Please see below article received from Brooks Macdonald this morning, which informs us of the key global events effecting markets this week.
What has happened
Equities struggled yesterday as recession fears gripped markets yet again. A fall in the oil price, which has continued today, weighed on energy stocks in particular.
Federal Reserve
The market’s focus yesterday was on Fed Chair Powell’s testimony to the Senate Banking Committee. Whilst his monetary policy comments didn’t deviate too sharply from last week, Powell was open around the risk of a recession, describing it as ‘a possibility’. Powell was also more cautious around the chances of the Federal Reserve engineering the so-called soft landing, with that outcome viewed as ‘very challenging’. On interest rates, Powell said that restrictive interest rates were needed to tackle inflation and that the Fed were proceeding towards that outcome. Bond markets focused on the recession comments with yields falling on the day despite Powell’s commitment to raise rates above their neutral level. Whilst few doubt that the Fed is now serious about inflation, there is scepticism as to whether the central bank will be able to raise rates in time before they need to react to a recessionary backdrop.
UK inflation and politics
The May UK CPI reading came in at 9.1% year-on-year, in line with expectations and its highest rate since 1982, garnering much media attention. The core CPI reading actually came in below market expectations at 5.9% year-on-year which will be a helpful reading for the more dovish members of the Bank of England. Today sees two important by-elections in the UK with the results likely to be viewed as a poll on the future electoral success of Boris Johnson. The Wakefield seat is part of the ‘Red Wall’ so analysts, and Tory MPs, will be scrutinising the results to see whether traditionally Labour seats may now return to Labour, with Brexit less of an everyday topic and the impact of Partygate still fresh in the mind of the electorate.
What does Brooks Macdonald think
Sterling has underperformed due to expectations that there will be an increasingly large gap between the interest rates of major currencies, such as the US dollar, and the pound. Another factor is political risk, both in terms of the leadership of the Conservative Party but also the future trading relationship between the UK and EU. Should today’s by-election result in a poor showing for the Conservatives, near term political risk will likely rise as Tory MPs clamour for a change in the internal rules to allow another vote of confidence on the Prime Minister.
| Index | 1 Day | 1 Week | 1 Month | YTD | |
| TR | TR | TR | TR | ||
| MSCI AC World GBP | -0.4% | -2.6% | -2.6% | -12.3% | |
| MSCI UK GBP | -0.9% | -2.5% | -3.7% | 0.3% | |
| MSCI USA GBP | -0.1% | -2.4% | -2.0% | -13.7% | |
| MSCI EMU GBP | -0.4% | -1.8% | -3.6% | -16.0% | |
| MSCI AC Asia ex Japan GBP | -2.3% | -3.8% | -0.9% | -9.2% | |
| MSCI Japan GBP | 0.1% | -2.7% | -5.6% | -12.7% | |
| MSCI Emerging Markets GBP | -2.2% | -4.1% | -2.0% | -10.0% | |
| Bloomberg Sterling Gilts GBP | 1.7% | -0.8% | -6.2% | -16.1% | |
| Bloomberg Sterling Corps GBP | 1.1% | -0.8% | -4.7% | -14.5% | |
| WTI Oil GBP | -4.0% | -9.4% | -4.6% | 55.8% | |
| Dollar per Sterling | -0.1% | 0.7% | -1.7% | -9.4% | |
| Euro per Sterling | -0.4% | -0.4% | -1.9% | -2.4% | |
| MSCI PIMFA Income | -0.1% | -1.9% | -3.6% | -9.6% | |
| MSCI PIMFA Balanced | -0.2% | -2.1% | -3.5% | -9.8% | |
| MSCI PIMFA Growth | -0.5% | -2.4% | -3.3% | -9.5% | |
| Index | 1 Day | 1 Week | 1 Month | YTD | |
| TR | TR | TR | TR | ||
| MSCI AC World USD | -0.5% | -0.9% | -4.2% | -20.5% | |
| MSCI UK USD | -0.9% | -0.9% | -5.3% | -9.1% | |
| MSCI USA USD | -0.1% | -0.8% | -3.6% | -21.8% | |
| MSCI EMU USD | -0.5% | -0.2% | -5.2% | -23.9% | |
| MSCI AC Asia ex Japan USD | -2.3% | -2.2% | -2.5% | -17.7% | |
| MSCI Japan USD | 0.0% | -1.1% | -7.2% | -20.9% | |
| MSCI Emerging Markets USD | -2.3% | -2.5% | -3.6% | -18.5% | |
| Bloomberg Sterling Gilts USD | 2.0% | 1.2% | -7.4% | -23.8% | |
| Bloomberg Sterling Corps USD | 1.3% | 1.2% | -5.9% | -22.3% | |
| WTI Oil USD | -4.0% | -7.9% | -6.2% | 41.2% | |
| Dollar per Sterling | -0.1% | 0.7% | -1.7% | -9.4% | |
| Euro per Sterling | -0.4% | -0.4% | -1.9% | -2.4% | |
| MSCI PIMFA Income USD | -0.1% | -0.3% | -5.2% | -18.1% | |
| MSCI PIMFA Balanced USD | -0.3% | -0.5% | -5.1% | -18.3% | |
| MSCI PIMFA Growth USD | -0.5% | -0.8% | -4.9% | -18.0% |
Bloomberg as at 23/06/2022. TR denotes Net Total Return
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Chloe
23/06/2022