Team No Comments

Brooks MacDonald Daily Investment Bulletin: 28/07/2021

Please see below for Brooks MacDonald’s Daily Investment Bulletin received by us yesterday 28/07/2021:

What has happened

Equities had a weaker session yesterday with defensive equities outperforming technology stocks in particular. Some of this weakness in technology can be attributed to the concerns that China might continue to expand regulation after their foray into educational technology earlier this week.

Chinese technology

Markets have long had a concern around technology regulation in the US where a Democrat White House could try to curb the perceived overreach of big technology. Investors had downgraded this risk due to the economic impact of the pandemic but also a belief that the US would be unlikely to do anything too aggressive in case Chinese companies gained a competitive advantage. With China ‘going first’ on technology regulation this not only increases risks around Chinese securities but removes one of the arguments as to why the US would stay quiet on technology regulation for now. Meanwhile in the US, technology earnings saw some winners and losers with Alphabet rising 3% in the after-market but Microsoft losing an equal amount after it’s cloud-services business saw less growth than expected.

Federal Reserve

Now to the week’s major event, the Federal Reserve’s latest policy statement which is due out at 7pm UK time tonight followed by Fed Chair Powell’s press conference. Policy risk is at its highest at points of transition and the Fed will need to tread a delicate path today. The tapering genie is out of the bottle and will almost certainly be a conversation topic at the meeting however the extent to which Powell majors on this will give an important steer to the market. The rising risks around the delta variant and lower global growth expectations have both contributed to a less positive market backdrop ahead of tonight’s announcement. The statement will also need to address inflation where we have seen another upside beat to price levels in the June CPI numbers but inflation expectations have been falling in the bond market. Some of this reduction in inflation expectations is due to a belief that the Fed will not be afraid of raising rates over the next two years so there is a complex interplay that Powell will need to consider.

What does Brooks Macdonald think

Due to the rising uncertainties around the pandemic and economic growth, we expect Powell to stop short of warning that tapering is imminent. This meeting may well therefore serve as a placeholder until either the Jackson Hole Economic Symposium in August or indeed the meeting in September.

Source: Bloomberg as at 28/07/2021. TR denotes Net Total Return

Please continue to utilise these blogs and expert insights to keep your own holistic view of the market up to date.

Keep safe and well

Paul Green DipFA

29/07/2021

Team No Comments

Brewin Dolphin – Markets in a Minute

Please see below this week’s Markets in a Minute update from Brewin Dolphin – received late yesterday afternoon – 27/07/2021

Markets hit record highs as earnings beat forecasts

Most major markets went up last week, as second-quarter earnings season in the US continued to demonstrate the robust profitability of the biggest companies.

In the US, the S&P 500 and the Nasdaq Composite went up 2% and 2.8% respectively. A raft of companies, including healthcare giant Johnson & Johnson and telecoms firm Verizon, reported second-quarter earnings that beat expectations. The benchmark more than recovered from the fall of the previous week, when inflationary concerns preoccupied the market.

The pan-European Stoxx Europe 600 rose 1.5%, also hitting a record high. Dutch technology company ASML was among those to report earnings that met with the market’s approval. ASML shares are up nearly 50% yearto-date.

The UK’s FTSE 100 edged up 0.3%. Outside the top flight, private equity firm Bridgepoint showed the strength of the market, rising 29% on the first day of its trading following its IPO in London.

China’s Shanghai index also edged up. However, the index fell back on Monday 26 July with regulation affecting education, property and technology sectors.

Shares were mixed on Monday, as investors braced for another slew of earnings.

British Airways owner IAG was among the risers in London. As the industry recovers from Covid-19, more flights are resuming. Normality may be some way off, but some investors remain optimistic about the industry’s prospects. The number of new Covid-19 cases in the UK has fallen for several days.

However, as the Guardian puts it, passengers “are arriving in countries where the Delta variant paralysing Britain is just becoming dominant – and Europe is responding by clamping down”.

Some countries have tightened border controls, with Malta barring entry to unvaccinated travellers and Germany bringing in stricter quarantine rules for people arriving from Spain and the Netherlands. More broadly, authorities from Greece to Italy and France to Portugal are bringing in what are effectively vaccine passports for a wide range of activities, although most are shying away from using that term, which has become incendiary.

