Your 2024 Spring Budget update and what it means for you
With one eye on a forthcoming general election, the Chancellor has announced a Budget which he claims will generate long-term growth, with “more investment, more jobs, better public services and lower taxes”.
While the headlines will inevitably focus on Jeremy Hunt’s cut in National Insurance contributions (NICs), many less headline-grabbing messages will affect millions of families and businesses.
Read on to find out who were the winners and losers from the 2024 Spring Budget.
Winners
Working people
The Chancellor said that his Budget gave “much-needed help in challenging times”, adding “if we want to encourage hard work, we should let people keep as much of their own money as possible”. Calling NICs a “penalty on work”, Hunt announced a cut in Class 1 NICs, from 10% to 8% from 6 April 2024. These cuts follow a similar reduction in the rate of NICs announced in the 2023 Autumn Statement. The Chancellor says that these cuts, in conjunction with the reductions announced in the 2023 Autumn Statement, would mean the average worker on £35,400 would benefit from a tax cut of more than £900 a year.
He also announced that, instead of falling from 9% to 8%, as previously announced, Class 4 self-employed NICs would fall from 9% to 6% from 6 April 2024. This is in addition to the removal of the requirement to pay Class 2 NICs from the same date. He added that 2 million self-employed people would benefit, with the average self-employed person earning £28,000 seeing a tax cut of around £650 a year.
Parents earning Child Benefit
The Chancellor highlighted the “unfairness” in the current Child Benefit system that means a household with two parents each earning £49,000 a year will receive Child Benefit in full, while a household earning less overall, but with one parent earning more than £50,000, will see some or all of the benefit withdrawn. Consequently, he announced a plan to move the High Income Child Benefit Charge to a “household” system from April 2026.
In the interim, from April 2024, the High Income Child Benefit Charge threshold will rise from £50,000 to £60,000, while the top of the taper will rise to £80,000. This means that the full amount of Child Benefit will not be withdrawn until individuals earn £80,000 or more.
The hospitality industry and their customers
In a move designed for “backing the Great British pub”, the Chancellor has extended the freeze on alcohol duty. The freeze was due to end in August 2024, but has been extended to February 2025, benefiting 38,000 pubs across the UK. The Treasury says that this results in 2p less duty on an average pint of beer than if the planned increase had gone ahead. This measure means that for breweries, distilleries, restaurants, nightclubs, pubs, and bars won’t see any increase in costs for alcohol duty.
Motorists
The Chancellor argued that lots of families and sole traders depend on their cars and so wanted to continue supporting motorists. Consequently, he maintained the temporary 5p cut in fuel duty and froze the duty for another 12 months. Hunt said that this would save the average car driver £50 in 2024/25.
Small businesses
In a boost to small businesses, Hunt announced that, from 1 April 2024, the VAT threshold would increase from £85,000 to £90,000 – the first increase in seven years.
ISA and National Savings and Investments savers
To encourage investment in small British businesses, the Chancellor announced his intention to launch a new “UK ISA”. This will enable savers to invest an additional £5,000 in a tax-efficient wrapper, increasing the total ISA subscription limit to £25,000 – assuming these additional monies are invested exclusively in UK firms.
The Chancellor also announced that National Savings & Investments (NS&I) will launch a British Savings Bonds product that will offer consumers a guaranteed interest rate, fixed for three years. This new NS&I product will be brought on sale in early April 2024.
Creative industries
From film to theatre and music to art, the Chancellor said that UK creative excellence is unmatched. To support the UK’s creative industries, he announced a further £1 billion package of additional tax relief over the next five years, to boost inward investment and attract production companies from around the world. Hunt also confirmed £26.4 million of support for the globally renowned National Theatre.
Pensioners
The Spring Budget also committed to supporting pensioner incomes by maintaining the State Pension “triple lock”. In 2024/25, the Treasury say that the full yearly amount of the basic State Pension will be £3,700 higher, in cash terms, than in 2010.
Sellers of second homes
Capital Gains Tax (CGT) is often due when an individual sells a second home – such as a buy-to-let property or holiday home. In a move designed to increase the number of transactions, and consequently increase the revenue from the tax, the Chancellor announced he would reduce the higher rate of property CGT from 28% to 24%. The lower rate will remain at 18% for any gains that fall within an individual’s basic-rate band.
