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Tatton Investment Management – Monday Digest

Please see the below Tatton Investment Management Monday Digest article received this morning – 04/12/2023:

Overview: December brings a price shock reversal

Expectations are growing for Eurozone rate cuts in time for Easter. Speculation intensified followed the release of provisional European inflation data for November that surprised on the low side for the third month running. Overall consumer price inflation came in at 2.4% year-on-year in November, less than half the pace as recently as August. In the US, even though inflation is still between 3% and 4%, some central bankers are validating these ‘next move is down – earlier than thought’ expectations. US Federal Reserve (Fed) member Christopher Waller is noted for similar views to those of Fed Chair Jay Powell, so markets reacted quickly when he said diminishing inflation would naturally allow the Fed to cut rates. Clearly, it is no longer too soon to talk of cuts.

Looking at the changing inflation picture, by far the weakest area of pricing power is now in goods and energy. OPEC+ finally met last week via videoconference, and a cut of 900,000 barrels per day (bpd) was announced. An OPEC+ statement said Russia, the United Arab Emirates (UAE), Kuwait and Iraq made a “voluntary” pledge, while Saudi Arabia would continue its unilateral one million bpd cut until April 2024. Most of the OPEC+ problems are driven by potential global oversupply, with US shale gas extraction increasing and new oil fields opening in in Brazil (which has been invited to join OPEC+). Meanwhile, Saudi Arabia is trying to bring Iran back into the fold as well. Iran is talking about production rising to 4 million bpd next year, a level they’ve not approached in 20 years.

The fall back in energy prices might signal growth worries, but lower energy prices are at the same time a growth spur for the wider economy. The right price is one which stabilises the supply/demand balance, and we should be grateful we are in a period where prices are moving gradually and bearably. This suggests that while we may be experiencing weaker growth now, the likelihood is that costs will be cut naturally and we are in the final stages of a welcome return to normality.

UK inflation exceptionalism

The Bank of England (BoE) continues its expectation management programme. Last Tuesday, Jonathan Haskel, an external member of its Monetary Policy Committee (MPC), told a Warwick University crowd that rates will “have to be held higher and longer than many seem to be expecting”. This came after similar warnings in recent weeks from BoE Chief Economist Huw Pill and Governor Andrew Bailey. The BoE’s Deputy Governor Dave Ramsden warned last week that UK inflation is becoming more “home-grown”, and repeated the messaging that wage growth was driving UK-specific price pressures. That is why, despite the fallback in energy and other input prices globally, Britain’s inflation “is going to be really difficult to squeeze out of the system”.

The BoE and other economists worry Britain’s supply side problems may stem from a combination of pandemic hangovers and Brexit frictions that imposed extra costs on goods and labour relative to our largest trading partner just before the global economy entered an unprecedented period of supply bottlenecks. In this light, UK-specific inflation pressures are unsurprising – as is the BoE’s focus on wage growth from a structurally tighter labour market.

Tight labour markets would suggest interest rates indeed need to remain high. But one could actually argue this is a bigger problem for the US, where growth has stayed strong thanks to a seemingly unshakeable American consumer. In the UK, however, sentiment among both consumers and businesses remains dour. Indeed, despite the BoE’s laser focus on wage growth, for most of the last year headline wage growth figures have been below headline inflation – meaning cuts in real terms. The MPC knows the effect of longer-term rates (often tied to mortgages) on the fragile UK economy, and is likely trying to persuade where it cannot directly control. After all, expectation management is as much a part of monetary policy as interest rates.

Wind of change for renewables?

It has been a miserable year for investors in the renewable energy sector. Tighter oil supplies have pushed up the price of fossil fuels, increasing the short-term returns on oil and gas stocks. When you add in the tightest global monetary conditions in decades – which have hammered valuations for all long-duration assets – it is a recipe for disaster, since clean energy stocks are seen as longer-term investments. The S&P Global Clean Energy Index has fallen over 30% year-to-date. In fact, S&P’s Clean Energy Index achieved dizzying heights at the start of 2021, thanks to sharply rising energy costs and an expected political drive for the global green transition. But shifting macroeconomic factors pushed fossil fuel companies ahead, with clean stocks losing nearly 60% from the January 2021 peak.