Pingdemic

Meanwhile, concerns remain that some businesses are having difficulty operating because of the ‘pingdemic’, where people are unable to work because they have received notification on their phone saying they have to self-isolate.

Under pressure, the UK government changed its stance last week and said some double-jabbed staff at some critical organisations would be allowed to take tests to keep coming to work, rather than self-isolating.

Still, the EY ITEM Club forecasts that the UK will see GDP growth of 7.6% this year, the fastest growth since 1941. It forecasts 6.5% growth in 2022.

It said the expectations of a bounce-back in consumer spending and supportive macroeconomic policy contributes to the largely positive economic outlook.

But EY adds that questions remain over inflation prospects. It said inflation will be 3.5% by the end of 2021, adding that how consumers will tap into pandemic savings remains to be seen.

Shell, slew of techs to report

Oil giant Shell is among the companies scheduled to report second-quarter earnings.

The S&P 500 was little changed in early trade on Monday. It hit another record on Friday, buoyed by companies reporting strong second-quarter earnings. Among the major technology companies reporting after the close on Tuesday are Apple, Microsoft and Alphabet. Facebook and Amazon report on Wednesday and Thursday respectively.

Aon-WTW merger off

Meanwhile, in the insurance industry, Aon and Willis Towers Watson said they were scrapping their merger deal and would end litigation with the US Justice Department. The deal was first announced in March 2020. The companies said that, despite regulatory momentum around the world, including the recent approval of the combination by the European Commission, they reached an impasse with the US Department of Justice.

Aon shares increased about 7%, although it will have to pay Willis Towers a termination fee of $1bn. Both companies will provide further financial updates and outlook with their second-quarter earnings, reported MarketWatch. Aon is due to report on 30 July.

Regulation hits China shares

In China, the Shanghai Composite fell 2.3% on Monday. Some shares have been hit by new regulation in education, property and tech. Reuters reported that the CSI Education Index fell 9.6% to its lowest close in 16 months. The shakeout in China’s $120bn private tutoring sector follows Beijing’s announcement on Friday of new rules barring for-profit tutoring in core school subjects to ease financial pressures on families. The policy change also restricts foreign investment in the sector through mergers and acquisitions, franchises, or variable interest entity (VIEs) arrangements.

The weekend also brought new regulatory moves targeting technology and property, sparking selloffs in those sectors in Hong Kong and mainland markets on Monday, Reuters reported.

Another quick update from Brewin Dolphin, these updates are a good way of keeping up to speed with developments in the markets.

Please continue to check back for our latest updates and blog posts.

Charlotte Ennis

28/07/2021

Team No Comments

LGIM – Learning from the earning season

Please see below the latest article received from Legal & General Investment Management’s Asset Allocation Team which was received late yesterday (26/07/2021) afternoon and covers their views on a number of topics:

Please continue to check our Blog content for advice and planning issues and the latest investment, markets and economic updates from leading investment houses.

Please keep safe and healthy.

Carl Mitchell – Dip PFS

IFA and Paraplanner

27/07/2021

Team No Comments

Is a central bank liquidity drain to blame for market wobbles, rather than the Delta variant?

Please see below article received from AJ Bell yesterday, which highlights the effect that central bank policy and the Delta variant have on the volatility of global markets and economic recovery.

“Many investors are familiar with the saying that ‘markets like to climb a wall of worry,’ but few are less well versed with the opposite which is they ‘slide down the slope of hope.’ That is what may be happening right now as markets fret about the Delta variant and whether it could stop the global economic recovery from developing as quickly as the near-40% rally in the FTSE 100 from its lows would demand,” says AJ Bell Investment Director, Russ Mould.

“But another factor could be at work (besides the traditional light volumes and case of blues which can dog markets in summer), and that is central bank policy, because some leading monetary authorities seem to be draining liquidity rather than supplying the tidal wave of cheap money which, many argue, is a prime reason why asset prices are rising despite the difficult backdrop.

“The Bank of Canada has cut back the scope of its Quantitative Easing programme for the third time, the Reserve Bank of Australia has also eased the rate of asset purchases and New Zealand has stopped buying assets altogether. None of them are going as far as shrinking their balance sheet, but they are growing them more slowly or, in New Zealand’s case, finally holding it in check.