Losers
Vapers and smokers
In an attempt to discourage non-smokers from taking up vaping, and to increase revenue for the NHS, the Chancellor announced a new duty on vaping. The Treasury says this will raise £445 million in 2028/29.
There will also be a one-off tobacco duty increase of £2 per 100 cigarettes, or 50 grams of tobacco, from 1 October 2026 to maintain the current financial incentive to choose vaping over smoking. The government say this will raise a further £170 million in 2028/29.
Non-economy airline passengers
The Chancellor announced that rates for individuals flying premium economy, business, first class and for private jet passengers will increase by forecast Retail Prices Index (RPI) and will be further adjusted for recent high inflation to help maintain their real-terms value.
Some “non-doms”
In a move borrowed from Labour, the Chancellor announced the abolition of the “remittance basis” of taxation for non-UK domiciled individuals (“non-doms”) and a replacement simpler residence-based regime. Individuals who opt into the new regime will not pay UK tax on any foreign income and gains arising in their first four years of tax residence, provided they have been non-tax resident for the last 10 years. This new regime will commence on 6 April 2025 and applies UK-wide – and transitional arrangements will apply.
Owners of holiday lets
The Chancellor said that the current tax regime creates distortion, meaning there are not enough properties available for long-term rental. Consequently, he intends to abolish the Furnished Holiday Lettings (FHL) tax regime from 6 April 2025, meaning short-term and long-term lets will be treated the same for tax purposes.
Anyone subject to fiscal drag
Freezing tax thresholds increases the amount of tax that individuals and businesses pay without nominal tax rates actually increasing. Called “fiscal drag”, this results in additional revenue to the government as more taxpayers are “dragged” into paying tax, or into paying tax at a higher rate.
Freezes in a range of thresholds mean that millions of individuals and businesses will face “fiscal drag” in the coming years. For example, while the increase in the threshold at which small businesses and self-employed people have to register for VAT will be welcome to many businesses, the fact that the threshold had been frozen for seven years means that more businesses will likely have been forced to register for VAT than if the threshold had risen each year in line with the cost of living.
Similarly, freezes to the Income Tax Personal Allowance and thresholds mean more people will either start to pay tax, or pay more tax at a higher rate, than if these thresholds had risen in line with inflation.
Get in touch
If you have any questions about how the Spring Budget will affect you and your finances, please get in touch.
All information is from the Spring Budget document published by HM Treasury.
The content of this Spring Budget summary is intended for general information purposes only. The content should not be relied upon in its entirety and shall not be deemed to be or constitute advice.
While we believe this interpretation to be correct, it cannot be guaranteed and we cannot accept any responsibility for any action taken or refrained from being taken as a result of the information contained within this summary. Please obtain professional advice before entering into or altering any new arrangement.
The World In A Week - US markets soar, while Japan reaches new highs
Written by Dominic Williams
Last week, the S&P 500 Index, regarded as the primary gauge for US large-cap stocks, achieved a historic milestone by surpassing the significant 5,000 mark for the first time. This symbolises the strength of the US market, despite a period of elevated interest rates. However, this market upswing continues to be driven by a select few, notably Nvidia and Meta, with small cap indices and equally weighted indices significantly behind.
In Japan, both major indices exhibited strong performance. The Topix, a broad market-weighted index, reached its own record high, hitting a 34-year peak of 2,576 points following a weekly growth of 0.72% in local currency terms. Additionally, the Nikkei 225, a price-weighted index, climbed above 37,000 points for the first time in 34 years, experiencing a growth of 2.04% in local currency terms. These impressive performances were fuelled by strong foreign interest in Japanese stocks and a weakening Yen, which continued its decline against the Dollar following a speech delivered by the Deputy Governor of the Bank of Japan. The governor’s subdued outlook on the prospect of rate hikes from the Central Bank contributed to market sentiment, stating, “even if the bank were to terminate the negative interest rate policy, it is hard to imagine a path in which it would then keep raising the interest rate rapidly”.
On Thursday, China released its latest inflation figures, revealing year-on-year deflation in January 2024. The Consumer Price Index (CPI) showed a 0.8% decrease in prices, the largest decline in over 14 years, exceeding market forecasts of a 0.5% fall. This deflationary trend was attributed to sectors reliant on consumer demand, such as electrical goods and automotive industries, which have been offering discounts and reducing prices amid declining consumer spending.