Such a prolonged downturn has starved renewables of much-needed investment – particularly damaging for capital-intensive projects like building wind and solar farms. Project cancellations or modifications are happening everywhere you look across the industry (Vattenfall, Siemens Energy AG and Li-Cycle, to name three), with profitability and balance sheet concerns at the root of all of their announcements.

The solution – as energy analysts have argued for years – would be to properly align incentives so that short-term cyclical forces do not outweigh longer-term transitional needs. We have seen at least some progress on this front recently, and the green shoots of a cyclical recovery are also helping to shift the mood. These factors have helped change investor perceptions with the S&P Clean Index rising more than 7% in November. But cyclical moves can only do so much, particularly with markets and the underlying global economy in such a delicate position. For sentiment to swing back around fully, markets need to feel drive to longer-term structural change. The results of the UN COP28 summit will therefore be vital, but rumours that host nation United Arab Emirates plans to use the venue to promote deals for its national oil and gas companies are less than encouraging. Even if investors buy into the renewables story, it will make little difference if politicians are not willing to stand up and join in.

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

Carl Mitchell – Dip PFS

Independent Financial Adviser


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The Daily Update | Yellen’s Soft Landing / UK House Prices Defy Gravity

Please see below article received from EPIC Investment Partners this morning, which provides an update on both US and UK markets.

Yesterday, Janet Yellen expressed confidence that the US economy will not require significant hikes from the current level to curb inflation, believing the economy is on a path towards achieving the Fed’s desired soft landing with the unemployment rate averting a sharp increase. 

“Signs are very good that we’ll achieve a soft landing, with unemployment stabilising more or less where it is, or in the general vicinity,” Yellen stated, speaking to reporters following a speech at a lithium processing plant in North Carolina. 

Yellen added she doesn’t believe the Federal Reserve will need to push as harshly in lowering inflation as it has done in past instances when price rises ran out of control. “Those recessions you’ve talked about were times when the Fed, similar to now, was tightening policy to bring down inflation, but found it necessary to tighten so much that they flipped the economy into a recession,” Yellen said. Adding: “Perhaps it was necessary in order to reduce inflation and expectations of inflation that became ingrained, but we don’t need that now.” 

Helping cement that view were the PCE deflator figures, released yesterday. The Fed’s preferred metric for assessing progress on its inflation mandate showed core softening to 0.2%mom, in-line with expectations and below last month’s 0.3% print. Moreover, the measure eased from 3.7%yoy, in October, to 3.5%yoy last month, again in-line with the market consensus.  

Here in the UK, we also see the housing market continuing to defy forecasts by some of a sharp correction. House prices climbed for a third straight month according to Nationwide, as a lack of properties and lower borrowing costs underpinned the market. House prices rose by 0.2% in November, against an expectation for a drop of 0.4%.  

Following the release, Robert Gardner, the Nationwide’s Chief Economist, said: “There has been a significant change in market expectations for the future path of Bank Rate in recent months which, if sustained, could provide much needed support for housing market activity”. 

House prices are roughly 5.5% lower from where they peaked in August 2022. Many had predicted a 10% fall this year with some outliers going for 20%, even 25% lower. The average cost of a house in the UK is now just over £258,500.  

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Markets in a Minute – Markets respond to mixed economic data

Please see below article received from Brewin Dolphin yesterday afternoon, which provides a global market update as we approach the festive season.

Markets were mixed in a week that saw the release of differing economic data.

The UK’s FTSE 100 dropped 0.1% despite growing consumer confidence and the autumn statement containing a number of measures to stimulate business investment and economic growth.

Over in the US, markets saw a shorter trading week due to the Thanksgiving holiday. The S&P 500 and Dow added 0.3% and 0.7%, respectively, rallying against disappointing economic data – including a drop in durable goods and weak purchasing managers’ index (PMI) data. In contrast, the tech-heavy Nasdaq fell 0.2%.

In Asia, Japan’s Nikkei 225 added 0.7%. Meanwhile, China’s Shanghai Composite lost 0.9% due to continuing worries about the country’s economic recovery. Hong Kong’s Hang Seng lost 1.2%.

Chinese economy dents investor sentiment

Markets fell marginally on Monday (27 November) as investors reacted to news that industrial profit growth in China fell sharply to 2.7% year-on-year in October, down from 11.9% in September and 17.2% in August.

In the US, the Dow and S&P 500 fell 0.2%, respectively, after closing at their highest levels since early August on Friday. The Nasdaq dropped 0.1%.

