Please see below the latest ‘Weekly Market Commentary’ update from Brooks Macdonald, which covers their views on events in markets over the last week and was received late yesterday (18/09/2023) afternoon:
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
19/09/2023
Please see below the Tatton ‘Monday Digest’, which was received this morning (11/09/2023) and provides their views on global economic news from the past week:
Overview: oil prices up and an ill wind for renewables
So far Markets have been generally quiet during September, but energy is again becoming an issue. Oil prices have risen since the start of the summer, with Brent crude having bounced along a bottom of $73 per barrel for the first half of 2023. Compared with the wild swings of 2019 to 2022, it doesn’t feel like much, however, it has been a factor in pushing bond yields back above 4.2% in the US and German yields to 2.6%. Much of the rise in near-term prices is driven by the seasonal variation in prices, with the passage into autumn meaning the nearer contracts now cover cooler months. The rise in oil prices is not enough to seriously create disturbance by itself, but US government bond yield levels are close enough to their recent highs to suggest a build-up of market tension. In a sense, the risks for government bonds are higher because risks are lower elsewhere. Credit spreads rose slightly on the week, but the extra return from higher coupons allows higher yielding bonds to outperform.
Returning to energy, no offshore wind projects won contracts in this year’s annual auction for UK Government subsidies last week, a significant setback for increasing capacity to 50 gigawatts by 2030. Keith Anderson, chief executive of offshore wind developer Scottish Power, said the “economics simply did not stack up” and the results were a “wake-up call for the government”. It’s not just the UK. There has been a marked change in sentiment towards the developed world’s renewable energy companies. Orsted (previously Danish Oil and Natural Gas), which is a leading player in wind power development, announced it was seriously considering abandoning its US wind power development projects unless the US government guarantees more support. Mads Nipper, Chief Executive of Orsted said that future projects need consumer prices for energy to increase. He said. “And if they don’t, neither we nor any of our colleagues are going to build more offshore. It’s very simple”, sounding just like Keith Anderson.
Offshore farms may be critical to environmental goals but are capital and labour-intensive. At the same time, input costs have shot higher, partly because of the large size of the IRA. Similar large projects run by Vattenfall AB and Iberdrola SA have also been scrapped. This is putting some supply chain companies under substantial pressure, and one potentially difficult consequence is that the companies facing problems are the ones widely owned by ESG investors. Many recognise that their ESG principles are more important than any near-term investment return problems, but many also thought that the inevitable demand forced through climate change would ensure these companies would be winners. ESG investors, perhaps more so than others, will need to be prepared to stick it out for the long term.
It’ll cost an Arm and an IPO
Last Tuesday, Japan’s SoftBank unveiled initial public offering (IPO) plans which would bring microchip designer Arm, one of Britain’s biggest tech companies, to public markets with a valuation of around $52 billion. The tech sector’s big hitters have already lined up to buy a big chunk. Cornerstone investors including Apple, Google, Nvidia, Samsung, Intel and TSMC have indicated they will purchase up to $735 million in Arm shares. Since SoftBank plan to list only around 10% of the tech company’s stock in New York, analysts estimate that around 15% of the IPO’s demand is already accounted for, although not date is confirmed.
Some analysts and commentators think the price is too high. Arm designs key parts of the microchips that feature in most of the world’s smartphones. The crux of the issue is how Arm relates to the artificial intelligence (AI) growth story that has captivated the tech sector. Arm’s designs are currently indispensable to global tech, their role in the next decade’s predicted AI-related boom is considered fairly small (of course, this is disputed by the company itself).
Untangling the tech and chip sector noise for Arm specifically is difficult, so a valuation based on industry fundamentals is hard to gauge. From our perspective, it makes it a great test case for the mood in wider capital markets and on that front, it looks like investors have a big appetite for equity. Things may change, but the fact that so much capital is already lined up from cornerstone investors shows that there is certainly money and demand. Even if SoftBank fall short of their $4.9 billion target to raise, the fact so much can be raised for an IPO when interest rates are so high is quite something.
The failure of significant IPOs was one of the big factors underlying the change in market sentiment in the run up to the dotcom bubble bursting in 2001. Back then, it became apparent that there was no demand for investment, and investors got valuation vertigo. It seems quite apt that, in the midst of another tech investment craze, there should be another stern test of market resolve. Anything close to SoftBank’s valuation would be a sign that confidence is still high, and we will be watching closely to see if investors are still willing to pay an Arm and a leg.
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
11/09/2023
Please see below article received from Brooks Macdonald this morning, which provides a succinct but detailed global market update.
