians call for its wider implementation while major businesses, such as Sainsburys and Dunelm, are considering adopting the practice. It’s safe to say that the four-day work week trend could soon be coming to your workplace. However, what are the potential financial implications?
How a four-day work week would affect you and your money
The trial was explicitly designed so that workers would enjoy more free time while continuing to earn the same amount of money as if they were working five-day weeks. From an earnings standpoint – no one should lose out.
There is also a potential impact on the success of the business you work for, in the long term, if the findings of the trial bear out more widely. If businesses are able to improve productivity and earn more money, it could lead to better pay rewards for workers too.
Another aspect that could be of benefit is what people do in their extra free day. While some may choose to spend more time on leisure activities, with kids or grandkids, or just relaxing, others may choose to pursue part-time work or even a side hustle business to earn extra money with their new-found time.
There are other important financial perks to consider such as the cost of childcare. The UK has some of the most expensive childcare costs in Europe, so as a parent or grandparent being able to help out with kids an extra day a week could be a financial, as well as familial boon. Since the pandemic, there has also been an increasing shift of older workers abstaining from the workforce. The reasons for this have been debated, with some citing wealthy retirement pots for many who don’t need to work, while others lay the blame on a healthcare crisis for older people. The introduction of more flexible working patterns such as a four-day week could be helpful for older workers looking for a softer reintroduction to the workplace, or flexibility to meet their lifestyles.
Drawbacks of a four-day work week
While there appear to be considerable benefits to a short working week, there are also some drawbacks.
Implementation may vary but some employers could ask workers to fulfil the same number of hours as they would over five. For instance, instead of working 5x eight-hour days employees could do 4x ten-hour days. Not all businesses will find shorter work weeks practical either, particularly those that rely on shift work. This could lead to staffing shortages in key sectors such as healthcare or hospitality.
Ultimately though, in financial terms, no one should be worse off from working less days in the week. Plus, with the freedom of an extra day to yourself, it could be an ideal time to start something new or spend more time on yourself.
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 14th March 2023.
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.