“Even the US Federal Reserve is getting in on the act. The American central bank is using reverse repos in vast quantities, even as it continues to run QE at $120 billion a month, with the result that it is siphoning liquidity away from the financial system with one hand even as it pumps it in with another.

Source: FRED – St. Louis Federal Reserve

“Without wishing to get too technical:

  • repo (or repurchase agreement) sees a financial institution sell Government bonds (in this case US Treasuries) to another one, either a bank or central bank, on an overnight basis. It then buys them back the next day, usually as a slightly higher price. The idea is the seller can raise immediate liquidity if they happen to need it. (It also enables the counterparty to make a financial return pretty much without risk, given the extremely short time horizon involved and the collateral that backs the trades).
  • The repo rate spiked suddenly in the USA in autumn 2019 in what was seen as a sign that the Fed’s then Quantitative Tightening plan (of raising rates and withdrawing QE) was working well – so well that banks were scrambling for cash as the financial system began to creak. Under Jay Powell, the US central bank backtracked on QT and – as the pandemic hit – cranked up QE to ever-more dizzying levels in 2020. That tidal wave if liquidity mean the US overnight repo rate is 0.07% – down from that panicky 6.9% one-day spike two Septembers ago.

Source: Refinitiv data

  • reverse repo (or reverse repurchase agreement) a bank or central bank sells Government bonds in exchange for cash to a range of counterparties, over a pre-determined timeframe (often overnight). This therefore drains cash out of the financial system, at least if a central bank is doing it and the Federal Reserve is hard at work here right now. At the last count, the Fed’s outstanding reverse repo liabilities were $860 billion, the equivalent to more than seven months’ worth of QE.

Source: FRED – St. Louis Federal Reserve

“In many ways it is hard to talk market talk of the Fed turning hawkish seriously – the dot plot of two quarter-point rate rises from a record-low by the end of 2023 is more like a budgie clearing its throat for a quick chirp rather than a vicious swoop from a bird of prey.

“But perhaps the US Federal Reserve is laying the groundwork for tightening monetary policy after all and taking these initial steps to test how financial markets (and the economy) will react.

“For the moment, there is no sign of financial stress anywhere in the system, at least according to the tried-and-tested St. Louis Fed Financial Stress and Chicago Fed National Financial Conditions indices. Both are trading very close to their all-time lows.

Source: FRED – St. Louis Federal Reserve

“The S&P 500 still trades close to all-time highs, so again the Fed will be hoping the turn in the liquidity tide does not rock too many boats here. A spike in the VIX and the stumble in the S&P will leave Fed officials on alert, though, as autumn 2019’s repo rate spike saw WeWork’s much-hyped flotation fall apart, Bitcoin sink 25% in a month and wider equity and bond markets both get the jitters, albeit very briefly.”

Source: Refinitiv data

Please check in again with us soon for further news and market analysis.

Stay safe.

Chloe

26/07/2021

Team No Comments

AJ Bell: Why Chinese stocks are still not partying

Please see below for one of AJ Bell’s latest articles, received by us yesterday afternoon 22/07/2021:

Tomorrow (23 July) heralds the one-hundredth anniversary of the first meeting of the Chinese Communist Party and the country’s leadership continues to mark its birthday with a series of high-profile events, speeches and actions

Whether the centenary is anything that investors can mark with pleasure remains more of a moot point, even if the benchmark Shanghai Composite index trades some 15% above the levels reached just before the news of the pandemic seeped out of the Middle Kingdom in early 2020. These doubts persist for three reasons:

First, the president and general secretary of the Communist Party, Xi Jinping, marked the anniversary of the party’s foundation on 1 July with what many in the West saw as an aggressive speech as he warned any foes would be met with a ‘wall of steel’.

Second, China continues to intervene in financial markets, often in not-so-subtle ways. The crackdown on internet giants such as Alibaba and Meituan, and cybersecurity investigation into ride-hailing app Didi immediately after its stock market flotation in the US looked like expressions of displeasure with a trend toward overseas listings and a reminder to entrepreneurs of who was really boss.

