The World In A Week - More Pay, Less Work
Written by Dominic Williams
Wage growth in the UK remained persistently strong, with the annual rate of pay growth in average weekly wages, excluding bonuses, unchanged at 6% in the three months through March, slightly higher than the forecast of 5.9%. However, the job market showed signs of softening, with vacancies continuing to fall, unemployment rising and the number of people claiming benefits increasing slightly. These mixed signals are unlikely to resolve the debate among members of the Monetary Policy Committee (MPC), at the Bank of England, regarding interest rates, although traders have slightly increased the probability of a June rate cut to just over 50%. Before the June decision, the members of the MPC will have two additional inflation reports to consider, alongside the mixed labour data. The Consumer Price Index (CPI) is set to be released on Wednesday, with forecasters anticipating a large decrease to 2.1% from April's 3.2%.
Annual inflation in the US eased in April to 3.4% from 3.5% in March, in line with forecasts. This data ended a four-month streak of inflation exceeding expectations. The news came a day after the Federal Reserve (the Fed) Chair, Jay Powell, warned that the central bank may need to maintain higher rates for longer. Despite this, traders in the futures market priced in the possibility of the Fed reducing interest rates twice in 2024. Following the data release, the S&P 500 Index climbed, hitting a record high before finishing the week in positive territory, up +0.1% in GBP terms.
At the end of the week, the central government in China unveiled a historic rescue package to stabilise the country’s struggling property sector. The People’s Bank of China (PBOC) lowered the minimum deposit ratio to 15% for first-time buyers and to 25% for second-home purchasers, in addition to reducing mortgage rates by 0.25%. The PBOC also scrapped the nationwide floor level of mortgage rates, allowing cities to set their own rates. Additionally, the PBOC provided RMB 300 billion ($41.5 billion) worth of loans to local governments to directly purchase unsold apartments.
There have been mixed signals regarding the state of China’s economy. China’s industrial production expanded year-on-year by 6.7% in April, exceeding market forecasts of 5.5% and significantly improving from the 4.5% gain recorded the previous month. In contrast, retail sales rose by 2.3% year-on-year in April, missing market forecasts of 3.8%. Nevertheless, markets remained positive, with the MSCI China Index finishing the week up +2.7% in GBP terms.
The mixed signals emerging from China underscore the significance of maintaining a diversified portfolio. While we do not directly hold individual Chinese equity funds in our asset allocation, our exposure to the region is attained through our Global Emerging Markets equity funds, which form a component of our broader diversified portfolio.
Any opinions stated are honestly held but are not guaranteed and should not be relied upon.
The information contained in this document is not to be regarded as an offer to buy or sell, or the solicitation of any offer to buy or sell, any investments or products.
The content of this document is for information only. It is advisable that you discuss your personal financial circumstances with a financial adviser before undertaking any investments.
All the data contained in the communication is believed to be reliable but may be inaccurate or incomplete. Unless otherwise specified all information is produced as of 20th May 2024.
© 2024 YOU Asset Management. All rights reserved.
The World In A Week - Is a June rate cut still on the cards for the UK?
Written by Ashwin Gurung
According to official figures from the Office for National Statistics, the UK’s annual headline inflation fell to 2.3% in April, its lowest level since July 2021, down from 3.2% in March. However, this decrease was less than the anticipated 2.1%. Similarly, annual services inflation declined slightly from 6.0% to 5.9%, also falling short of expectations. These outcomes may have reduced the likelihood of the Bank of England (BoE) cutting interest rates as early as June. While inflation is on a downward trend and nearing its target rate, it remains sticky.
During the week, the UK Prime Minister Rishi Sunak announced a snap general election for July 4th. Some market participants believe that this development makes a rate cut in June even less likely than before. However, it is important to note that the BoE has independence from the Government in terms of how it carries out its responsibilities i.e., free from political influence, so the general election should have no direct impact on the decision of rates cuts in June.
Similarly, from an investment perspective, we don't expect the upcoming general election to significantly explain the performance of UK stocks. Data has shown that the election's impact is much lower compared to other economic factors such as monetary policy decisions, and their impact on markets is also incredibly difficult to foresee. Whatever the outcome, we remain positive on UK Equities as they continue to benefit from companies reporting positive earnings, implementing stock buy-backs, and higher mergers & acquisitions activity where we have seen numerous UK companies being bid for at premiums to their valuation. UK listed companies are considered to be attractively priced by both domestic and foreign companies.
In the US, market expectations are also leaning towards a delay in anticipated rate cuts due to continued strength in consumption and higher economic growth. The Federal Reserve's minutes from April’s policy meeting also highlighted the worry amongst Fed officials that there has been more limited progress on inflation than hoped. Members expressed a lack of confidence in proceeding with rate cuts given this uncertainty.
On the other hand, Japan is dealing with the opposite challenge of keeping inflation sustained. In April, Japan’s core inflation (which excludes fresh food) declined for a second consecutive month to 2.2%, while staying above the Bank of Japan’s (BoJ) price target. However, the trend is expected to reverse in the upcoming months as numerous Japanese companies prepare to implement the most substantial wage hikes in over three decades in spring wage negotiations. The BoJ is also optimistic that this will spur both spending and prices, ultimately increasing 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 28th May 2024.
© 2024 YOU Asset Management. All rights reserved.