The World In A Week - Far East Market Frenzy
Written by Cormac Nevin.
Global equity markets were broadly flat in local currency terms last week, however there was a significant weakening in the US Dollar vs Sterling and other currencies which left the GBP return for the MSCI All Country World Index down -1.6%.
The weakening dollar was driven by hopes that slowing economic data might prompt the Federal Reserve in the US to slow, pause, or even reverse its path of monetary tightening to combat inflation. This caused a rally in Emerging Market equities and Fixed Income which have come under significant pressure from the incredible strength of the US Dollar over recent years.
This rally was particularly pronounced in China, as the MSCI China Equity Index is up +20.0% for the month of November to date in GBP terms. This rally has been spurred by the unveiling of support for over-indebted property developers by the authorities in Beijing, as well as tentative rumours of a potential relaxing of the economically disruptive COVID-Zero policy. Whether these measures prove substantial and lasting remains to be seen, but they provided enough hope for markets to rally significantly, having taken a significant beating and reaching more attractive valuations.
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 November 2022.
© 2022 YOU Asset Management. All rights reserved.
The World In A Week - The markets loved the surprise
Written by Millan Chauhan.
Last week, we saw inflation in the US slow for a fourth month in a row with year-on-year inflation printing at 7.7%, which was 0.3% lower than estimates. This was also 0.5% lower than the September reading. The month-on-month inflation rate was 0.4% and it does look like inflation has slowed, thanks to recovering supply chains and reduced consumption levels, as the Federal Reserve’s run of rate rises start to bite. Core CPI (which strips out energy and food prices) rose by 0.3% over the month and 6.3% on a year-on-year basis. A decline in the inflation rate simply means that prices are not rising as quickly.
Following the lower-than-expected reading of CPI, in the US we saw a rally in growth-exposed or longer-duration assets (assets that are more sensitive to interest rate changes), with the S&P 500 closing +5.5% in local currency terms last Thursday alone. For the week, the S&P 500 closed +5.9% and the technology heavy NASDAQ 100 closed up +8.9%, both in local currency terms. Markets responded well to the inflation news. It was announced that the Democratic Party also retained control of the US Senate, but the Republican Party is inching closer to securing a House of Representatives majority.
Elsewhere, Jeremy Hunt signalled that ahead of his announcement of the Autumn budget this Thursday, the Government is planning to implement a large package of spending cuts and tax increases to finance an additional £70 billion of additional borrowing.
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 November 2022.
Cost-of-living crisis scams: what to watch out for
Cost-of-living crisis themed scams are on the rise and the public are being warned to watch out for fraudsters looking to take advantage.
Banking industry trade body UK Finance has warned the public that the cost-of-living crisis has made people more receptive to unprompted and potentially fraudulent approaches offering too-good-to-be-true investments in particular.
One in six (16%) of Brits say the rising cost of living has made them more receptive to such approaches according to the trade body, while more than half (56%) of adults are likely to look for income-boosting opportunities as inflation and interest rates bite.
Young people in particular are more at risk as their financial situation tends to be more precarious. One in three (34%) 18- to 34-year-olds said they were more likely to respond to an unsolicited approach about an investment or loan opportunity.
Three in five (60%) people are worried about falling victim to a scam, highlighting an awareness of the prevalence of financial scams among the public after years of rising losses suffered by individuals.
In the first half of 2022 some £610 million was lost to financial fraud according to UK Finance figures.
Katy Worobec, managing director of economic crime at UK Finance, comments: “The rise in the cost of living can be worrying and stressful and for many keeping on top of finances might be a struggle. It’s important for everyone to be conscious of criminals taking advantage of people’s anxieties around finances by staying alert for fraud.
“We encourage everyone to follow the advice of the Take Five campaign – always be cautious of any messages or calls you receive and stop and think before sharing your personal or financial information. Avoid clicking on links in unsolicited emails or text messages”.
What scams should you watch out for?
UK Finance lists some typical scams that everyone should be aware of and has three key messages to help people protect themselves.
Those scams are:
1. Purchase scams. This is where someone looking for a cheap deal online finds a product for a too-good-to-be-true price. Often through search engines, fraudulent websites offer items such as expensive electronics at unbelievable prices. But if the website looks odd, has few reviews or the payment method is through an unusual format such as bank transfer, it is likely a scam.