Finally, China’s second-quarter GDP growth figure of 6.7% year-on-year undershot economists’ forecasts. This perhaps serves as a reminder that China is trying to combat the economic fall-out of the pandemic and keep the economy going on one hand, yet seeking to avoid letting financial markets, asset prices and debt get out of hand on the other.

Beijing and president Xi are hardly on their own in this respect – the UK, US, the EU, New Zealand, Australia and Canada are also members of what is a hardly exclusive club – but political legitimacy perhaps rests most fundamentally upon economic progress, employment and increasing prosperity than it does in China than anywhere else, not least because the authorities really have no-one else to blame if anything goes wrong.

DEBT DILEMMA

The last point is perhaps the easiest to tackle. Granted, China has a relatively low government debt-to-GDP ratio of 67% but that number is rising quickly. Moreover, the opaque structure of Chinese State-Owned Enterprises, let alone the so-called shadow banking system, mean the overall national debt-to-GDP figure is a less healthy 270%, according to China’s own National Institution for Finance and Development.

China may therefore be generating growth, but the quality of that growth looks questionable, given its reliance on fiscal stimulus and cheap debt. This perhaps explains why the Shanghai Composite index is trading well below its 2007 and 2015 highs even as the economy keeps expanding. A timely reminder that investors should never use macroeconomic data alone when it comes to selecting stocks, indices and funds (be they active or passive) to research and follow.

In the interests of balance, it must be noted that China’s currency is trading relatively strongly against to the dollar, after a six-year slide, so markets may not be too worried about the economic foundations (although again the US faces the same challenges).

POWER PLAY

Geopolitical risk is something which with all investors must live but there is little they can do about it, barring factor it into the risk premiums they demand when buying assets in certain countries – or in plainer English, pay lower valuations to compensate themselves for the potential dangers involved.

Sino-American relations remain strained, to say the least, as Beijing and Washington wrestle for supremacy in key industries, notably mobile telecommunications and semiconductors.

This is prompting talk of a new Cold War, a view perhaps supported by president Xi’s powerful speech on 1 July. Investors will be hoping it does not spill over into a hot war over Taiwan, for example, whose strategic importance is only heightened by the global semiconductor shortage.

But if investors can do little about geopolitics, they can do everything when it comes to corporate governance, either on their own or by paying a fund manager to do the donkey work for them. And perhaps the greatest concerns lie here, at least when it comes to Chinese equities.

Beijing’s indifference to the damage done to Didi Chuxing’s share price in the wake of the security investigation and assertion that US regulators cannot check Chinese audits of firms with listings in America is a big red flag (if you will pardon the expression). No-one, from a private individual to a trained fund manager, can invest in a firm if audited, verifiable and reliable accounts are not available.

This reminder that China has its own agenda – one that is designed to preserve the Communist Party’s hegemony well beyond the first hundred years – affirms that investors’ needs are secondary.

They are welcome to keep buying stakes in Chinese firms, or funds which track Chinese indices or own Chinese equities, if they wish. But they need to be sure they are paying suitably lowly valuations to accommodate the potential risks, which should also be in keeping with their overall tolerance levels.

Please continue to utilise these blogs and expert insights to keep your own holistic view of the market up to date.

Keep safe and well

Paul Green DipFA

23/07/2021

Team No Comments

Brooks Macdonald – Daily Investment Bulletin

Please see investment bulletin below from Brooks Macdonald received yesterday afternoon – 21/07/2021

What has happened

Markets staged a rebound yesterday with the US index posting its best daily return since March. That said, there remains concerns amongst investors over the delta variant and some of the rally yesterday reflects expectations of Fed ultra-accommodative policy now being here to stay for the medium term.

Semiconductors

One of the big inflation stories of 2021 has been the chip shortage and the impact that’s had on supply costs for huge swathes of manufactured products. One of the highest profile areas is auto manufacturers where a shortage of new cars have led to soaring prices in the secondary used car market, driving US CPI higher. Yesterday the White House said that they were seeing signs of these shortages diminishing. US Commerce Secretary Raimondo said that CEOs from Ford and General Motors had said that the chip shortage was getting ‘a little bit better’ after moves to increase transparency over semiconductor production.