At the beginning of the week, the Office for National Statistics (ONS) in the UK released an update to its Labour Force Survey, based on reweighted survey results. The update indicated that for the period spanning September 2023 to November 2023, the unemployment rate stood at 3.9%, which is lower than the previously reported 4.2%. Additionally, the Halifax House Price Index, released last week, indicated a 2.5% year-on-year increase in house prices in January 2024. This follows a recent downtrend in mortgage rates from lenders amid heightened competition, a decrease in inflationary pressures for consumers, and a more resilient labour market evidenced by the previous revisions of unemployment figures.
These data points underscore the UK’s unexpected resilience, potentially delaying the Bank of England’s plans to reduce rates in response to stronger-than-anticipated data.
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 12 February 2024.
© 2024 YOU Asset Management. All rights reserved.
The World In A Week - Some big tech names rallied forwards, while central banks stood still
Written by Shane Balkham
It was mixed results for some of the Magnificent Seven, the name coined to describe the largest of the US technology companies. Both Meta and Amazon reported strong earnings, which sparked a rally in the share prices of these two companies. This was in contrast to the fortunes of both Alphabet and Apple, who saw a sell-off in their shares, whose earnings were below the high market expectations. Meta stole the show though, with an announcement of plans to buy back an additional $50 billion in shares and issue its first ever quarterly dividend.
Aside from the earnings updates from big tech, we had the central banks of the UK and US meeting last week, to decide on the immediate level of interest rates and give guidance on the future path of rates.
The Bank of England announced that it would keep interest rates on hold, citing the need for more evidence that inflation would continue to fall. However, Governor Andew Bailey did confirm that the central bank has seen good news on inflation over the past few months. It is likely that the next move from Bank of England will be a cut in rates and the decision is now when and by how much.
This was evidenced by the breakdown of the vote within the Monetary Policy Committee. It was interesting to see that two members voted to raise rates, and that a majority of six members continued to vote to maintain rates, but we had the first vote to cut rates.
As we wrote last week, the US economy was reported to have grown strongly in 2023, leading to expectations that the US Federal Reserve will hold rates at their current level once again. On Wednesday, the Federal Open Market Committee did indeed keep rates on hold, commenting on the current market conditions as being too strong to consider a rate cut at this time.
The probability of a rate cut in March was dealt another blow on Friday, as employment data was published showing that the US economy added 353,000 jobs in January, almost twice that of the consensus expectation. The Fed has consistently put employment as one of the key metrics for measuring policy response to inflation and with such strong numbers, the likelihood of a rate cut in Q1 is as low as it has been.
Although the US Central Bank is politically independent, it did not stop Donald Trump accusing Jermone Powell of helping the Democrats. Trump is interpreting the forecast of rate cuts this year as aiding Joe Biden, rather than attempting to control inflation. A clear example of how politics will dominate the headlines this year and we are still nine months away from the election.
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 05 February 2024.
© 2024 YOU Asset Management. All rights reserved.
Planning ahead for the tax year end
The end of the tax year may still be a few months away, but it pays to start thinking now about what needs to be done to make the most of your personal tax allowances.
When it comes to managing your wealth as efficiently as possible, using the tax-friendly allowances available to you is essential to make the most of your hard-earned money.
In recent years, the Government has squeezed allowances too. This is most notable with the dividend allowance and capital gains tax allowance reductions.
However, it is also relevant in a higher inflationary environment, where the value of allowances effectively diminishes through an effect called “fiscal drag”.
For example, while the annual ISA limit is still a fairly healthy £20,000, it has been set at this level since 2017/18.
Thanks to inflation, you’d need to save more than £25,000 into an ISA now to match the spending power of £20,000 saved into an ISA in 2018, according to the Bank of England.
Ensuring you’re doing everything you can to take advantage of those allowances is crucial for maximising the efficiency of your portfolio. Here are the top ones to have in mind before 5 April 2024.
ISAs
As mentioned above, the traditional ISA has a limit of £20,000 currently. You can spread this across one of each kind of ISA – investment, cash, innovative and, if you are under 40, the Lifetime ISA.