2. Impersonation fraud. This is where criminals convince victims to pay for something while pretending to be from a trusted organisation. There are rising reports of fraudsters hacking service provider accounts – such as the emails of a solicitor, broker or other high-value professional service. The scammer then convinces the client to make a money transfer payment out of the blue using the hacked account. Anyone asked out of the blue in such a way should make efforts to speak to the known party either face-to-face or over the phone to confirm if the request is legitimate.
3. Payment in advance fraud. This is where a scammer offers a product, loan or other offering which seems too good to be true, with the fraudster requesting a payment in advance of receiving the product or service. The product paid for then never materialises or the fraudster vanishes and becomes impossible to contact.
4. Investment fraud. With the cost-of-living crisis worsening, UK Finance found 14% of people are more likely to search out new ways to earn money through investments. But this leaves many at risk from investment frauds – where unrealistically high interest rates, yields or other returns are promised in exchange for large cash investments. Like other scams this then typically either vanishes, becomes impossible to remove the cash from the scheme or a company will go ‘bust’ with the scammer absconding with the investor cash.
The three key messages from UK Finance’s Take Five to Stop Fraud campaign to keep people’s money safe are:
- STOP: Taking a moment to stop and think before parting with your money or information could keep you safe.
- CHALLENGE: Could it be fake? It’s ok to reject, refuse or ignore any requests. Only criminals will try to rush or panic you.
- PROTECT: Contact your bank immediately if you think you’ve fallen for a scam and report it to Action Fraud.
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 9th November 2022.
Energy shortages: can you get paid to use less electricity this winter?
The energy crisis has put extraordinary pressure on household budgets as the price of gas has soared this year on the back of the war in Ukraine.
As a result, the Government has been moved to take steps to soften this blow for families who might otherwise face difficult spending choices.
Among help already in place is the Energy Price Guarantee which is designed to keep average household bills around £2,500 per year this winter, with a cap on the unit costs of the energy each home uses.
Plus, families will also be receiving a £400 rebate through their direct debits, paid monthly. There is also more targeted help for pensioners and those on benefits.
But another scheme is being launched that could pay households to use less energy still.
National Grid Electricity System Operator (ESO) is launching a scheme which would pay households with a smart meter to use less energy, by for example shutting off appliances such as tumble dryers and washing machines, at peak hours.
The National Grid ESO is one of the operators of the energy network infrastructure in the UK. It works with suppliers such as British Gas, which administer the process of providing energy into homes.
Why is this happening?
The issue the UK is facing is worse than just high prices at the moment. Worst-case scenario planning has the UK potentially facing blackouts in January and February because the energy network simply doesn’t have enough fuel to power everyone’s homes and businesses.
Plans are in place to implement a system of rolling timed blackouts, affecting different homes around the country at certain times.
But much of the jeopardy comes because people tend to use energy in their homes at similar times, particularly in winter. Think – coming home from work in January, putting on the heating and washing your clothes. We all tend to do similar activities at the same time.
Energy payment scheme explained
The National Grid ESO trialled the scheme with customers of energy firm Octopus who had a smart meter earlier this year. This trial is now being rolled out nationally between November and March.
The scheme operates through whoever your energy provider is at home, but not all suppliers will necessarily sign up. If yours does, and you have a smart meter, they will contact you with the details. You’ll get notice 24 hours ahead that if you reduce usage between peak hours, you’ll get a rebate on your energy bills.
The plan would be for any household with a smart meter that avoids using energy-intensive appliances at peak times (between around 4pm and 9pm) will get paid around £3 for every kilowatt hour (kWh) they don’t use compared to an average.
Reports estimate that some households could earn as much as £10 a day for avoiding peak times. There are currently just 12 test days planned between now and March for the scheme, which means participating households could get up to £120 back.
Customers of some providers already get discounts on bills if they use electricity late at night instead of peak times, such as Octopus’s Economy 7 tariff.
Other providers such as Ovo already have a trial scheme in place to ask customers to cut their consumption. Those that manage to lower their usage to the firm’s threshold will get up to £100 for their efforts.
National Grid has launched a campaign to raise awareness of the scheme but it’s up to energy suppliers to administer, so keep an eye out for further details from yours.
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 9th November 2022.
NS&I hikes rates again – are they a good deal?