In the UK, the FTSE 100 declined 0.4% as figures from the Confederation of British Industry (CBI) showed that the decline in retail sales eased in November. The CBI’s monthly retail sales balance rose to -11 in November from -36 in October. Although an improvement, this still marked the seventh consecutive monthly decrease. Despite the upcoming Christmas season, sales growth was expected to be marginally negative next month.

US durable goods fall more than predicted

The value of new orders for US durable goods (items meant to last three years or longer) fell by 5.4% to $279.4bn monthon-month in October, according to the Census Bureau.

The result fell short of economists’ predicted -3.4%. It was primarily driven by a decline in orders for transportation equipment (-14.8%), likely due to strikes at a number of factories owned by General Motors, Ford, and Chrystler parent company Stellantis. Civilian aircrafts also fell 49.6% while motor vehicle and parts declined 14.8% in October after increasing 11.6% in September. Data for September was revised down from 4.6% to 4.0%.

On an annualised basis, new orders increased 4.0% in October.

Eurozone PMI contracts

Eurozone business activity continued to contract in November, according to the HCOB flash eurozone PMI. While the index rose to 47.1 in November, the highest level in two months and an increase from 46.5 in October, it still fell below the 50.0 level that indicates growth. The main driver of the overall reduction in business activity was a decline in new orders. Both manufacturing and service sectors saw a decline in business activity.

US PMI remains flat

There was a further marginal expansion in US business activity in November, with the rate of growth in line with that seen in October. The S&P Global flash composite PMI remained at 50.7. While manufacturers saw a slower pace of expansion, this was offset by the service industry, which recorded a small uptick. The manufacturing PMI fell to 49.4 in November, down from 50.0 in October and the lowest level for three months. Meanwhile, the flash services sector PMI rose to 50.8 in November, up from 50.6 the month before.

UK consumer confidence grows

The GfK consumer confidence index, which measures how people in the UK view their personal finances and the broader economy, rose six points to -24 in November. Consumer confidence came in at -44 in November 2022.

The personal financial situation index rose three points to -16, an increase of eight points compared to November 2022. The forecast for personal finances over the next 12 months increased five points to -3, 26 points higher year-on-year.

Autumn statement measures to stimulate growth

Chancellor Jeremy Hunt delivered the autumn statement on Wednesday, with the key announcements including reductions to National Insurance and a permanent extension of the ‘full expensing’ regime for businesses. Other measures included raising the National Living Wage from £10.42 to £11.44 per hour, freezing alcohol duty, and reforms to ISAs.

There were also pledges to speed up planning applications, extend financial incentives for investment zones, and invest an additional £500m in artificial intelligence. To encourage investment in UK high-growth companies, new investment vehicles will be introduced, including a ‘growth fund’ within the British Business Bank.

The autumn statement was accompanied by the Office for Budget Responsibility’s (OBR) economic and fiscal outlook, which gave a mixed review of the UK economy.

Borrowing was £19.8bn lower than expected in the first half of the current financial year, and gross domestic product (GDP) is now forecast to expand by 0.6% this year, rather than contracting by 0.2%. The next two years are expected to be more muted, with GDP growing by 0.7% in 2024 and 1.4% in 2025, down from previous estimates of 1.8% and 2.5%, respectively. Inflation isn’t expected to return to the Bank of England’s 2% target until the second quarter of 2025.

Japanese inflation rises year-on-year

Over in Japan, the core consumer price index (CPI), which excludes fresh food, rose 2.9% year-on-year in October, according to data from the Bank of Japan (BoJ). It’s a slight increase from October’s 2.8%, but below economists’ predicted 3.0%.

The so-called core-core index, which strips away fresh food and fuel costs, rose 4.0% year-on-year in October, slowing from 4.2% in September. It is the seventh consecutive month the index has stayed above 4.0%.

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FSB – Autumn Statement 2023 – Key points for small businesses

Please see below an article published by the Federation of Small Businesses (FSB), which was published and received late yesterday (23/11/2023) afternoon and provides their take on the Chancellor’s recent Autumn budget and the impact this will have for small businesses:

Round-up of how the Government’s Autumn Statement affects small businesses.