An ISA is an excellent vehicle for your money as it is totally protected from any tax within the pot, so any growth within that is tax-free. Maximising the £20,000 allowance every year is possible, is crucial for long-term wealth growth and efficiency.
If you’re under 40 a Lifetime ISA (LISA) can be a good alternative product too, especially for those looking to buy their first home, or alternatively as a retirement pot. You can save £4,000 per year into a LISA and the Government will top this up by £1,000 – effectively a 25% bonus.
There is a caveat with the LISA though that you have to use the savings for a deposit on a first home or leave the cash in situ until you turn 60. If you withdraw for any other reason, then the Government penalises you with a 25% charge on the whole pot amount – which would leave you with less money than you started with.
JISAs
Junior ISAs or JISAs are another kind of ISA, but designed for children under 18. These can be a great product to use if you’re planning on passing some of your wealth forward to the next generation and want to make a plan to do it as efficiently as possible.
JISAs have a £9,000 per year allowance per child. One drawback however is the named recipient, be they a child or grandchild, will have free rein over the money once they turn 18, which might not be ideal if you want them to use the money for something specific you have in mind.
Pensions
Pensions are the other major long-term wealth savings vehicle we have to draw upon in the UK. Pensions are more complex than ISAs and come with various sets of rules both when saving money into them or taking money out of them.
In terms of allowance, you can save up to £60,000 a year or 100% of what you earn – depending on which figure is less – into a pension.
Pension contributions come with valuable tax relief of 20% for basic ratepayers or
- 20% up to the amount of any income you have paid 40% tax on
or
- 25% up to the amount of any income you have paid 45% tax on
Although pensions have more tax implications when taking money out, they are seen as superior retirement vehicles because of this tax relief, which will help your wealth grow more in the long run thanks to higher contributions levels. The growth on any contributions is protected from taxation the same as in an ISA.
Inheritance tax
Around Inheritance tax is a highly complex set of rules and allowances which determine how much of your wealth you can pass on to loved ones without incurring any penalties.
This comes chiefly in the form of gifting. You can give away up to £3,000 a year tax-free – this is called the annual exemption. If you didn’t give a gift in the previous tax year you can roll up the allowance to a maximum of £6,000 the next.
For married or civil partnership couples this means if you’ve never used your gifting allowance you can give up to £12,000 in total in one year.
You can make any other financial gift you like beyond this, as long as it provably came out of your normal expenditure. If not, this can be classified as a “potentially exempt transfer” or PET. You won’t face any IHT on this gift – but only if you live for seven years after it was made.
Dividends
The Government cut the dividend allowance in half for 2023/24 – and it is currently set to remain at £1,000 for 2024/25.
If you receive dividends from a business of which you are a shareholder, it is important to keep this in mind. It is worth exploring all the tax efficient options available, such as holding shares within a tax wrapper such as an ISA.
Capital Gains Tax
Similar to dividends, capital gains tax or CGT has seen its allowance slashed in recent years and is currently set at £6,000. The main rate of CGT is 20%, or 28% if selling a second home.
Where it becomes potentially salient to use your CGT allowance is what is called “Bed and ISA”. This means selling assets you hold outside of an ISA, up to the CGT allowance, and then repurchasing them with the cash within the ISA wrapper. It can be an effective way to move assets to tax-sheltered status.
You can also transfer assets to a spouse without incurring any tax, and they can then sell the asset to use up their CGT allowance.
What is key, with the myriad rules and procedures in place, is to make sure you’re using the allowances available to you and your loved ones to their maximum benefit.
If you would like to discuss any of the ideas or themes in this blog, or anything else relating to your personal wealth, don’t hesitate to get in touch.
The World In A Week - Sustained Growth and Inflation Trends
Written by Ilaria Massei
Last week brought positive news for the US economy, as it was revealed that it grew at an annualised rate of 3.3%, in the final quarter of 2023. This strong performance marked the conclusion of a robust 2023, defying earlier concerns of a potential recession. This week will see the Federal Reserve (the Fed) officials making their decision on monetary policy and with super core inflation, which excludes food, energy, and housing inflation, still above the Fed’s 2% target, there seems to be room for the Fed to maintain a patient approach towards their first reduction in interest rates.
