The World In A Week - Summer Prints
Written by Millan Chauhan.
Last week, we saw the release of US inflation data where the US Consumer Price Index reached 3.2% on a year-over-year basis as of July 2023 which was below expectations of 3.3%. Inflation has fallen significantly from its highs of 9.1% in June 2022. Food was one of the largest contributors to July’s monthly inflation print of 0.2%. Food at Home costs rose 3.6% and Food Away from Home costs rose 7.1% on a year-over-year basis. Attention now turns towards the UK and Continental Europe where we await July’s inflation data readings on Wednesday and Friday respectively. In the UK, analysts expect to see inflation fall to 6.8% and in the Euro Area to 5.3%, both on a year-over-year basis for July 2023.
Over the last 15 months, we have seen central banks implement several interest rate hikes, which has caused commercial banks to raise the interest rate received on deposits by savers. Some banks have been slower to increase the interest rate received than others. Last week, the Italian Government stepped in to penalise banks for failing to pass enough of the interest hikes from the European Central Bank (ECB) to depositors, it initially stated that it would tax 40% of net interest margins in 2022 or 2023 which initially saw numerous Italian banks sell off sharply. The announcement was a shock to investors and was widely criticised. Subsequently the Italian Prime Minister, Giorgia Meloni backtracked the decision and clarified that any levy applied would be capped to 0.1% of assets.
The UK’s Gross Domestic Product (GDP) grew 0.5% in June 2023 which was above expectations of 0.2%. The extra bank holiday has been cited as a key driver; however, we have also seen production output grow 1.8% in June 2023 which outpaced the Services & Construction sectors. June’s strong economic growth data saw the UK’s Q2 GDP grow by 0.2%.
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 August 2023.
© 2023 YOU Asset Management. All rights reserved.
The World In A Week - Calm before the storm
Written by Chris Ayton.
Global equity markets trod water last week, with the MSCI All Country World Index ending the week down -0.2% in Sterling terms. MSCI Europe ex-UK fell -1.1%, with the FTSE All Share Index and the S&P 500 Index both dropping -0.4% but MSCI Emerging Markets was up +1.1% boosted by positive returns in China and Brazil. After years of neglect and disinterest, corporate governance improvements are leading international investors to revisit their allocations to Japanese equities and this helped MSCI Japan rise +1.5% for the week. However, the Japanese Yen remained weak ahead of the Bank of Japan meeting this week where, unlike all other major economies, it is expected to maintain its ultra-loose monetary policy. The Federal Reserve and the European Central Bank (ECB) also meet this week.
Last week the Organisation for Economic Co-Operation and Development (OECD) released its latest GDP growth forecasts for 2023 and 2024, predicting the global economy would expand by 2.7% in 2023 and 2.9% in 2024. Underlying that, it went on to predict the US will avoid recession, India will grow strongly (6% this year, 7% next year), and China will achieve its target of 5% GDP growth this year and next. However, it estimated the UK will only achieve 0.3% growth this year and 1% next year, although this is better than previous estimates. While this backdrop is certainly interesting, it is important to remember that economic growth does not equate to stock market returns.
In Europe, the EU’s statistics agency revised down the EU’s GDP growth to -0.1% for both the final quarter of 2022 and first quarter of 2023, meaning the Eurozone is technically already in a recession. This surprising news came on the back of Germany also announcing that it had fallen into recession. This data has brought into question the European Commission’s 1.1% growth forecast for 2023 and it will be interesting to see if the ECB starts to face any pressure to ease up on further interest rate rises at their upcoming meeting.
Data released by Halifax last week showed UK house prices registering their first annual decline since 2012, with average house prices in May sitting 1% below where they were this time last year. The Nationwide Building Society had earlier indicated an even greater annual decline. With Uswitch reporting the average 5-year fixed rate mortgage rate in the UK has now hit 5.59% and further interest rate rises expected going forward, this is clearly starting to impact price expectations for buyers and sellers.
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 12th June 2023.
© 2023 YOU Asset Management. All rights reserved.
The World In A Week - The narrowing leadership in US stocks
Written by Ilaria Massei.
Last Friday, we saw US stocks hit a nine-month high thanks to encouraging talks on debt ceiling and tech sector gains. The NASDAQ 100 rose 4.5% last week in GBP terms, boosted by the rally experienced by AI related stocks. There have only been a handful of stocks in the mega-cap market range that have led this rally in tech stocks. These include the likes of Alphabet, Amazon, Meta, Microsoft and NVIDIA. Last Thursday, shares of the chipmaker NVIDIA jumped 24%, making the company the sixth most highly valued public company in the world. Shares rose after the company beat consensus first-quarter earnings expectations by a wide margin and raised its profit outlook.