The Government’s Autumn Statement on 22 November 2023 included a number of measures affecting small businesses and the self-employed. Here is a round-up of the key points you need to know:

  • National Insurance Contributions (NICs) for employees will be cut by 2p, from 12% to 10%, from 6 January 2024, and Class IV NICs for the self-employed are to fall from 9% to 8% from 6 April 2024. Class II NICs for the self-employed will reduced to zero and then abolished from 6 April 2024. This is UK-wide. The announcements on Class IV and Class II NICs were as a result of FSB campaigning.
  • The small business multiplier for business rates in England will be frozen for next year’s bills, removing the scheduled CPI inflation increase, and the 75% discount for retail, leisure and hospitality SMEs in England has been extended until March 2025, after it had been due to run out in March 2024.
    Both of these England-wide measures on business rates followed successful campaigning by FSB with the Government in Westminster. FSB teams in Scotland, Wales and Northern Ireland will be able to leverage this win and any consequential funding generated for devolved administrations to extend similar support to these hard-pressed sectors in their own economies.
  • New measures to tackle late payments. From April next year, companies with a turnover of £5 million or more will be banned from bidding for public contracts if they have a record of paying their suppliers after 55 days or more. After a year, this will decrease to banning those who pay over 45 days, reducing to 30 days the year after, in line with the Prompt Payment Code. This is UK-wide, and is the result of extensive campaigning by FSB. We will continue to campaign to build upon this.
  • HMRC to rewrite guidance around the tax deductibility of training costs for sole traders and the self-employed. This will provide more clarity to business on what costs are deductible, and ensure that sole traders and the self-employed can be confident that updating existing skills, or maintaining pace with technological advances or changes in industry practices, are allowable costs for tax purposes. FSB welcomed this, having campaigned for it.
  • The income tax cash basis for the self-employed and partnerships is being expanded and simplified from 6 April 2024. Currently, only those with turnover under £150,000 may calculate profits based on when they get income or make payments, known as the cash basis. The new measures will remove the £150,000 threshold, with an option to choose the accruals basis, which records revenues and expenses before payments are received or issued, if preferred.
  • The Making Tax Digital for Income Tax Self-Assessment threshold will be maintained at £30,000, and changes will be made to simplify and improve the system from April 2026.
  • Alcohol duty has been frozen until 1 August 2024.
  • The two current R&D tax relief schemes have been merged, and a new scheme for R&D-intensive firms has been created. These schemes will be implemented from April 2024. For small businesses to qualify for the R&D intensive scheme, 30% of their total expenditure will need to be spent on R&D; this was previously set at 40%.
  • The Employers National Insurance holiday for small employers who take on veterans, a measure secured by FSB in partnership with X-Forces Enterprise, will be extended by a year.
  • Full expensing, which grants businesses 100% capital allowances on qualifying new plant and machinery investments, will be made permanent from March 2026. Most small businesses, however, are already covered by the Annual Investment Allowance set at £1m.
  • New Investment Zones have been announced in Greater Manchester, the West Midlands, the East Midlands, and Wrexham and Flintshire. The financial incentives for Investment Zones and tax reliefs for Freeports have been extended from five to ten years.
  • Extension of the Growth Duty to Ofcom, Ofgem, and Ofwat, meaning that these important regulators will be required to have regard for economic growth and ensure that regulatory action is only taken when needed, and that it is proportionate to those that they regulate, including SMEs.
  • £50 million will be spent on a two-year apprenticeships pilot in England, to look at how starts can be encouraged in growth sectors, and to address barriers to entry in high-value apprenticeships.
  • Legislation will be introduced next year to encourage the uptake of Open Banking-enabled payments.
  • The National Living Wage will increase. From 1 April 2024, the National Living Wage (NLW) will increase by 9.8% to £11.44, with the age threshold lowered from 23 to 21 years old.  
    • 21 and over, £11.44, up by £1.02, 9.8% 
    • 18-20 year old rate, £8.60, up by £1.11, 14.8% 
    • 16-17 year old rate, £6.40, up by £1.12, 21.2% 
    • Apprentice rate, £6.40, up by £1.12, 21.2% 
    • Accommodation offset, £9.99, up by £0.89, 9.8% FSB will campaign for further measures in the Spring Budget to make the NLW increase more affordable for small employers

Please check our blog content for advice, planning issues and the latest investment, market and economic updates from leading investment houses.

Carl Mitchell – DipPFS

Independent Financial Adviser


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The Daily Update – Argentina’s Electorate Roll The Dice

Please see below article received by EPIC Investment Partners, which provides a political update following Argentina’s presidential election.