Latest on COVID

Yesterday saw further tightening of restrictions with Singapore suspending indoor dining and limiting group gatherings. The UK is seeing new cases off their peaks but week on week, cases are still up 41%. France announced that a ‘heath pass’ showing recent negative test or vaccination may be required for hospitality venues despite last Friday seeing a record 880,000 jabs in the country. Over in the United States, the CDC announced that of the COVID-19 cases sequenced, 83% of them are the delta variant versus only 50% at the start of July, in a further sign of the delta variant quickly becoming the dominant variant globally.

What does Brooks Macdonald think

The sell-off over the last week has been driven by the fears of the delta variant colliding with fears of imminent central bank tightening. Whilst the delta concerns are still there, and indeed may have even risen, investors have been quick to price in lower interest expectations and to push back on any expectations of imminent tapering of asset purchases. Central bank policy expectations were the key release valve for the markets at the height of the pandemic last year and this was playing out in yesterday’s trading session. Of course, with the Fed in its communication blackout window, next week’s meeting will need to deliver on these tweaked expectations.

Please continue to check back for our latest blog posts and updates.

Charlotte Ennis

22/07/2021

Team No Comments

Equities fall as inflation surges on both sides of Atlantic

Please see below ‘Markets in a Minute’ article received from Brewin Dolphin yesterday evening, which provides market analysis on a global scale. The commentary discusses rising inflation in the UK and US as well as Asia’s considerable economic recovery. 

Most major stock markets fell last week amid a higher-than-expected surge in inflation and increasing cases of Covid-19.

In the US, the S&P 500 and the Nasdaq slipped 1.0% and 1.9%, respectively, after data showed inflation jumped by 0.9% in June – almost double the figure forecast by economists. Federal Reserve chairman Jerome Powell reiterated his view that inflation pressures are temporary, which helped to moderate losses.

The pan-European STOXX 600 fell 0.6% after figures showed new Covid-19 cases in the EU and EEA had surged by 64.3% from the previous week, raising concerns about the continent’s economic recovery. The European Centre for Disease Prevention and Control said 20 countries had seen an increase in new cases, although hospitalisations remain stable.

The UK’s FTSE 100 also slid 1.6% as inflation fears resurfaced and rising infections outweighed optimism about ‘freedom day’.

Over in Asia, China’s Shanghai Composite ended the week up 0.4% after figures showed gross domestic product (GDP) rose by 7.9% in the second quarter from a year ago, while retail sales and industrial production in June surged by 12.1% and 8.3%, respectively, from a year ago.

Stocks slump as Delta variant spreads Equities slumped on Monday (19 July) as the spread of the Delta variant of Covid-19 weighed on investor sentiment. The Dow recorded its worst day in three months, sliding 2.1%, while the S&P 500 and the Nasdaq lost 1.6% and 1.1%, respectively.

The FTSE 100 posted its biggest one-day fall since May and finished below the 7,000 mark. Travel and leisure stocks suffered on news that fully vaccinated arrivals from France will still need to quarantine. British Airways owner IAG slumped 5.2% and easyJet declined 6.7%. Energy stocks also struggled after OPEC+ agreed to increase supply from August, leading to a decline in crude oil prices.

UK and European stocks rebounded at the market open on Tuesday, with the FTSE 100 and the STOXX 600 both adding 1.1%. Japan’s Nikkei 225 tumbled to a six-month low following Monday’s selloff.

US and UK inflation soars

Figures released last week showed inflation in the US and the UK accelerated in June, leading to renewed speculation that central banks could start to rein in their support for the economy.

In the US, headline consumer prices rose by 0.9% from the previous month and by 5.4% from a year earlier, marking the fastest pace of annual growth since 2008. Core inflation (excluding food and energy) rose by 4.5% from a year ago, the highest since 1991.

The surge was largely driven by the biggest monthly bounce in used vehicle prices for more than 60 years. Prices rose by 10.5% between May and June, meaning second-hand cars were being bought for around 45% more than a year earlier. Prices of new cars also rose by 2% month-on-month – the biggest increase since 1981.