This extraordinary performance resurfaced the topic of narrow leadership in the US stock market, whereby fewer and fewer US tech stocks contribute to the broad index level return. Another crucial topic last week was the debt ceiling talks where policymakers delivered some encouraging news, signalling that they were working on a deal to raise the debt ceiling before the June deadline to avoid an unprecedented default. Meanwhile, the core (less food and energy) personal consumption expenditures (PCE) price index, rose by 0.4% in April, a tick above expectations.
Elsewhere, data released last Thursday signalled that the German economy fell into a recession in the first quarter, due to persistent high price increases and a surge in borrowing costs. GDP shrank 0.3% in the three months through March, a downward revision from an early estimate of zero growth. However, European Central Bank (ECB) policymakers’ view is that interest rates would need to rise further and stay high to curb inflation in the medium term, potentially deteriorating the economy further.
The MSCI Japan declined to -1.1% last week in GBP terms but encouraging data released last week saw Japanese manufacturing activity expanding for the first time in seven months in May. The services sector also reported robust growth, as the reopening of the country to tourism led to a record rise in business activity.
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 30th May 2023.
© 2023 YOU Asset Management. All rights reserved.
The World In A Week - Buffett bets big in Japan
Written by Cormac Nevin.
Markets rallied last week as data releases such as strong housing statistics in the US allayed fears of an economic hard landing driven by the interest rate increases we have witnessed over the last year. The MSCI All Country World Index of global equities (MSCI ACWI) rallied +1.5% in GBP terms.
A market which the team has noticed getting an increasing degree of exposure from global investors recently has been the Japanese Equity market. In local terms, Japanese Equities are up +8.5% over the course of the second quarter to date, which has strongly outperformed MSCI ACWI over the same period (+1.9%). The GBP return has been reduced by a weakening in the Yen vs Sterling, therefore returning +3.6%, but it remains strongly ahead of other markets. We have been overweight to the Japanese Equity market since 2020 and find it interesting that many of the characteristics of the market which we find appealing are now being given more attention from other investors and the media. These include attractive valuations compared to, for example, the US Equity market, corporate governance reforms being driven by the Tokyo Stock Exchange and other forces including low inflation, accelerating GDP and wage data. While the Yen has proved a headwind for GBP-based investors for the year to date, we think it provides excellent diversification benefits and room for the Japanese currency to rally should the global economy deteriorate as many predict which would lead to a potential narrowing in US/Japanese interest rate differential.
Another interesting element has been the increased investment in the Japanese market from Warren Buffett. While we think investors should never slavishly follow any one investment luminary, we do think it is interesting that the Sage of Omaha now owns more stocks in Japan than in any other country besides the US via his Berkshire Hathaway holding company. Given Mr Buffett’s exceedingly long track record in finding high quality companies trading at discounted valuations, we believe that the Japanese Equity market could potentially be an excellent return driver into the future while other developed markets are more challenged from high valuations or macroeconomic turbulence.
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 May 2023
© 2023 YOU Asset Management. All rights reserved.
The World In A Week - Record breakers
Written by Chris Ayton.
As expected, the Bank of England (BoE) hiked interest rates by 0.25% to 4.5% last week, in the process warning that inflation will not fall as fast as expected over the next 12 months. This was a record twelfth rate rise in a row. The BoE also noted that it appreciated that only around a third of the impact from the previous rises had been felt by the UK economy, with 1.4 million people due to come off fixed rate mortgages this year, nearly 60% of which were fixed at interest rates below 2%. While this may bring hope to some that this was signalling a pause in further increases, the BoE warned that it continued to monitor indicators of persistent inflationary pressures and commented “If there were to be evidence of more persistent pressures, then further tightening in monetary policy would be required.”
More positively, the Bank significantly upgraded its forecast for UK GDP Growth, expecting 0.25% growth this year followed by 0.75% in 2024 and 2025. This was the largest upwards revision to growth expectations on record and contrasts sharply with predictions late last year that the UK was heading for the longest recession in 50 years. This was followed by confirmation from the Office of National Statistics on Friday that the UK economy had grown 0.1% in the first quarter, the same as observed in the previous quarter.
News in the US was dominated by internal fighting over the extension of the debt ceiling. Having reached the maximum it is legally allowed to borrow, the U.S. government require an extension to that limit in very short order to be able to pay its upcoming debt obligations, to avoid a destabilising default, and prevent the financial chaos that would undoubtedly ensue. Previously, these challenges have been resolved at the twenty third hour but, in the meantime, this is likely to impact market sentiment.
Less well reported was the positive news that the top U.S. national security adviser, Jake Sullivan, met with China’s top diplomat, Wang Yi, in Vienna in an attempt to calm relations between the two superpowers. Talks were said to be ’substantive and constructive’. The souring of relations, exacerbated by the Chinese spy balloon drama in February, has undoubtedly been a drag on China’s equity market performance in 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 15th May 2023.
© 2023 YOU Asset Management. All rights reserved.