Argentina rolled the dice on Sunday by electing the right-wing libertarian outsider Javier Milei as its new president. The country, which is grappling with triple-digit inflation, a looming recession, and rising poverty, turned to Milei, who rode a wave of voter anger towards the political mainstream with his radical views to address the country’s economic challenges. 

Milei landed nearly 56% of the votes, while his rival, Peronist Economy Minister Sergio Massa, conceded with 44%. Massa acknowledged the unexpected outcome and extended congratulations to Milei, emphasising that the responsibility of providing certainty now lies with the newly elected president. 

Milei, advocating for economic shock therapy, plans to implement drastic measures such as shutting down the central bank, abandoning the peso for the US dollar and implementing huge spending cuts. These reforms, though painful, resonated with voters frustrated by the decades of economic mismanagement by the main political parties.  

However, the magnitude of the challenges faced by Milei are enormous. He must contend with empty government and central bank coffers, a USD44bn debt program with the International Monetary Fund, inflation raging at nearly 150%, and a complex web of capital controls. 

The International Monetary Fund (IMF) officials have meanwhile called on the next government to swiftly reset the economy, emphasising that there’s no time for gradual policies. IMF Managing Director Kristalina Georgieva congratulated Milei on social media in the Fund’s first official comments since the election, saying “we look forward to working closely with him and his administration.” 

Whilst some voters viewed the election of the 53-year-old economist and former TV pundit as a choice between the “lesser of two evils”, the fear of Milei’s tough economic measures was less than the anger at Massa and his Peronist party for the deep economic crisis that has left Argentina heavily indebted and unable to access global credit markets. 

Milei garnered significant support from the younger generation, who have witnessed their country endure successive crises. The victory reflects a desire for change among those who see Milei as a break from the past. 

However, Milei’s rise does introduce uncertainty to Argentina’s economic trajectory, political dynamics, and foreign policy. His criticism of China and Brazil, refusal to engage with “communists”, and emphasis on stronger US ties suggest a shift in international relations. He is also staunchly anti-abortion, favours looser gun laws and is not afraid to criticise the Argentine Pope Francis. He used to carry a chainsaw as a symbol of his planned cuts, however, shelved the idea in recent weeks to help boost his moderate image. 

While Milei’s alliance with conservatives boosted his support after the first-round vote in October, the fragmented Congress and absence of a majority bloc pose challenges. Milei will need support from various factions to advance his legislative agenda. Additionally, his coalition lacks regional governors or mayors, which may moderate some of his more radical proposals. 

The road ahead for Milei is fraught with obstacles, and the patience of long-suffering voters may be limited. However, after years of political ineptitude, the old adage “better the devil you know” does not cut the mustard for the South American country anymore.  

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



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Brooks Macdonald – Daily Investment Bulletin

Please see the below the Daily investment Bulletin from Brooks Macdonald, which was received this morning – 16/11/2023:

What has happened

Bond markets reversed some of their rally on Wednesday as markets pondered whether the dovish pivot had travelled a little too far in the short term. Stronger than expected corporate earnings and economic data also pushed back against the soft landing narrative, suggesting an economy which still has plenty of momentum. Despite these moves, US equity markets managed to secure a small gain.

Economic data

The sell-off in bonds was driven by a series of positive economic releases with the US retail sales numbers one of the most highly anticipated. The headline retail sales contracted by a smaller amount than expected with the September reading actually revised up. The New York Fed’s Empire State manufacturing survey expanded reasonably positively compared to expectations for a contraction and Target saw a strong earnings released with a 17.8% share price gain on the day.

China/US meeting

President Biden and Chinese Premier Xi met in California yesterday to discuss US/China relations. The mood music from the meeting was largely positive with Biden characterising the talks as ‘some of the most constructive and productive discussions we’ve had.’ In terms of concrete actions from the talks, the leaders agreed to reopen high-level military communication which had been suspended after Speaker Pelosi visited Taiwan in August 2022. Climate Change, Artificial Intelligence and the upcoming Taiwanese elections were all discussed with the press conference focusing on the last point in particular. A counter-narcotics working group is being set up to tackle the export of chemicals used to make fentanyl which is behind a recent drug epidemic across the US.

