Please see below article received from Brooks Macdonald today 30/03/2023 which provides their views on recent global market events:
What has happened
Equity markets managed to retain their calm from earlier in the week yesterday and as risk appetite returned, US and European equity markets saw a broad rally. With yesterday’s rally, the US equity market has now closed above the level set before Silicon Valley Bank entered the newswires. US technology outperformed, with the sector set for a strong Q1 barring any major issues in the next few days.
Central Bank Speakers
Fed Speakers yesterday stuck to the data dependent script with Barr saying that the Fed would make a ‘meeting-by-meeting judgement on rates’ that would evolve as the data unfolded. The bond market began to settle down yesterday, pleased to hear the data dependent messaging reiterated and now the market expects just over 50bps of interest rate cuts after the terminal rate is reached at May’s meeting. The calm in the bond market reflects the fact that much of the post SVB rally in sovereign bonds has unwound over the last trading week. It was a similar message from the ECB yesterday as Kazmir stressed that members of the ECB governing council had ‘agreed we will not give guidance about May ECB policy meeting’ as the bank observes incoming data. Kazimir added that the ‘ECB shouldn’t back down on rates but maybe slow the pace.’
UK data
There was some stronger UK data yesterday as both consumer credit and mortgage approvals beat market expectations. Whilst consumer credit data could show a stretched consumer reliant on credit to meet the cost-of-living squeeze, the mortgage approvals are more unambiguously positive. The Bank of England’s Mann said that the UK economic outlook had improved given lower wholesale energy prices and the associated energy price caps. Of course, robust economic demand could put the Bank of England under pressure to hike rates further however it does push back against market expectations of a UK recession.
What does Brooks Macdonald think
A recession in the UK and Europe has been a consensus view amongst many investment strategists since the start of the year. Indeed, that expectation, combined with disinflationary data, helped equities to rise in January of this year as investors hoped that a short recession would help eliminate any demand-led inflationary pressure. The robust economic data globally pushes back against this recessionary expectation but at the same time risks inflation staying higher-for-longer which may necessitate more aggressive central bank action down the road to unanchor any increases in consumer inflation expectations.
Please check out blog content for advice, planning issues and the latest investment, market and economic updates from leading investment houses.
Adam Waugh
30/03/2023