Meanwhile, UK data showed the headline consumer prices index rose to 2.5% in the 12 months to June, the fastest pace for nearly three years, as prices continued to recover from their early pandemic lows. Higher food and fuel prices drove the increase, as did rises in the cost of eating and drinking out, clothing and footwear, and second-hand cars.

US retail sales beat expectations

Last week also brought the latest data on US retail sales, which unexpectedly rose in June by 0.6% from the previous month, according to the US Census Bureau. Economists polled by Reuters had forecast a drop in sales of 0.4%. On an annual basis, sales surged by 18.0% and are now above their pre-pandemic level.

The rebound came despite purchases of motor vehicles declining for the second month in a row amid a lack of supply caused by the global semiconductor shortage. US retail sales are measured by receipts not volume, which meant higher prices from supply constraints flattered the figures.

Although consumers seem to be spending more, separate data released last week suggested they are also growing more cautious. The University of Michigan’s preliminary gauge of consumer sentiment fell to its lowest level since February, largely because of worries about inflation.

“Consumers’ complaints about rising prices on homes, vehicles, and household durables have reached an all-time record,” said Richard Curtin, the survey’s director.

Japan manufacturing index soars

Over in Japan, confidence among Japanese manufacturers rose in July to its highest level for twoand-a-half years, as global demand helped the country’s export-driven economic recovery. According to the Reuters Tankan poll, sentiment was boosted by strong confidence at car, chemical and metal products manufacturers, which offset poor conditions among textiles and paper.

However, the survey also showed service sector sentiment turned pessimistic in July, falling to -3 from a flat reading in June, as Covid-19 mitigation measures continued to curb spending. Tokyo is currently under its fourth coronavirus state of emergency, which is due to last until 22 August. On Wednesday (14 July), the capital recorded its highest number of new infections in almost six months.

We will continue to publish relevant articles and news, so please check in again with us soon.

Stay safe.

Chloe

21/07/2021

Team No Comments

Legal & General’s Asset Allocation team’s key beliefs 19/07/2021

Please see below for Legal & General’s latest Asset Allocation Team Key Beliefs Article, received by us yesterday afternoon 19/07/2021:

Bearish sentiments

This week, we look at investor sentiment, Peru, and China – can you guess the obvious link between them?

Bulls and bears

The latest AAII Bull/Bear spread, which is based on a survey of investors’ outlooks, has started to drift lower again. The number of bullish investors has now declined to a year-to-date low.

Overall, there are still more bulls out there than bears, but the dampening of excessively positive sentiment can be seen in other indicators too. For us, this is a positive, as it reduces the risk that frothy sentiment quickly unwinds, prompting investors to pull positions and cause a market slump of their own creation.

Yet the overall bullish tone does still remain. Yields are low, policy conditions are generally supportive, and inflation – although high – is not seen as problematic. The vaccine story is also generally good, although we are aware of the risks.

In our own scenario analysis, the conclusions look similar – and that in itself acts as a red flag. Both our most likely scenario of a healthy recovery and the weighted average scenario in our analysis suggest above-trend growth and modestly above-target inflation ahead.

Given the positive sentiment, we think that is pretty well priced by markets too, so return expectations shouldn’t be too lavish from here if that scenario plays out. The upside is a ‘Roaring 20s’ type recovery; the downside is a COVID-19 variant or vaccine failure inducing a deflationary slump or rapid cycle compression, although neither attracts a particularly high probability in our view.

It’s fine to be in the crowd for a while – indeed, some of us may look forward to being in actual crowds again – but as investors we don’t want to stay there for too long. Consensus thinking can be dangerous.

Change at Paddington’s home

There is a new Paddington Bear movie in the pipeline, a Paddington exhibition at the British Library has opened, and Gareth Southgate’s management style has been juxtaposed against Paddington Bear.

Our reason for bringing him up, though, is his origins in “deepest darkest Peru”. Our economist Erik has had his spectacles on to look at Peru and other Latin American economies recently.

Peru now has a decidedly leftist government, but we believe it is a country with enviable fundamentals and China-like growth rates. In the run up to the recent elections, the currency sold off in anticipation of a hard-left candidate winning the vote.

Pedro Castillo did indeed win the presidency, and has vowed to overhaul the country’s economic model. But while his party is socialist, Castillo has drawn up more neutral policies since his victory, including central-bank independence and not nationalising the mining sector.