What has happened
Equities continued their rally yesterday as optimism around a US soft landing economic outcome rose as labour market data pointed to a further slowing in activity. Bad news for the economy is being treated as good news for markets as it implies that monetary policy tightening is having an impact on the real economy which should bring down inflation and may mean that the Fed can pause their interest rate hikes for now.
Jobs and economic data
The ADP report on private sector payrolls was released yesterday with a lower level of growth than the market was expecting. The wages for both job-changers and job-stayers slowed with the year-on-year growth rates for both cohorts falling to their lowest levels since mid to late 2021. It is important to stress that these numbers remain very high by pre-COVID standards but there are signs of a softening in labour market tightness. The second driver of the soft landing narrative was the second revision to the Q2 GDP growth figure which showed a weaker economy than the first reading implied. The US growth rate was revised from an annualised rate of 2.4% down to 2.1%. Alongside this core PCE inflation, the Fed’s preferred measure of inflation, was revised down 1/10th of a percentage point, bringing the reading closer to the central bank’s target level.
European inflation
The news was less positive within Europe however, with the German flash CPI print showing greater stickiness than the market had expected, still running at 6.4%. Spanish inflation, which has recently seen a lurch downwards, picked up from last month with the measure now running at 2.4%. Later today we receive the Euro-Area wide inflation release which, despite the German figures yesterday, is still expected to fall from last month’s reading.
What does Brooks Macdonald think
The ongoing divergence between European and US inflation sets a tricky backdrop for the ECB when they meet in a fortnight. Market expectations apportion just over a 50% chance that the central bank feels it needs to hike by a further 25bps at that meeting. With fears of European stagflation front and centre yesterday, European indices underperformed their US peers.
| Index | 1 Day | 1 Week | 1 Month | YTD | ||||||
| TR | TR | TR | TR | |||||||
| MSCI AC World GBP | -0.3% | 1.9% | -1.1% | 9.5% | ||||||
| MSCI UK GBP | 0.1% | 2.2% | -2.1% | 2.5% | ||||||
| MSCI USA GBP | -0.3% | 1.9% | -0.2% | 13.1% | ||||||
| MSCI EMU GBP | -0.4% | 1.9% | -2.6% | 10.8% | ||||||
| MSCI AC Asia Pacific ex Japan GBP | -0.3% | 2.4% | -4.1% | -2.3% | ||||||
| MSCI Japan GBP | 0.0% | 0.8% | -2.1% | 7.0% | ||||||
| MSCI Emerging Markets GBP | -0.7% | 1.9% | -3.9% | 0.3% | ||||||
| Bloomberg Sterling Gilts GBP | 0.1% | 0.6% | -0.8% | -4.2% | ||||||
| Bloomberg Sterling Corps GBP | 0.1% | 0.4% | -0.4% | 0.7% | ||||||
| WTI Oil GBP | -0.2% | 3.5% | 2.6% | -3.2% | ||||||
| Dollar per Sterling | 0.6% | 0.0% | -1.0% | 5.3% | ||||||
| Euro per Sterling | 0.2% | -0.6% | -0.2% | 3.1% | ||||||
| MSCI PIMFA Income GBP | -0.2% | 1.1% | -0.9% | 3.0% | ||||||
| MSCI PIMFA Balanced GBP | -0.2% | 1.2% | -1.0% | 4.0% | ||||||
| MSCI PIMFA Growth GBP | -0.3% | 1.4% | -1.2% | 5.5% | ||||||
| Index | 1 Day | 1 Week | 1 Month | YTD | ||||||
| TR | TR | TR | TR | |||||||
| MSCI AC World USD | 0.5% | 1.9% | -2.3% | 15.1% | ||||||
| MSCI UK USD | 0.9% | 2.2% | -3.3% | 7.8% | ||||||
| MSCI USA USD | 0.4% | 1.8% | -1.4% | 18.8% | ||||||
| MSCI EMU USD | 0.4% | 1.9% | -3.8% | 16.5% | ||||||
| MSCI AC Asia Pacific ex Japan USD | 0.4% | 2.3% | -5.2% | 2.7% | ||||||
| MSCI Japan USD | 0.8% | 0.8% | -3.3% | 12.4% | ||||||
| MSCI Emerging Markets USD | 0.1% | 1.9% | -5.1% | 5.4% | ||||||
| Bloomberg Sterling Gilts USD | 1.2% | 0.9% | -1.9% | 1.4% | ||||||
| Bloomberg Sterling Corps USD | 1.2% | 0.8% | -1.4% | 6.5% | ||||||
| WTI Oil USD | 0.6% | 3.5% | 1.3% | 1.7% | ||||||
| Dollar per Sterling | 0.6% | 0.0% | -1.0% | 5.3% | ||||||
| Euro per Sterling | 0.2% | -0.6% | -0.2% | 3.1% | ||||||
| MSCI PIMFA Income USD | 0.6% | 1.0% | -2.1% | 8.2% | ||||||
| MSCI PIMFA Balanced USD | 0.5% | 1.2% | -2.2% | 9.3% | ||||||
| MSCI PIMFA Growth USD | 0.5% | 1.4% | -2.4% | 10.9% | ||||||
| Bloomberg as at 31/08/2023. TR denotes Net Total Return | ||||||||||
Please check in again with us soon for further relevant content and news.