The World In A Week - A hike in May and go away
Written by Shane Balkham.
The world of investing has a plethora of adages by which to invest. All of which are based on shaky assumptions, but can also resonate with investors as they seem to have a semblance of truth to them. At this time of year, the adage: “Sell in May and go away” is rolled out, but few will realise that this originated in the 17th century and was about the wealthy migrating out from London in the summer months to their country estates. While out of London and without the use of a smartphone, they were unable to monitor their shares, so selling made perfect sense. Using adages in our experience is not a robust long-term investment strategy.
This year the adage could be used for the intentions of the central banks and the interest rate hiking cycle. Last week saw the Federal Reserve hike rates by 0.25% and signal the end of a continuous series of interest rate rises. The long awaited ‘pause’ has seemingly begun and attention will focus on data to see if inflation continues to fall.
The European Central Bank (ECB) also raised rates by 0.25% last week, but unlike the US, there was no signal suggesting a pause. Having started the process of hiking interest rates much later than the US and the UK, there is an argument that the ECB have much more ground to make up.
However, there is an expectation for the Bank of England to follow the Federal Reserve’s lead this week. A final hike of 0.25% is expected together with a clear signal of a pause in the hiking cycle, despite inflation having so far proved quite sticky. The meeting on Thursday also coincides with the quarterly publication of its Monetary Policy Report, which will provide further detail on the Bank’s forecasts and expectations.
This could be seen as welcome news to the markets, who have been anticipating a pause in the hiking cycle since the beginning of the year. Naturally, the medium-term view will now be dominated by expectations of when the first rate cut will arrive. However, underneath the big picture of central bank decisions, there continues to be ongoing stress in the US banking sector, and fears of economic recessions. Given the uncertainty of the short-term outlook, the need for appropriate portfolio diversification remains crucial.
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 May 2023.
© 2023 YOU Asset Management. All rights reserved.
The World In A Week - Banking on a bailout
Written by Millan Chauhan.
Last week, we saw the third US bank seized by regulators since March with First Republic Bank being the latest casualty of higher interest rates and tighter monetary conditions. This marks the largest US banking casualty since 2008 and was driven by losses in their loan book combined with a run on their deposits. US interest rates currently sit between a target range of 4.75% and 5% and banks that have not been offering competitive enough deposit rates, in order to facilitate cheap loans, have been suffering outflows as savers transfer to money market funds paying higher rates. JP Morgan have since acquired First Republic’s deposits and a large proportion of its assets in a deal which was coordinated by the Federal Deposit Insurance Corporation. Jamie Dimon, JP Morgan CEO announced that they will not retain the First Republic brand but instead a large majority of the deposit base will move directly into their retail banking arm called Chase.
The fate of First Republic was outlined last week as they announced that $100 billion of deposits had been withdrawn in the first quarter of 2023, despite their deposit demographic being somewhat more diversified than the likes of Silicon Valley Bank and Signature Bank where deposits were largely derived from a more technology-focused client base. Under normal circumstances, JP Morgan wouldn’t be able to acquire a bank the size of First Republic for competition reasons, however these limits were waived in a bid to reduce further market stress and minimise losses. Some policymakers have criticised this acquisition made by JP Morgan since it has made the largest US bank even bigger and reduced competition further.
Elsewhere, companies continue to report their first quarter earnings and we saw the big US technology companies report last week whereby Artificial Intelligence (AI) was the big topic of conversation. Most of the technology names have implemented cost-cutting policies with thousands of layoffs being made, however they are investing billions as they aim to become market leaders in AI which they believe to enhance their long-term profitability. Meta, Amazon, Google and Microsoft stated the word “AI” a combined 168 times on their earnings call last week.
UK Government borrowing figures in the 2022-23 financial year, published on Tuesday by the Office for National Statistics, came in at £13.2bn less than forecast by the Office of Budget Responsibility, although, overall public borrowing rose compared to 2021-2022. This was mainly due to lower-than-expected public spending, despite the cost-of-living subsidies that have been provided over the year by the government. The lower-than-expected borrowing has given the Chancellor some breathing room and could give way to tax cuts later in the year in his Autumn Statement.
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 2nd May 2023.
© 2023 YOU Asset Management. All rights reserved.
The World In A Week - Encouraging signs?
Written by Ilaria Massei.
Last week, equity markets ended mixed with the MSCI All Country World Index +0.1% (in GBP terms), following a week with a relatively light economic calendar. In the US, the weekly jobless claims’ report brought signs of growing weakness in the labour market, but investors appeared divided on whether to treat this as good news. Some viewed this release as a sign that the Federal Reserve might stop hiking rates whereas others viewed it as a further step towards an upcoming recession. Weekly jobless claims rose a bit more than expected and also continuing jobless claims, which measure unemployed people who have been receiving unemployment benefits for a prolonged period, rose well above market expectations, reaching its highest level since November 2021.