In the Eurozone, the European Central Bank (ECB) decided to keep interest rates unchanged. The central bank is adopting a cautious stance, waiting for disinflationary trends to persist before making any conclusive decisions. The ECB President Lagarde faced questions about her performance, following an ECB staff poll where more than half of the respondents viewed her leadership negatively. The coming months will be crucial for the ECB to avoid repeating past mistakes and ensuring a stable economic trajectory.
The Bank of Japan (BoJ) left its monetary policy unchanged as anticipated. Although growth and inflation projections remained subdued, Governor Ueda hinted at signs of higher wage increases, which could signal the beginning of a wage-price spiral and hopefully increased consumer spending. However, the overall sentiment was that Japan’s loose monetary policy is unlikely to be radically changed in the near term and that future changes will be slow and gradual.
In the UK, recent disruptions in the Red Sea are impacting business costs and the economic outlook. The latest Purchasing Managers’ Index (PMI), released last week, noted that supply disruptions in the Red Sea led to longer journey times, lifting factory costs. This comes at a time of already elevated price pressures in the service sector. Input prices in the manufacturing sector rose for the first time since last April, due to shipping disruptions, potentially contributing to a pickup in inflation. The UK is seen as a region where inflation could remain volatile and structurally higher, and the disruptive political backdrop adds an additional layer of risk, particularly from a government bond (gilt) perspective.
With headline economic data in China remaining weak, the People’s Bank of China declared a 25-basis points reduction in interest rates for refinancing and rediscounting loans, to provide support to the agricultural sector and small businesses. On the back of this news and in anticipation of further economic stimulus, the MSCI China Index rebounded over the last week, recovering some of the lost ground from a challenging start to 2024.
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 29th January 2024.
© 2024 YOU Asset Management. All rights reserved.
The World In A Week - Decoding economic data
Written by Ilaria Massei
Data released last Wednesday show that, in December 2023, the UK faced an unwelcome rebound in the annual inflation rate, reaching 4% and surpassing market predictions. This increase was largely due to alcohol and tobacco prices, which rose by 12.9%. The core inflation rate, which excludes some volatile items like energy and food, stood at 5.1%, slightly above the forecasted 4.9%. However, retail sales declined by a greater than expected 3.2% in December 2023, following a revised 1.4% increase in the previous month. The current picture in the UK suggests that the restrictive monetary policy is affecting consumers, while inflation remains well above the target of 2.0%. This will undoubtedly present some challenges for policymakers going forward.
Elsewhere, the US witnessed a significant month-over-month increase of 0.6% in retail sales for December 2023, beating forecasts of 0.4%. This upswing, driven by a 1.2% surge in auto sales, follows a 0.3% rise in November. The U.S. economy has broadly held up well and the question for markets will be whether this ongoing strength risks leading to an unwelcome rebound in inflation.
The core consumer price index (CPI) in Japan recorded a year-on-year increase of 2.3% in December, slightly lower than the 2.5% reported in November. Headline wage growth also experienced a significant slowdown in November. This data brought into question the expectations of those investors who believed that the Bank of Japan (BoJ) might raise interest rates multiple times in the coming year. The central bank has consistently communicated its commitment to maintaining an ultra-accommodative monetary policy stance until it observes a sustained inflation uptick driven by wage growth. The Yen unsurprisingly weakened on this news.
It is notable that, among the ongoing uncertainty and mixed data signals, the market consensus seems to be lacking strong consensus and is as widely spread in terms of short-term views. Looking further out, we see many attractive investment opportunities, but we believe maintaining a well-diversified portfolio becomes crucial to capturing these asymmetries in a risk-controlled manner 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 22nd January 2024.
© 2024 YOU Asset Management. All rights reserved.
The World In A Week - Chinese Delicacy
Written by Chris Ayton
Markets were mixed over the week. The UK equity market continued to give back some of its year end gains, with the FTSE All Share Index -0.7% over the week. Conversely, MSCI Japan was up over 4% in GBP terms, with the index hitting a 30+ year high, as foreign flows into the market continued to be positive, supported by optimism around continued stimulus and corporate governance reforms. Overall, the MSCI All Country World Index of global equities was up +1.3% for the week, while bonds, as measured by the Bloomberg Global Aggregate Index Hedged to GBP, gained +0.5%.
