Please see below article received from Brooks Macdonald this morning, which provides an update on markets following the sad news of Her Majesty Queen Elizabeth II passing yesterday.
What has happened
The very sad news was announced on Thursday that Her Majesty Queen Elizabeth II had died, ending her reign as the longest-serving British monarch in history, and leaving the nation and many around the world in mourning. UK Prime Minister Liz Truss said of the Queen, “She was the very spirit of Great Britain – and that spirit will endure.”
In financial market news
On Thursday, US Treasury bond yields moved higher as Fed Chair Powell took another opportunity to talk tough on inflation. Speaking at a conference on Thursday, Powell said the Fed would not flinch in its efforts to curb inflation “until the job is done”. Despite the hawkish message, equity markets managed to end up on the day – arguably feeding a sense that maybe equity markets have already baked in quite a lot of negative sentiment as regards the interplay between economic growth worries and inflation pressures. Later today, EU energy ministers are due to meet in Brussels to discuss emergency measures to help with high energy prices.
European Central Bank hikes 75bps
The ECB raised interest rates by 75bps on Thursday, representing the biggest single hike since the formation of the single currency. Despite the unprecedented hike, ECB President Lagarde pledged “several” future rate moves to come in order to get inflation heading back towards the bank’s 2% target, and that “we think it will take several meetings”. While acknowledging 75bp hikes was not the norm, Lagarde declined to rule out a similarly large move in the future. In response to the comments, Eurozone bond yields rose following the meeting, with Italian 10 year yields remaining close to 4%.
UK government announces an household energy price cap freeze for 2 years
On Thursday, UK PM Truss announced an unprecedented intervention in the energy market. Under the new policy, ‘a typical UK household will pay no more than £2,500 a year on their energy bill for the next two years from 1st October, through a new Energy Price Guarantee which limits the price suppliers can charge customers for units of gas.’ For businesses there will be ‘equivalent support’ for 6 months, and afterward ongoing support for ‘vulnerable industries’, such as hospitality. Adding to the previously announced £400 energy bill discount for this year, the government said this ‘will bring costs close to where the energy price cap stands today’. Estimated by some to be in the region of £150bn, the costing of the government’s energy policy is due to be set out by the Chancellor Kwasi Kwarteng in a fiscal statement in the coming weeks. For perspective, a £150bn cost, if that is the right estimate, would be more than double the £70bn cost of the UK’s COVID furlough scheme during the pandemic.
What does Brooks Macdonald think
The UK government’s intervention in the energy market creates a difficult balancing act for the Bank of England, which is due to meet next week (15 September). The debate hinges on whether the fiscal support announced is net inflationary over time, requiring a relatively tighter monetary policy response. The UK government expects the policy to dampen inflation by between 4 and 5 percentage points. For context, the Bank said last month that inflation would be around 13% over Q4 2022. Against this, considering the wider implications of the new energy policy, by alleviating pressure on household budgets, it might end up supporting consumer demand and hence price pressures elsewhere in the economy over the longer term.
| Index | 1 Day | 1 Week | 1 Month | YTD | |
| TR | TR | TR | TR | ||
| MSCI AC World GBP | 0.9% | 1.1% | 0.7% | -3.1% | |
| MSCI UK GBP | 0.4% | 1.6% | -2.3% | 3.6% | |
| MSCI USA GBP | 0.8% | 1.6% | 1.8% | -1.3% | |
| MSCI EMU GBP | 0.4% | 2.5% | -3.4% | -14.4% | |
| MSCI AC Asia ex Japan GBP | 0.2% | -1.8% | 0.5% | -6.5% | |
| MSCI Japan GBP | 2.7% | -1.1% | -1.4% | -7.0% | |
| MSCI Emerging Markets GBP | 0.2% | -1.5% | 0.9% | -6.3% | |
| Bloomberg Sterling Gilts GBP | -1.4% | -2.4% | -11.6% | -22.5% | |
| Bloomberg Sterling Corps GBP | -0.7% | -1.4% | -8.9% | -19.1% | |
| WTI Oil GBP | 2.1% | -3.1% | -3.2% | 30.9% | |
| Dollar per Sterling | -0.3% | -0.4% | -4.8% | -15.0% | |
| Euro per Sterling | -0.2% | -0.9% | -2.9% | -3.3% | |
| MSCI PIMFA Income | 0.1% | 0.3% | -2.7% | -7.0% | |
| MSCI PIMFA Balanced | 0.1% | 0.5% | -2.2% | -6.1% | |
| MSCI PIMFA Growth | 0.3% | 0.9% | -0.9% | -3.8% | |
| Index | 1 Day | 1 Week | 1 Month | YTD | |
| TR | TR | TR | TR | ||
| MSCI AC World USD | 0.8% | 0.7% | -4.2% | -17.8% | |
| MSCI UK USD | 0.3% | 1.1% | -7.1% | -12.2% | |
| MSCI USA USD | 0.7% | 1.1% | -3.2% | -16.3% | |
| MSCI EMU USD | 0.3% | 2.0% | -8.1% | -27.4% | |
| MSCI AC Asia ex Japan USD | 0.1% | -2.3% | -4.5% | -20.7% | |
| MSCI Japan USD | 2.6% | -1.5% | -6.2% | -21.1% | |
| MSCI Emerging Markets USD | 0.1% | -1.9% | -4.1% | -20.5% | |
| Bloomberg Sterling Gilts USD | -1.2% | -2.7% | -16.2% | -34.2% | |
| Bloomberg Sterling Corps USD | -0.5% | -1.7% | -13.6% | -31.4% | |
| WTI Oil USD | 2.0% | -3.5% | -8.0% | 11.1% | |
| Dollar per Sterling | -0.3% | -0.4% | -4.8% | -15.0% | |
| Euro per Sterling | -0.2% | -0.9% | -2.9% | -3.3% | |
| MSCI PIMFA Income USD | 0.0% | -0.1% | -7.5% | -21.1% | |
| MSCI PIMFA Balanced USD | 0.0% | 0.0% | -7.0% | -20.4% | |
| MSCI PIMFA Growth USD | 0.2% | 0.4% | -5.8% | -18.4% | |
Bloomberg as at 09/09/2022. TR denotes Net Total Return.
Please check in again with us soon for further relevant content and market news.
Chloe
09/09/2022