What does Brooks Macdonald think

The US/China summit took a tone of cautious diplomatic optimism which will be welcomed by investors. On the sidelines of the summit were representatives from major US corporations looking for a steer as to the future trade opportunity with China. Premier Xi addressed business leaders, saying that ‘China is both a super-large economy and a super-large market… modernisation for 1.4bn Chinese is a huge opportunity that China provides to the world.’ With the US Presidential elections looming, these positive relations may become more fraught as Republicans and Democrats compete on their hawkish Chinese stances, but yesterday’s de-escalation was welcomed by markets.

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

Carl Mitchell – Dip PFS

Independent Financial Adviser


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Markets in a Minute – Stocks rally on interest rate optimism

Please see below article received from Brewin Dolphin yesterday afternoon, which provides a positive global market update.

Global equities rallied last week on expectations that interest rates may have finally reached their peak.

The S&P 500 rose 4.6%, its strongest weekly gain in almost a year, after the Federal Reserve indicated that the recent increase in long-term Treasury yields could mean that a further rate hike is not required. The Dow added 3.4% and the Nasdaq surged 5.4%.

In Europe, the Stoxx 600 and Germany’s Dax both added around three percentage points after eurozone inflation fell to its lowest level since July 2021. The FTSE 100 gained 1.2% as the Bank of England voted to keep interest rates unchanged.

The positive sentiment carried over to Asia, where Japan’s Nikkei 225 advanced 4.1% and China’s Shanghai Composite rose 0.3% despite concerns about China’s economy.

Eurozone business activity contracts further

European stock markets slipped into the red on Monday (6 November) as investors took profits after five-consecutive days of gains and data painted a gloomy picture of the eurozone economy. The latest HCOB eurozone purchasing managers’ index (PMI) showed the rate of decrease in business activity accelerated in October. The index fell to a 35-month low of 46.5 in October, down from 47.2 in September. New orders for goods and services fell at the quickest pace since May 2020. Over in Asia, South Korea’s Kospi surged 5.7% on Monday after the country re-imposed a ban on short selling.

UK and European indices were flat at the start of trading on Tuesday as investors analysed weaker-than-expected economic data from Germany and China. German industrial production slumped 1.4% in September, driven by a 5% decline in automotive industry production. Chinese exports dropped 6.4% year-on-year in October, much worse than the 3.5% decline expected by analysts. Imports unexpectedly rose by 3.0% over the same period.

Fed delivers dovish policy statement

Last week saw the US Federal Reserve vote to leave interest rates unchanged, as widely expected. The November meeting did not contain any new economic projections, which meant that all eyes were on the postmeeting press conference.

During the conference, Federal Reserve chair Jerome Powell noted that the recent surge in long-term US bond yields and mortgage rates had done some of the Fed’s job for it. He said Fed officials will be watching the effects of higher yields as they consider whether to hike rates again. Powell also said the Fed has come far in terms of its tightening campaign and that it takes time for higher interest rates to impact the real economy.

The comments were interpreted to mean that interest rates may have reached their peak, which drove steep declines in bond yields across different maturities.

US labour market cools

The drop in bond yields was further fuelled by a weakerthan-expected nonfarm payrolls report, released on Friday. Nonfarm payrolls increased by just 150,000 in October, while job growth in August and September was revised down by 101,000. Manufacturing was a notable area of weakness, with the sector experiencing net job losses of 35,000 last month. The Bureau of Labor Statistics said this reflected a decline of 33,000 in motor vehicles and parts that was largely due to strike activity. Average hourly earnings increased by 0.2% month-on-month, the lowest reading since February 2022, and the unemployment rate ticked up to 3.9%.

Although the data suggests the economy is slowing, markets reacted positively because it added to the conviction that the Fed will abandon its plan of one more rate hike in December.

BoE holds base rate at 5.25%

Here in the UK, the Bank of England (BoE) chose to leave interest rates unchanged for the second time in a row at 5.25%. The vote was 6-3, with three of the nine Monetary Policy Committee members favouring another 25-basis point increase.

While the BoE’s hiking campaign might have come to an end, the Bank went out of its way to flag that monetary policy will remain restrictive for some time as inflation and wage growth remain elevated. BoE governor Andrew Bailey said it was “much too early to be thinking about rate cuts”, adding: “We will keep interest rates high enough for long enough to make sure we get inflation all the way back to the 2% target.”

The most recent year-on-year inflation figure was 6.7%. The BoE expects inflation to fall sharply in the coming months, remain at around 3% next year, and drop below the 2% target at the end of 2025 – later than previously forecast. It also expects the UK economy to grow by 0.1% for the rest of this year and remain flat in 2024.