On Friday, it was announced that the UK economy had rebounded 0.3% in November, driven by growth in the services sector with car leasing and strong Black Friday sales supporting the growth. Although this news was taken positively, December data will determine whether the UK economy has avoided the technical recession in 2023 that many forecasters expected at the beginning of the year. Markets took the news positively, pricing in a slightly higher chance that the Bank of England will begin to cut interest rates in May.
Elsewhere, China’s consumer price index (a key measure of inflation), fell 0.5% in December, in deflationary territory for the third consecutive month, as consumer sentiment remains weak and the property sector remains stuck in the doldrums. That said, leading economic indicators that we look at internally show a notable pick-up in activity in certain key areas of the economy in China. Some loosening of fiscal and monetary policy in Q4 2023 and some targeted help for the property sector will take time to come through. Whether these moves will be strong enough to offset the deflationary pressures remains to be seen. However, with China’s equity market at rock bottom valuations, any rebound in the economy could provide attractive upside for equity markets in China and across associated Emerging Market indices.
Taiwan went to the polls on Saturday, with the incumbent Democratic Progressive Party (DPP) winning a third term in office. Unlike its opposition parties, the DPP continues to refuse to consider Taiwan part of China, resulting in ongoing tensions with its superpower neighbour. However, it was notable that the DPP won with a much reduced share of the vote and lost its majority in the legislature, perhaps providing some encouragement to China that a peaceful and diplomatic solution can be found to deliver greater cooperation 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 15th January 2024.
© 2024 YOU Asset Management. All rights reserved.
The World In A Week - New Year Hangover
Written by Cormac Nevin
Markets were challenged in the first trading week of 2024, perhaps recovering from the exuberance witnessed in the final two months of 2023. The MSCI All Country World Index of global equities was down -1.6%, while bonds, as measured by the Bloomberg Global Aggregate Index Hedged to GBP, were also down -0.8%. Much like over the course of 2023, markets are somewhat anxious about employment and inflation data, and whether they are cooling sufficiently to allow global central banks to firmly discard any prospect of future interest rate increases.
Certain economic data released last week did not help with this endeavour, and likely provided less rather than more clarity. Non-Farm Payrolls in the U.S., a measure of how many jobs the economy added, came in higher than anticipated at +£216k. This saw the unemployment rate tick down from 3.8% to 3.7%. However, this is essentially a first draft of the numbers – and it is interesting to note that the strength of the previous release was revised downwards from +£199k to +£173k. Downward revisions of initial data have been a persistent theme of 2023, and one that has the potential to continue. Markets tend to trade on the initial release, and less so on the revised numbers.
Another interesting, and somewhat conflicting, set of data for markets was the release of ISM (Institute for Supply Management) surveys of business conditions across the U.S. to attempt to gauge the economic climate in a maximally forward-looking way. The “diffusion indices”, which they released last week, survey hundreds of firms in multiple industries and ask whether conditions are improving or disimproving and how those responses are diffused throughout the sample set. These painted a less rosy picture of economic health, with the ISM Services Purchasing Managers Index (PMI) coming in weaker than expected, and barely in expansion territory. Even more significant, the ISM Services Employment Index (SEI) came in with one of the worst month-on-month changes in its history; weakening significantly into contraction territory.
Kale smoothies, couch-to-5k initiatives and similar remedies may be the order of the day this dry January, but the economic picture may be less healthy. Investors should however seek comfort in the fact that this should give central banks increasing freedom to prioritise supporting the economy over controlling inflation.
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 8th January 2024.
© 2024 YOU Asset Management. All rights reserved.
The World In A Week – The busier the economic calendar, the bigger the surprise
Written by Ilaria Massei
A big surprise on Tuesday came from the number of job openings in the U.S. which decreased by 617,000 from the previous month to 8.7 million in October 2023, marking the lowest level since March 2021 and falling below the market consensus of 9.3 million. The data on job openings seemed to drive a continued decrease in long-term interest rates over the week, with the yield on the benchmark 10-year U.S. Treasury note hitting a low of 4.1% on Thursday. However, Yields then rebounded in the wake of the payrolls’ report on Friday, which surprised slightly on the upside with employers adding 199,000 jobs in November versus consensus expectations of around 180,000. The unemployment rate also surprised by falling back to 3.7% from a two-year high of 3.9% in October. As a reminder, this data is important as the Federal Reserve wants to see a weaker US labor market before it will consider cutting interest rates in order to ensure inflation does not re-emerge.