While we are wary of Castillo and will continue to monitor his policies and cabinet appointments closely, our view is that he may not be as negative for the country as the media are making out. With strong economic fundamentals, the risk event of the election behind us, and attractive valuations after the recent selloff, we have moved in on the currency, looking for negative sentiment to moderate.

Panda pop

This month has brought news that giant pandas are no longer endangered in the wild, according to China. The species is native to South Central China and, thanks to conservation areas, its outlook has been improving. Our view is that the Chinese economy is on a good footing too.

Much of the economic data looks solid and second-quarter growth came in stronger than expected. This made us a little surprised to see a cut in the reserve requirement ratio (RRR), one of the tools used to manage the economy, last week.

GDP is broadly back to its pre-pandemic trend, so if anything is responsible for the RRR cut it could be that growth remains a little unbalanced, with retail sales remaining depressed.

We added Chinese bonds to a number of portfolios in the early parts of the year as we believe the highly rated securities still offer an attractive yield and can play a role as an interesting diversifier in our portfolios. We still think that holds. The downside risk of a vaccine failure causing an economic slump in the country also makes us think these bonds could help should a bear market prevail.

Please continue to utilise these blogs and expert insights to keep your own holistic view of the market up to date.

Keep safe and well

Paul Green DipFA

20/07/2021

Team No Comments

A.J. Bell Investcentre – UK dividend recovery continues

Please see below an article published by A.J. Bell on Friday (16/07) and received yesterday (19/07) which outline their thoughts on the UK dividend trail:

As you can see from the above, there is still potential for investors seeking an income to achieve this from some UK investments, however, if there was another drop in economic activity, this could pose a significant risk to dividend forecasts.

Please continue to check our Blog content for advice and planning issues and the latest investment, markets and economic updates from leading investment houses.

Please keep safe and healthy.

Carl Mitchell – Dip PFS

IFA and Paraplanner

19/07/2021

Team No Comments

Brooks Macdonald – Daily Investment Bulletin

Please see investment bulletin below from Brooks Macdonald received yesterday afternoon – 15/07/2021

What has happened

Yesterday saw another positive day for risk appetite as Fed Chair Powell’s congressional testimony delivered what markets needed. At a headline level both European and US indices hovered just below their all-time highs but COVID-sensitive stocks, such as travel and hospitality, struggled under the weight of the Delta variant.

Powell’s speech

Earlier this year, Fed Chair Powell set the bar of the US economy seeing ‘substantial further progress’ before the central bank would consider tapering asset purchases. Yesterday Powell said that this target was ‘still a ways off’ and stressed that whilst the bank would be discussing tapering at the next meeting that does not mean than actual tapering is imminent. In reference to the large US CPI number on Tuesday, Powell said that this was ‘higher than expected’ but that he still expected the high numbers to be down to transitory factors. Powell mentioned the Lumber price specifically which has had a round trip with rapid price acceleration in recent months and now it trades at its 8-month low. Bond markets took this speech well and as of this morning the benchmark US 10-year Treasury yield is trading at 1.32% after reaching as high as 1.43% on Tuesday. Producer Price Inflation also beat to the upside yesterday, but this was largely shrugged off by investors given the dominance of the transitory narrative.

UK Inflation

Inflation was also a hot topic in the UK on Wednesday as the latest UK CPI release came in at 2.5%, above the Bank of England’s target. These figures were ahead of consensus expectations and represents the third month in a row where there has been a ‘beat’. In terms of monetary response, the bond market is expecting a rate hike by November 2022, this of course is a far cry from the talk of negative interest rates which took place at the start of this year.

What does Brooks Macdonald think

The UK is earlier on the inflation path than the US. Whilst the Bank of England and UK government have provided plenty of pandemic response, their scale pales into insignificance in the face of the US numbers. As a result, you would expect the UK inflation number to rise due to the same base effects and global supply pressures faced in the US but, to have a slower rebound in demand given the depth of the recession last year.

Another quick update from Brooks Macdonald, these regular investment bulletins help us keep up to date with what is happening in the markets.

Please continue to check back for our latest blog posts and updates.

Charlotte Ennis

16/07/2021