Japan approves stimulus package

Over in Asia, the Japanese government approved a $113bn stimulus package that aims to boost growth and help households cope with the rising cost of living. According to Reuters, the package includes temporary cuts to income and residential taxes, payouts to lowincome households, and subsidies to curb petrol and utility bills. The government estimates that the plan will boost Japan’s gross domestic product (GDP) by around 1.2% on average over the next three years.

Last week also saw the Bank of Japan (BoJ) announce a further relaxation of its yield curve control policy. The BoJ said the 1.0% ceiling for ten-year Japanese government bond yields will now be regarded as a reference rather than a strict cap on rates.

Please check in again with us soon for further relevant content and news.



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Tatton Investment Management – Monday Digest

Please see the below Tatton Investment Management Monday Digest article received this morning – 06/11/2023.

Overview: Central bank dovishness proves contagious

Last week, we noted how negative sentiment in stock markets can become a self-perpetuating destructive force for an entire economy as the investing public feels the heat of feeling poorer (at least on paper). But seven days later, we look back at an impressive stock market recovery that proved far more substantial and persistent than anyone would have dared to suggest possible. So, what has fundamentally changed? Well, not the economic data, where there has been no significant changes from the previous ‘not as bad as expected’ string of releases. What did change though was that – contrary to expectation – the US Federal Reserve (Fed) seemed to adopt a similarly somewhat dovish tone to the European Central Bank (ECB) of the previous week.

Few were expecting any interest rate move from the Federal Open Markets Committee (FOMC) this month, but a majority of commentators thought another 0.25% move in December likely given next month’s meeting has more research inputs. But after Wednesday’s meeting, Fed Chair Jerome Powell gave the strong impression the FOMC is becoming convinced their work is done; that the employment market is becoming less heated, wage growth is calming, and inflation is set to come back towards target. It felt like the opposite of the Fed’s September message and the market reacted accordingly.

In comparison, the Bank of England (BoE) is still in more of a bind. Its Thursday meeting concluded with the same ‘no rate rise’ decision as their US and European counterparts, while the BoE’s statement acknowledged the stress in the UK economy, with interest rates hurting many. Nearer-term measures of inflation in the UK also are helpful at the margin but the BoE’s biggest worry remains and differs in that measures of wage inflation are still uncomfortably high. 

Indeed, overall the mix of monetary and fiscal policy globally has already begun to shift to accommodation. The fiscal supports from China announced last week, and Japan this week, are substantial and added to investor perceptions that the investment environment may be about to become friendlier. Of course, much depends on the US. We’ve repeatedly seen that bouts of equity market positivity have supported households and businesses with already strong savings balances. The tight US financial conditions leading up to the FOMC meeting have been loosened in only two days. Following relatively weak US employment figures today, FOMC members have to believe the easing in the US labour market is more than seasonal if they are to hold on to their new-found dovishness.

What last week’s market moves also suggest is that institutional investors have been short of risk assets, both in equity and bond markets, while private households have been diverting money into their savings rather than investment accounts. This type of rebalancing flow may be ‘short-term’ but it can still go on for some time. Nevertheless, this past week’s market action informs us that the ‘higher for longer’ rates perception that only just sunk in over October may have already reached its expiry date given central bankers’ unexpected dovish tones. 

Does Emerging Markets growth always mean returns?

Why would you invest in Emerging Markets (EM)? In a word, growth. As the name suggests, developing economies generally have high potential to develop, and foreign investors are keen to get in on the action. It does not always work out, of course, but that is just part of the game: high risk comes with high reward. We have written a lot about emerging markets in recent months, from the obvious China – whose ‘emerging’ status perhaps stretches the definition somewhat – to India, Brazil and Argentina. The risk-reward profile of EM investment means that for every India or Brazil success story, there are plenty of Argentina-style cautionary tales.

This simple mantra goes some way to explaining why EM assets are generally considered risk-on, doing well when global investors (primarily concentrated in wealthy developed nations) feel confident and vice versa. But in reality, things are a little more complicated. EM assets – certainly those in the benchmark MSCI EM index – have arguably been more affected by weakness in China (whose assets make up around 30% of the index’s total market capitalisation) than monetary tightening in the US and Europe this year. On the other hand, as we noted in recent months, Brazil and India have fared surprisingly well, despite weak global growth and tight financial conditions.