National Savings & Investments (NS&I) has upped the rates on its savings products again in the wake of the Bank of England hiking the bank rate on consecutive occasions.
NS&I now offer a Direct Saver with a return of 1.8%, up from 1.2% and 1.75% on its Direct ISA. Income bonds now also offer 1.8% returns – the highest level since 2012. Earlier in October it also increased the prize fund rate from 1.4% to 2.2% in premium bonds.
This is not a guaranteed level, but the average rate it says savers can now get based on prize wins in its premium bonds. That means you could win the top £1 million prize – or nothing at all. In practice the 2.2% rate is the average of what most savers will see as a return on their cash each year.
So, with these rates now at a decade-long high, is it time to put our cash back in the national savings bank?
Better rates elsewhere
NS&I holds a special place in the public’s imagination. Premium Bonds in particular are popular because of the prize-draw element of the savings product.
But in reality, the firm’s rates are inferior to other savings providers by some margin.
For example, at the time of writing, the best easy access account rate comes from Marcus By Goldman Sachs, with a 2.5% rate of interest on its savings account and its cash ISA, and no notice necessary to withdraw your money.
If you save for one year, you can get 4.6% from RCI Bank. For a five-year fix this rises to 4.95% from the same firm. If you want to shelter cash in an ISA, you can get a one-year bond from Aldermore for 3.65% or a five-year cash ISA from Leeds Building Society paying 4.31%.
It goes without saying then that NS&I is definitely not the most competitive. But it is also true that it will pay you a better rate than most high street banks, where you might hold your current account.
The interest rate outlook
The issue with these rates is while they look much better than in recent years, they still sit way behind inflation, which currently stands at around 10%. If you plump for the top-rate one-year bond, you’re still seeing your savings devalue by around 5.5% in a year.
On 3 November, the Bank of England staged the largest single rate hike since September 1989, hiking 0.75% and taking the base rate to 3%. This will no doubt push savings rates up even further.
But if we look into the detail of what its Monetary Policy Committee (MPC) said about the trajectory of interest rates, it believes financial markets are now overpricing its interest rate path, thanks to softening economic data.
What does this mean in practice?
Despite the big fresh hike, many firms that price their products on interest rate expectations, such as savings and mortgage providers, may now be overestimating how high the ‘terminal’ bank rate will go.
This terminal rate is essentially the high-water mark for the actual bank rate. If the economy is now largely overestimating this high-water mark, interest rates, counterintuitively, could now fall -or at least moderate – somewhat.
In short, this means that interest rates on financial products could already be near their high point and will at least remain well-short of inflation until price rises come back to normal levels, something the MPC only sees happening in 2024.
In the short term, having some cash set aside can be a good tool for anyone building wealth. See our article here on that. But in practice, investing still offers the best route for anyone thinking about long-term wealth growth.
Although investment performance is not guaranteed, it has generally been a better tool for wealth growth over a long-time frame.
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 9th November 2022.
How to protect your wealth in tough economic times
We’re not yet at the end of 2022 and it’s clear it has been a tough year for investors.
A toxic cocktail of inflation, rate hikes, quantitative tightening and Government instability leading to tax hikes has combined to create one of the toughest climates in decades for anyone looking to build their wealth.
But while it has been a difficult climate for many to deal with, there are some key measures anyone can take to protect and improve their wealth in such times.
The key to this is effective and active financial management and getting the right advice at the right time. Here are some ideas.
Hold some cash
This is a very basic idea, but it needs to be reaffirmed. Have a cash buffer. If you’re younger, have a family with dependents to look after, bills and a mortgage to pay it is essential to have a rainy-day fund to protect you in the event of a job loss or other problem that could leave you without an income or needing to pay a big bill.
If you’re in work, a rule of thumb is to look at your overall monthly outgoings and consider saving in cash up to a level of three to six months cover. You might want more or less, but consider how quickly you think you’d be able to get a new job and have that regular income coming back in.
If you’re in work, it’s also essential to have income protection plans in place and life insurance were the worst to happen. The younger and healthier you are, the cheaper the policy will be for you.
If you’re retired or not reliant on a wage for your living costs, then a cash buffer is really important in volatile markets. This is because if you’re using your wealth to pay for your cost of living, having to sell out of an asset when valuations are down will bake in losses permanently. Having cash to draw on is important for this in the short term.