Chloe
31/08/2023
Please see this week’s Markets in a Minute update from Brewin Dolphin received today (30/08/2023):
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 – DipPFS
Independent Financial Adviser
30/08/2023
Please see below article received from EPIC Investment Partners this morning, which reports on yesterday’s Republican debate in Milwaukee.
Last night, eight of the nine Republican presidential hopefuls took to the stage in Milwaukee for the first time. There was a sense that it would be a bit of a damp squib without former president Trump. However, that was not the case. There were various attacks on President Biden’s policies and each other whilst they attempted to close the gap on the GOP frontrunner Donald Trump.
The hopefuls also sparred over abortion, leadership experience and climate change.
As the debate progressed, they did diverge on the question of whether they would back Trump as the party’s nominee in the event of his conviction in any of his four legal cases. Six of the eight indicated they would still support him even if he is convicted of a crime.
Trump, who leads the GOP field by double-digit margins, chose not to participate in the debate, effectively treating his potential nomination as a foregone conclusion. Instead, the current frontrunner shared a pre-recorded interview with former Fox host Tucker Carlson, which was broadcast on X, the platform formerly known as Twitter. Trump is also not planning to participate in the next debate, due to be held at the Ronald Reagan Presidential Library in Simi Valley on September 27.
Trump, who has spent years claiming that the 2020 election was rigged, is already floating groundless claims that 2024 will be stolen from him too.
He was asked by Carlson, “If you’re saying they stole it from you last time, why wouldn’t they do the same this time?” Trump replied: “Oh, well they’ll try. They’re going to be trying, yeah. And not only me.”
Whilst Trump was not on the stage in Milwaukee, both he and President Biden used the debate to try to raise cash for their respective campaigns. Biden’s fundraising committee ran ads on Facebook during the debate, calling the GOP candidates a “threat to our democracy.”
Trump’s campaign set out his pitch saying that as long as there are still other GOP candidates in the race, the party is wasting resources that could be spent attacking Biden.
Please check in again with us soon for further relevant content and news.
Chloe
24/08/2023
Please see below the ‘Daily Update’ from EPIC Investment Partners, which was received this morning (22/08/2023) and provides their views on S&P downgrading the credit rating on a number of US banks and speculation about what to expect from Jerome Powell’s (The Federal Reserve Chair) speech later this week:
S&P Global Ratings yesterday followed Moody’s Investors Service in cutting ratings in a slew of US banks and darkened the outlook for several more, citing the same mix of pressures, making life tougher for lenders. In a statement, S&P said it lowered ratings by one notch for Comerica Inc, KeyCorp, Valley National Bancorp, Associated Banc-Corp, and UMB Financial Corp, noting the impact of higher interest rates and deposit moves across the industry.
S&P also lowered its outlook for S&T Bank and River City Bank to negative and said its view of Zions Bancorp remains negative after the review. In the release with the downgrades, S&P said: “Many depositors have shifted their funds into higher-interest-bearing accounts, increasing banks’ funding costs”. Adding: “The decline in deposits has squeezed liquidity for many banks while the value of their securities, which make up a large part of their liquidity, has fallen.”
We also hear speculation about the topic of Powell’s speech at Jackson Hole this coming Friday, specifically whether the Fed chair would discuss the prospect of a higher short-term neutral rate of interest. Nick Timiraos, The Wall Street Journal’s “Fed whisperer” has as usual weighed in, noting in a series of tweets that the Fed embracing a higher short-term neutral rate as a guide for policy may be inconsistent with recent Fed commentary.