In Europe, we are starting to see signs of divergence within policymakers with regards to the decision of hiking rates. The minutes of the March meeting of the European Central bank (ECB) showed policymakers were split. The majority voted to hike rates, however, some members said they would prefer a pause until calm returns in financial markets.
In the UK, the annual UK consumer price growth in March slowed by less than expected to 10.1% from 10.4% in February, driven by surging food and drink prices. Data from the Office for National Statistics (ONS) indicated that wage growth also showed few signs of moderating in the three months through February. At the last meeting, the 0.25% interest rate rise was passed with seven in favour and two who wanted to hold rates still. However, these continued inflationary forces could lead the Bank of England to raise interest rates once more in its May meeting.
Any opinions stated are honestly held but are not guaranteed and should not be relied upon.
The information contained in this document is not to be regarded as an offer to buy or sell, or the solicitation of any offer to buy or sell, any investments or products.
The content of this document is for information only. It is advisable that you discuss your personal financial circumstances with a financial adviser before undertaking any investments.
All the data contained in the communication is believed to be reliable but may be inaccurate or incomplete. Unless otherwise specified all information is produced as of 24th April 2023.
© 2023 YOU Asset Management. All rights reserved.
The World In A Week - Biden and the UK economy both revisit old ground
Written by Chris Ayton.
While President Joe Biden enjoyed himself revisiting his heritage in Ireland, equity markets were also in a good mood with the MSCI All Country World Index +1.2% over the week. The UK equity market was even stronger, rising +1.9%. With incremental interest rate rises still expected, fixed income securities were generally more subdued as the Bloomberg Global Aggregate Index dropped -0.6% in GBP hedged terms over the week, although high yield bonds performed considerably better.
UK GDP growth data was released that showed the strike-impacted economy flatlining over February, but an upward revision to January’s growth figure means the size of the UK economy has finally surpassed where it was in February 2020, prior to the Covid pandemic. Sterling has also continued to be robust against the US Dollar, hitting a 10-month high of $1.2546 during the week, a level more than 20% above where it sat in the nadir of September last year.
In the US, better than expected Q1 earnings results from Citigroup, JP Morgan, and Wells Fargo eased some lingering concerns about the recent banking turmoil. Despite some signs of a softening labour market, US consumer sentiment also surprised on the upside, reigniting expectations of a further rate hike from the Federal Reserve in May.
China was a rare weak spot for equities, with MSCI China dropping -0.4% over the week. This was despite data showing export growth had surged 15% in March, driven by increasing sales of electric vehicles and their components as well as a surge in trade with Russia. With exports still a key component of China’s economy, the data provided some renewed hope that China can achieve the Government’s 5% GDP growth target for 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 17th April 2023.
© 2023 YOU Asset Management. All rights reserved.
The World In A Week - Have we reached the summit?
Written by Shane Balkham.
UK inflation fell to below 5% in October, on the back of a sharp decline in energy costs. The monthly publication from the Office of National Statistics (ONS) showed a 2.1% drop in UK Consumer Price Inflation (CPI) from 6.7% for September to 4.6% for October.
A significant contributor to this fall was the fall in energy prices; over the year to the end of October, gas prices fell by 31% and electricity prices fell by 15.6%. Food prices were little changed for October.
This is a positive step bringing inflation back down to the Bank of England’s (BoE) target level of 2%. There are another three weeks until the Monetary Policy Committee of the BoE meets to discuss the path of UK interest rates, and it remains a delicate balancing act.
The US also had a pleasant surprise for inflation, with a fall greater than expected. US CPI for October fell from 3.7% to 3.2%, which was marginally below consensus expectations. The reaction of the US market was one of relief, with US Treasury yields falling and the stock market rallying.
Some commentators believed that this was an overreaction by investors and while inflation is certainly heading in the right direction, there will be challenges ahead. The US Federal Reserve meets a day earlier than the BoE, with the next decision on interest rate policy coming on 13th December.
It makes sense that the reaction from markets on October’s inflation readings was one of relief. However, central banks are known for not necessarily doing the right thing at the right time, and although there is optimism that we have reached the peak in the interest rate hiking cycle, we are still treading carefully in our investment decisions.
From policymakers to politics, where the US House of Representatives voted to avert a costly government shutdown last week. In a similar move to that of six weeks ago, the can has been kicked down the road until early in the new year. The proposal provides a two-step plan that sets up two new shutdown deadlines next year. US government funding has been divided into two different parts, with priority given to military construction, transportation, housing, and the Energy Department, which has a new deadline of 19th January 2024. Anything not covered in this first step would be funded until 2nd February 2024. Politics will certainly start the New Year in the spotlight and will likely remain there.
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 November 2023.
© 2023 YOU Asset Management. All rights reserved.