Of course, holding cash is always at risk of devaluation thanks to inflation. This is an acceptable risk though with short-term framing for the use of this cash. To mitigate it, spread the money into savings accounts that pay decent rates. Put some in an instant access account and others in longer-time releases to benefit from better rates.
Savings rates in cash accounts are still well behind inflation but are better than they were even just a few months ago.
Beyond that if you’ve already got that cash buffer in place, top it up to an equivalent level to match your rising costs each year – or by the level of inflation if that’s easier to figure out.
Pay off debts
Debt in the current environment can be particularly toxic, but it falls into a couple of different camps.
In the past decade the economy has been largely fuelled by cheap debt. We’re used to seeing lurid stories of companies like Deliveroo taking payment by credit instalments for a pizza.
In short, it has been really easy to take on new debt. This era is coming to an end with rising interest rates. Rising rates – by design – make debt more expensive to manage. But there’s a couple of different kinds of debt to worry about here.
The most painful and urgent to fix is credit card and other unsecured debts which see rates move freely. If you have these kinds of debts paying them off should be prioritised over saving because the cost is simply going to get harder to manage.
Rising rates don’t just affect credit card APRs – they also reduce the availability and quality of deals such as balance transfer cards. In short, it’s time to kick the debt habit.
Fixed debt such as mortgages and loans function slightly differently though. Loans will often have a fixed rate which makes it more manageable to pay while mortgages come with fixed terms too and should be manageable as long as you’ve got time left on your deal.
Regular contributions
Once your cash position and debt levels are in a good place – think about the state of the market. While performance is never guaranteed, as global economic growth has progressed in the last century, so have investments in the markets that represent it.
If your investment values are down, this is ok. Generally, as markets recover so do investments.
But making continued regular contributions or even increasing your contributions can be a good strategy in this environment as it takes advantage of cheaper valuations and smooths out volatility in your portfolio through pound-cost averaging.
With that logic in mind, when asset prices are depressed, it can present a considerable buying opportunity with a well-thought-out strategy in mind.
Tax sheltering
We’re in very specific economic circumstances at the moment. With high Government debt levels and little in the way of leeway for it to borrow on international markets to fund its agenda, tax rises are coming.
That makes careful tax planning extremely important. Using up allowances for ISAs, pensions and other useful schemes are a great way to soften the blow any taxes rises might bring. But the rules are potentially changing quickly as a result of Government instability, making considered planning tricky.
Tax planning can be a complex process, so unless you’re well-versed in tax laws and financial planning, it’s probably best to get advice to ensure your wealth is working as hard as it can be within the rules.
If you would like to discuss this or any of the other themes expressed in this article, 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 9th November 2022.
The World In A Week - It’s all about the rates
Written by Chris Ayton.
Although down in local currency terms, the MSCI All Country World Index rose +1.3% in GBP over the week and the FTSE All Share Index was up +3.8%. The Bloomberg Global Aggregate Index was down -0.8% in GBP Hedged terms.
In the UK, in a further attempt to dampen inflation, the Bank of England increased interest rates by 0.75% to 3%, the largest monthly rise since 1989. However, while bringing modest relief to homeowners, it also indicated that rates may rise less than the market expected going forward as the UK has already entered a recession. In other positive news, UK construction activity grew more than anticipated and UK new car registrations surged 26% from a year earlier, with hybrid and electric vehicles driving the rise.
In the US, the S&P 500 Index finished the week down -3.3% in local currency terms but further Dollar strength reduced the loss to -0.7% for GBP investors. The Federal Reserve also increased interest rates by 0.75%, its fourth monthly increase in a row. However, unlike in the UK, the Fed Chair Jerome Powell indicated that US interest rates are likely to peak at a higher level than expected as inflationary pressures were proving sticky, although he did note the pace of those rises to reach that peak may slow. This week’s inflation print will be closely watched.
Continental European equities enjoyed a strong week, with MSCI Europe ex-UK up +3.7% in Sterling terms. Producer Price Inflation in the Euro Area eased a little, but the reading did nothing to ease concerns around inflationary pressures across Europe, at a time of a weakening economic outlook and continued conflict in Ukraine. European Central Bank President Christine Lagarde said she still does not expect a recession in the Eurozone economy but that, even if there was, it would not be enough to stop them raising rates further to quash inflation.