He tweeted: “Despite the Federal Reserve’s raising interest rates to a 22-year high, the economy remains surprisingly resilient, with estimates putting third-quarter growth on pace to easily exceed its 2% trend. It is one of the factors leading some economists to question whether rates will ever return to the lower levels that prevailed before 2020 even if inflation returns to the Fed’s 2% target over the next few years”. He added, “At issue is what is known as the neutral rate of interest”.
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
22/08/2023
Please see the below article from Brewin Dolphin commenting on the latest stock market movements received late yesterday:
Please check our blog content for advice, planning issues and the latest investment, market and economic updates from leading investment houses.
Andrew Lloyd DipPFS
16/08/2023
Please see below the ‘Daily Update’ from EPIC Investment Partners, which was received this morning (15/08/2023) and provides their views on Argentina devaluing its currency and hiking interest rates:
Argentina devalued its currency and hiked up interest rates following a shock primary election win by the far-right outsider Javier Milei, who has vowed to “burn down the central bank”. The South American central bank devalued the peso by 18% to around 350 pesos versus the dollar and hiked interest rates by a shocking 21%, to 118%, in a drastic policy shift as it runs short of funds to defend its currency. Milei has been riding a wave of popular discontent, and is seen as a libertarian who supports dollarising the economy. He has also called for massive cuts in government spending.
The central bank also intends to ask the International Monetary Fund (IMF) to increase a payment planned for later this month by an unspecified amount, government officials said. The Fund agreed to give Argentina nearly USD11bn in loans for the rest of the year as part of a refinancing agreement brokered by the Economy Minister Sergio Massa, who is also running for president in October’s election. The first payment of USD7.5bn is expected by the end of August, after approval of a staff-level agreement by the Fund’s executive board. Argentina is the largest debtor to the IMF, after securing USD44bn last year to refinance a 2018 loan.
Of course, defaults, devaluations and crippling recessions are not unusual for Latin America’s third-largest economy. Argentina is on the brink of its sixth recession in the last decade. Milei has been a vocal critic of what he calls the “corrupt political class”, saying the country’s leaders have thrown it from one crisis to another. He believes replacing the peso with the dollar, along with eliminating the central bank, and cutting government spending “so large that austerity measures demanded by the IMF would look tiny in comparison” would all help turn the economy around.
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
15/08/2023
Please see the below article from EPIC Investment Partners highlighting the projected rise in India’s economic power during the coming decades. Received today – 10/08/2023.
Please continue to check our Blog content for advice and planning issues and the latest investment, markets and economic updates from leading investment houses.
Adam Waugh
10/08/2023
Please see the below market update from EPIC Investment Partners:
Moody’s cut the credit rating for 10 midsize and small US banks yesterday whilst warning that it may also downgrade some of the nation’s biggest lenders, believing that they are being squeezed by funding risks, possible regulatory capital weaknesses and increased risk exposure to commercial real estate loans.
The banks that had their ratings cut included Old National Bancorp, Fulton Financial Corp, M&T Bank Corp, BOK Financial Corp, Pinnacle Financial Partners Inc, and Webster Financial Corp with bigger lenders like State Street Corp, U.S. Bancorp, Truist Financial Corp, and Bank of New York Mellon Corp on review.
In the statement following the downgrades, the rating agency said: “Many banks’ second-quarter results showed growing profitability pressures that will reduce their ability to generate internal capital”. Adding, “This comes as a mild U.S. recession is on the horizon for early 2024 and asset quality looks set to decline, with particular risks in some banks’ commercial real estate (CRE) portfolios.”
Overnight we also had a couple of Fed speakers hit the wires, Bowman and Bostic, who are at opposite ends of the hawk/dove spectrum, and true to form, they did not deviate.
Bowman repeated her view that the Fed may need to raise rates further to fully restore price stability, although it will still depend on incoming data. Bostic said that rates are in a restrictive stance, employment gains are slowing, and that there is no need to hike rates further. He added that he expects the Fed to be in restrictive territory well into 2024.
On this side of the pond, we heard from the Old Lady’s Chief Economist, Huw Pill, warning that while “substantial” falls on global food markets will eventually filter their way down to shoppers, it will only slow the rate of price increases rather than result in an actual fall.
“Unfortunately, the days of seeing food prices fall — that does seem to be something that we may not be seeing for a little while yet, if in the future at all. Our expectation at the moment is that food price inflation will fall back towards about 10% by the end of this year and then further next year”, he said. Adding, “That’s still not a very comfortable level.”
Please continue to check our Blog content for advice and planning issues and the latest investment, markets and economic updates from leading investment houses.
Andrew Lloyd DipPFS
8th August 2023