Elsewhere, in Germany, industrial output fell for a fifth consecutive month in October, sliding -0.4%. Factory orders unexpectedly dropped -3.7%. On a separate note, the European Central Bank (ECB) Executive Board member Isabel Schnabel signalled a shift to a dovish stance in an interview with Reuters, saying, “the most recent inflation number has made a further rate increase rather unlikely.” Activity in the UK’s construction sector fell sharply for a third month in a row in November, due to a continued slump in homebuilding, according to a Purchasing Managers’ Index compiled by the S&P Global and the Chartered Institute of Purchasing and Supply.
Statements from The Bank of Japan (BoJ) officials in the week, led some investors to deduce potential preparations for an earlier-than-expected adjustment in the ultra-accommodative monetary policy. This included speculation that the removal of the negative interest rate policy might follow shortly after any potential lifting of the BoJ’s yield curve control policy.
Last Tuesday, Moody’s revised its outlook for China’s government bonds, shifting from “stable” to “negative,” citing concerns about the economic risks posed by heavily indebted local governments and state firms. This downgrade represents the latest challenge for China’s financial markets, already struggling with a prolonged property market downturn and diminishing confidence among consumers and businesses. In response, Beijing has implemented numerous pro-growth measures this year to stimulate demand, yet analysts argue that these efforts have proven inadequate to revive the economy.
This is the last World In A Week for 2023, this communication will resume on Monday, 8th January 2024.
Any opinions stated are honestly held but are not guaranteed and should not be relied upon.
The information contained in this document is not to be regarded as an offer to buy or sell, or the solicitation of any offer to buy or sell, any investments or products.
The content of this document is for information only. It is advisable that you discuss your personal financial circumstances with a financial adviser before undertaking any investments.
All the data contained in the communication is believed to be reliable but may be inaccurate or incomplete. Unless otherwise specified all information is produced as of 11th December 2023.
© 2023 YOU Asset Management. All rights reserved.
The World In A Week - Californian Gold Rush.v2
Markets continued their strong run for the month last week, with the MSCI All Country World Index returning +1.4% in local currency terms and up +0.7% in GBP terms; capping a healthy return of +4.7% for the month of February to date in GBP terms. Fixed Income markets were also positive, with global government bonds, corporate credit and high yield bonds generating modestly positive gains across the board.
US Equity markets were once again among the strongest globally last week, with the S&P 500 Index of large cap US stocks returning +1.7% for the week in US Dollar terms and 0.9% in GBP terms, capping a +7.5% return for the year to date in GBP terms. This performance was again led by the largest companies in the index, who are once more dominating the weight in, and returns of, the index. The S&P 500 is now sitting at an all-time high, thanks largely to the contribution of Nvidia and other large-cap technology names. Nvidia, the graphics processor company, whose products are used for building large language models (LLM or commonly referred to as “artificial intelligence” models), announced a +265% jump in quarterly revenues (year-over-year), thanks to surging spending on datacentres for AI LLMs. The resulting surge in the share price propelled Nvidia ahead of Amazon and Alphabet to become the third most valuable listed company in the US, behind Microsoft and Apple. Whether the profits from the AI goldrush currently taking place in Silicon Valley and beyond are made by the companies most closely involved in AI, or those selling them the “picks and shovels” remains to be seen.
Another source of equity market returns last week, and for the month of February to date, has been in the Far East. After a very challenging January, Chinese equity markets appeared to stabilise in advance of the commencement of the Year of the Dragon on the 10th of February and subsequently roared back with a +10.3% gain in GBP terms for the month to the end of last week. Similarly strong gains in the Korean and Taiwanese markets have led the wider Emerging Market index to be the strongest performer for the month of February so far, making it a nice complement to the performance we have seen from the US; particularly as emerging market stocks tend to trade on dramatically lower valuations and potentially have more room to run from this point.
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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 26/02/2024.
© 2024 YOU Asset Management. All rights reserved.