In Asia, Chinese shares rebounded sharply as there were rumours of an imminent relaxation of China’s strict COVID-19 restrictions. A Chinese foreign ministry spokesman said that he was not aware of any such news, but this did not stop these unfounded rumours pushing the MSCI China Index up +14.1% over the week in Sterling terms.
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 7th November 2022.
© 2022 YOU Asset Management. All rights reserved.
The World In A Week - No retreat, no surrender?
Written by Shane Balkham.
For many investors, it may seem like we have had too many ‘once-in-a-generation’ events over the past few years. Brexit, COVID-19, war on Ukraine and the cost-of-living crisis to name the obvious ones. However, last week truly gave us market ructions on a scale that forced policymakers into emergency measures once again.
The week began with the Bank of England (BoE) and UK Treasury battling to calm markets after the pound hit a record low against the US dollar of $1.035, as the consequences of the Government’s mini-budget played out. There was a lot of rhetoric designed to placate markets, with the BoE announcing that it would not hesitate to change interest rates as necessary, but only after a full assessment at its next scheduled meeting. This caused new concerns and gilt yields soared on the back of strengthened expectations of a significant rate hike at the next meeting.
The BoE’s Monetary Policy Committee was not due to meet until 3rd November, when they would publish the next Monetary Policy Report, giving guidance on inflation expectations. However, on Wednesday the BoE intervened in the gilts market, unleashing £65 billion of quantitative easing in order to stem the meltdown in UK government debt. The BoE’s plan is to buy long-dated bonds at a rate of £5 billion a day for the next 13 weekdays. It also suspended the current programme of selling gilts, which was part of the effort, along with interest rate hikes, to bring inflation under control. Although UK government bond markets recovered sharply after the announcement, economists warned that the printing of new money would add to the inflationary pressures.
The International Monetary Fund added to the UK’s woes by publishing a scathing attack on the UK’s plans, urging the Government to re-evaluate proposals amid the threat of spiralling inflation. It claimed that the Government’s plan to cut taxes and invigorate economic growth is at cross-purposes with the BoE’s task of combating inflation. It now puts the central bank in a position of potentially having to move interest rates even higher than may have been planned.
The unintended consequences of the Conservatives’ strategy to boost supply-side economics by reducing the tax burden facing businesses and families, alongside a major programme of investment to stimulate and drive growth, has shaken the faith in the UK’s finances. The timing of the mini-budget could not have been worse. Politically, it provided opposition parties with ammunition to attack the new prime minister and her cabinet. Economically, it has increased the uncertainty over inflation and growth. There are also arguments that proposed policies will push out the point at which inflation will peak and result in higher interest rates. The BoE’s remit has become increasingly more difficult.
Liz Truss now faces the devastation of her own making at the Conservative conference in Birmingham. While there has been an admission of mistakes, and a subsequent reversal of the elimination of the 45p top income tax rate, there is unlikely to be a retreat from the Prime Minister on the general direction of unfunded tax cuts. Time will tell how successful this strategy will be.
Long-term investing is the best antidote to market fluctuations. Our studies have shown that the longer you invest for, the higher the probability of making better returns. However, it can be difficult to remain dispassionate during market turmoil and that is why we continue to provide reassurance during your investment journey. Please take time to visit our website: www.YOU-asset.co.uk/stay-invested for an educational presentation on the importance of staying invested.
An appropriately diversified portfolio will provide cushioning during the worst of times and take opportunities during the better times. While Sterling plummeted, it does mean that certain parts of your portfolio will have benefitted. The consolation of being geographically diversified is that overseas assets are worth more when Sterling weakens. This is the same effect we benefitted from when Brexit broke in 2016.
Last week was one of the most challenging weeks in what has been an incredibly difficult year. In volatile times, the critical message is to remain vigilant but remain true to your long-term investment plan. In turn, we will remain robust in our long-term investment processes and philosophy, adding to our track record of delivering impressive long-term returns to our clients.
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 October 2022.
© 2022 YOU Asset Management. All rights reserved.
The World In A Week - The Almighty Dollar
Written by Cormac Nevin.
