Please see investment bulletin below from Brooks Macdonald received this morning – 24/06/2022.
What has happened
Recession fears continue to be the major story in markets with bonds rallying significantly in response to market downgrades to future economic growth. Despite these growth concerns, the fall in bond yields helped equity markets, with the US technology index posting outperformance as lower discount rates supported growth equities.
Economic growth fears
Flash PMI surveys of economic activity suggested a poor outlook for the US and European economies with the Euro Area composite reading missing expectations quite significantly. The US weekly initial jobless claims also show signs of ticking up, suggesting that some of the tightness in the labour market may be easing. Whilst that may be good news for inflation pressures it paints a far less constructive economic picture. Bond yields fell in response to this data and that is despite a continued hawkish narrative from the US Federal Reserve. Governor Bowman endorsed ‘increases of at least 50 basis points in the next few subsequent meetings’ and Fed Chair Powell said that the Fed’s commitment to deal with inflation was ‘unconditional’. Despite these strong words, the market simply doesn’t believe that the Fed, or indeed other central banks, will be able to continue to aggressively tighten monetary policy throughout 2023 as recession risks will provide central banks with other problems to deal with.
UK Politics
The UK awoke to the news that the Conservative party had lost both parliamentary seats in yesterday’s by-elections. Both seats are symbolic with Wakefield a traditional Labour seat won by the Conservatives at the last election and Tiverton & Honiton representing a safe Conservative seat. Conservative MPs will now be considering their future ability to win a general election (and retain their own seats) if both traditional Tories and ‘new’ Tories have decided to either not turn out or change allegiances.
What does Brooks Macdonald think
Of course, few governments are popular at the ‘mid-term’ stage however the dual electoral defeats will undoubtedly lead the Conservative party to reassess their confidence in Boris Johnson. For the 1922 Committee to change their rules, and allow a further vote of no confidence, the clamour would need to be overwhelming. Whilst it hasn’t been too long since the vote, there has been a deafening silence from most Cabinet members who are keeping their cards close to their chest. Sterling is largely unmoved by the results, however any second order consequences will quickly feed into the currency market.
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Charlotte Clarke
24/06/2022