One obvious yet often overlooked complication for EM investors is that there is a world of difference between EM growth and returns on EM assets. China is the clearest example of this. Chinese gross domestic product (GDP) expanded from just over $11 trillion in 2015 to nearly $18 trillion in 2022 – meaning 62.4% growth, according to the World Bank. In that time its benchmark CSI 300 stock index grew just 10%, with plenty of volatility along the way. In contrast, the US economy grew just under 40% in the same period, but delivered 86% equity growth. Chinese stocks have sunk 8% this year, while US companies have added 10% to their share values. This reflects the fact that Chinese companies have faced huge problems – prompting an exodus of western capital. And yet, despite undeniable growth disappointment in the world’s second largest economy, the absolute level of growth has held up okay – certainly compared to the dire performance of Chinese equities.

When making the case for EM investment – either in a specific region or in EMs more generally – economists and analysts often point to growth-supportive factors, like weakness in the US dollar or supportive trade conditions. But those factors do not always weigh in favour of EM assets themselves. Indeed, they can often suggest foreign companies with EM exposure. Other asset classes – like corporate or government bonds – can often provide more exposure to EM growth. Growth, on its own, is rarely enough.

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

Carl Mitchell – Dip PFS

Independent Financial Adviser


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The Daily Update: BoE Stays Put / Nonfarm Payrolls / Billionaire to Broke

Please see below article received from EPIC Investment Partners this morning, which coversthe Bank of England’s stance on keeping the base rate at 5.25%.

As expected, the Bank of England followed the Fed, voting 6-3 in favour of keeping the base rate at 5.25%, with a warning that monetary policy will likely need to stay tight for an “extended period of time”. Andrew Bailey, the Governor of the central bank, warned that whilst progress had been made in the fight against inflation, it was still too high and there was “absolutely no room for complacency”. 

“We will keep interest rates high enough for long enough to make sure we get inflation all the way back to the 2% target. We will be watching closely to see if further increases in interest rates are needed, but even if they are not needed, it is much too early to be thinking about rate cuts,” Bailey said, adding that the committee would rely on future data to balance the risks “between doing too little and doing too much”. 

In its latest Monetary Policy Report released with the decision, the committee acknowledged that inflation has fallen below the earlier projections made in August. The bank’s revised outlook now sees the consumer price index (CPI) at around 4.75% in Q4 of 2023, followed by a fall to about 4.5% in Q1 of the next year and a further drop down to 3.75% in Q2. 

As for the UK’s GDP, it is now expected to have stagnated in Q3 2023, which is a weaker performance compared to the MPC’s August forecasts. The GDP is now projected to exhibit only 0.1% growth in the fourth quarter, also falling short of the previous expectations from August. 

This was the first MPC that former US Federal Reserve Chair Ben Bernanke attended, as part of his review into the Old Lady’s forecasts and communications. The BoE appointed Bernanke in July to examine the forecast process after heavy criticism from politicians and some economists for underestimating the threat inflation posed. His review is focused on the lessons to be learned for future forecasts “during times of significant uncertainty.” It will not pass judgment on past policy decisions.

Today sees the penultimate Nonfarm Payrolls numbers for 2023. The market is going for +180k lower than October’s bumper +336k with an unemployment rate of 3.8%, hourly earnings of 0.3% and a participation rate of 62.8%. 

Lastly, how the mighty have fallen. “Crypto King” Sam Bankman-Fried had gone from being (a supposedly) multi-billionaire to a broke, convicted fraudster who faces decades behind bars. The 31-year-old former CEO of FTX was found guilty by a jury on all seven charges of fraud and conspiracy against him. The sentencing for these charges, which carry up to 115 years in prison, is scheduled for March 2024. 

A jury took just over four hours yesterday, including dinner, to conclude that Bankman-Fried stole USD 8 billion in customer funds from his crypto exchange FTX to fund risky investments, political contributions, and luxury real estate.

Please check in again with us shortly for further relevant content and news.



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Invesco – The Big Headlines Q3 2023

Please see below an article published by Invesco and received late yesterday (26/10/2023) afternoon, which provides a snapshot of the big headlines of Q3 2023:

Please check our blog content for advice, planning issues and the latest investment, market and economic updates from leading investment houses.

Carl Mitchell – DipPFS

Independent Financial Adviser