Last week was another challenging one for markets as the MSCI All Country World Index fell -0.3% in GBP terms. The same index was down -4.2% in local currency terms, which illustrates the continued fall in Sterling vs the US Dollar. The US Federal Reserve’s efforts to combat inflation have led it to tighten interest rates aggressively, which has led to a sharp rise in the dollar vs other major currencies. One of the worst affected currencies has been the Yen, which is now at multi-decade lows. The Pound Sterling and Euro have also been heavily impacted, with the Euro falling to below parity with the US Dollar. As of this Monday morning, 1 US Dollar buys roughly 0.96 Euros and 1.08 Pounds. The Federal Reserve’s reversal of quantitative easing, aptly named quantitative tightening, has also put pressure on the US Treasury market where liquidity conditions have deteriorated significantly.
Other events driving markets have been the “mini” budget announced by Kwasi Kwarteng, the new Chancellor of the Exchequer. In his address to parliament, Kwarteng announced a series of measures aimed at supply-side reform of the economy with tax cuts aimed at incentivising employment and investment. The fact that these tax cuts will be funded by borrowing led to a sell-off in the UK Gilt market and additional Sterling weakness. Only time will tell if these pro-growth measures have the desired impact of raising trend GDP growth.
On the continent, the weekend saw the election of Italy’s first female Prime Minister since the Risorgimento led to the creation of a unified Italy in 1861. Giorgia Meloni’s Fratelli D’Italia party will lead a right-wing coalition with a comfortable parliamentary majority. The prospect of Italy being governed by the most right-wing government since the end of the second world war will likely set the scene for further confrontation within the European Union, at a time when the block faces significant economic and energy security challenges.
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 September 2022.
© 2022 YOU Asset Management. All rights reserved.
The World In A Week - Giving thanks for what?
Written by Shane Balkham.
American families congregated together to celebrate the harvest and give blessings for the year that is passing. Thanksgiving and its subsequent commercialisation being Black Friday, will be an interesting reflection point for 2022. What, if anything, will the American consumer be grateful for? With the cost-of-living crisis continuing to squeeze Middle America and as central banks blindly continue to hike rates, was there any salvation for retailers over the weekend?
Mastercard has forecast that Black Friday will see the American consumer spend 15% more on the equivalent day in 2021. This projection itself seems inflated, however, the forecast represents the strategy that retailers are offering short-term promotions in order to clear inventories that have built up in a slowing economy. Interestingly, it is expected that Black Friday online sales will surpass $9 billion for the first time, according to Adobe Digital Insights. After two years of pandemic-related anxieties, shoppers are expected to return to physical stores this year.
The minutes from the Federal Open Market Committee (FOMC) were published last week and described a desire to slowdown the pace of rate hikes but fell short of signalling an actual pause. These minutes were taken over three weeks ago, and since then we have had several members of the FOMC give speeches that reinforce the growing expectation that the Federal Reserve realise that policy may have gone beyond what is needed.
With the next FOMC meeting a little over two weeks away, there is insufficient time for the data on which the decisions are heavily reliant to show what the market already suspects; that inflation is slowly being tamed and central banks have seemingly delivered adequate rate hikes. This leaves the FOMC with a difficult decision on 14th December, as there is an inherent lag between monetary policy actions and the behaviour in economic activity and inflation. Based on Chairman Jerome Powell’s previous comments on maintaining a firm stance on combating inflation at all costs, it is likely that we will see a fifth successive 0.75% rate hike. Whereas the decision in the September meeting was unanimous amongst the members of the FOMC, it is likely that this next vote will be split.
Across to the opposite side of the world, China reported the first COVID-19 fatalities for over six months. There is widespread expectation that China will ease restrictions, however this is only likely once China has approved its own mRNA vaccine (similar to the Pfizer-BioNTech and Moderna vaccines) and roll out programme. Until then, a continuation of lockdowns and restrictions will remain in place. However, a zero-tolerance towards COVID-19 policy can only work if the population believes that the frequent lockdowns will actually work. It would appear that many do not have that faith with protests held in Shanghai and Beijing over the weekend.
It is unusual to see the Chinese people challenging the authorities, with banners protesting against President Xi Jinping and his policies, reminiscent of the Tiananmen Square protests in 1989. Although the protestors represented a relatively small portion of the population, it does show the need for China to tackle the virus quickly, especially against a slowing and faltering economy.
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 28th November 2022.
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