Investment Blogs

Please see below article received from EPIC Investment Partners this morning, which reports on the latest economic data from the US.

The Fed’s preferred inflation gauge, the personal consumption expenditure deflator (PCE) was broadly in-line with expectations in February, increasing 0.3%mom, slightly ahead of December’s 0.2% print. On an annual basis, PCE was 2.4%, in-line with expectations and 0.2% below the previous reading.  

The core print was along the same lines, coming in 0.4%mom, versus a prior of 0.2%, while the annual value ticked down a tenth to 2.8%, mainly due to base effects. Both the numbers were in-line with market expectations.   

Stronger data, including inflation, has very much been the theme so far this year. However, the Fed along with the market will be looking to see if this has been a “fluke”, or a new trend. Fed speakers Bostic, Goolsbee, and Daly all seemingly unperturbed and continued to tow the party line.  

Goolsbee said we shouldn’t extrapolate one month’s data, Bostic said it shows that the path to target inflation will have bumps along the way, and the dovish Daly repeated that she advocates for policy rate cuts ahead of reaching the 2% target. Additionally, the historically more hawkish Mester reiterated William’s message yesterday, stating that three cuts for 2024 “still sounds about right”.   

Meanwhile, New York Community Bancorp (NYCB) was again in the headlines yesterday after they released several announcements that spooked the market, who were already on edge since the lender reported its exposure to commercial real estate (CRE).  

Regulatory filings from its management “identified material weaknesses in the Company’s internal controls related to internal loan review.” The bank attributed the problems to “ineffective oversight, risk assessment and monitoring activities”.  

The news reignited the controversy that began in January when the company, a significant lender for New York apartments and CRE, announced it was amassing cash to safeguard against possible loan issues. The stock fell over 26% in after-hours trading, on top of the more than 53% it has already lost this year.  

As we have said before, US banks alone hold about USD2.7tn in commercial real estate debt, of which a significant percentage is now underwater.  

We reiterate, this could be a canary in the coal mine that we will be keeping a very close eye on. 

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

Chloe

01/03/2024

Please see below article received from EPIC Investment Partners this morning, which reviews the FOMC minutes from the January 30/31 meeting.

The FOMC minutes from the January 30-31 meeting revealed little on monetary policy direction. The minutes reiterated the Fed’s intention to wait for “greater confidence” in inflation moving sustainably towards a 2% target and emphasised the need for patience. Only a “couple” of officials seemed inclined to cut rates earlier due to the current restrictive policy stance compared to their colleagues.  

The minutes stated: “Most participants recognised the dangers of easing policy too hastily and stressed the need to carefully evaluate incoming data to determine if inflation is consistently moving towards 2%. However, a couple of participants highlighted the economic risks of maintaining a too restrictive policy for an extended period”. This was echoed in the press conference when Powell was asked about the possibility of a March cut: “that’s probably not the most likely case or what we would call the base case.”  

Furthermore, the minutes highlighted the progress towards the Fed’s dual mandate but cautioned that economic uncertainty could jeopardise this progress. “Members judged the risks to achieving the Committee’s employment and inflation goals were moving into better balance. Members considered the economic outlook uncertain and concurred that they were highly attentive to inflation risks.”  

Regarding inflation, the minutes detailed several risks, noting that the committee “saw inflation’s upside risks as diminished” but observed that inflation remained above the Committee’s longer-term goal. Some participants worried that progress towards price stability might halt, especially if demand increased or the healing of the supply side slowed more than anticipated. However, they also noted downside risks to inflation and economic activity, including geopolitical risks that could significantly reduce demand, potential adverse effects from slower growth in certain foreign economies, the risk of prolonged restrictive financial conditions, or the impact of weaker household balance sheets on consumption deceleration more than expected.   

Lastly, if you have ever thought about writing a book and want to be around like-minded people, then Iceland is your place. About one in 10 Icelanders publishes a book in their lifetime; by comparison, in the US only one in 5,000 have. The average Icelander reads more than two books a month. Remarkably, a blockbuster title can sell as many as 14,000 hardback copies in a country with a population of just 375,000. One reason for the prolific writing could be the country’s ancient storytelling tradition, going back some 800 years to the Icelandic sagas.   

Or it could just be needing something to do during those long 21-hour winter nights.   

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

Chloe

23/02/2024

Please see below article received from Brooks Macdonald this morning, which provides a global market update following Nvidia’s earnings announcement.

What has happened

The market saw a surge of optimism, largely fuelled by Nvidia’s robust earnings report. This positive sentiment propelled the S&P 500, Nasdaq 100, and Dow Jones indices to record new all-time highs. The S&P 500 soared by 2.11%, marking its most significant single-day advance in over a year, with the IT sector leading the charge, gaining 4.35%. Additionally, the lower-than-expected weekly jobless claims in the US bolstered confidence in the economy’s resilience. As a result, the expectations for rate cuts by the Federal Reserve in 2024 dipped to a three-month low of ~80 basis points, less than half of the peak levels observed in mid-January.

Nvidia’s post earnings rally

Nvidia’s stock had a remarkable day, climbing 16.40% after its earnings announcement. This surge augmented Nvidia’s market capitalization by an unprecedented $277 billion, eclipsing the previous record for the largest single-session market cap gain held by Meta, which earlier this month saw a $197 billion increase. This leap propelled Nvidia to the fourth position among the world’s largest companies by market capitalization and to third place within the S&P 500. Nvidia’s year-to-date returns stand at an impressive 58.59%, outperforming all other S&P 500 constituents.

What does Brooks Macdonald think

During a week devoid of major economic data releases, the spotlight has been on Nvidia’s earnings announcement. There were reservations about possibly overstating the significance of Nvidia’s earnings. Nonetheless, the strong market response has confirmed the initial hype, demonstrating the substantial impact that the financial performance of a single company can have on broader market trends.

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

Chloe

23/02/2024

Please see below article received from Evelyn Partners this morning, which provides their thoughts on this morning’s UK inflation announcement for January.

What happened?

UK January annual headline CPI inflation came in lower than expected at 4.0% (consensus: 4.2%), versus 4.0% in December. In monthly terms, CPI was -0.6% (consensus: -0.3%), compared to 0.4% in December.

Similarly, core CPI inflation (ex energy, food, alcohol and tobacco) came in at 5.1% (consensus: 5.2%) vs 5.1% in December. In monthly terms, core CPI was -0.9% (consensus: -0.8%), compared to a rise of 0.6% in December.

What does it mean?

The broad downward trend in inflation is continuing, as disinflationary pressures are likely to drive the rate down towards the Bank of England’s (BoE) target of around 3% in Q4’24.

In the data, upside to inflation was driven by a roughly 5% increase in the Ofgem cap on household energy that fed through to gas and electricity prices. On the downside, goods price disinflation continues as retailers offer discounts at the start of the year, as seen in monthly falls from both furniture/household goods and food/non-alcoholic beverages CPI categories.

On balance, upside inflationary risks appear to be contained. First, wage rates are slowing and that is putting downward pressure on services inflation. Providing that headline CPI inflation continues to slow there will likely be less demand for higher wage rates. In other words, this reduces the circular risk of an upward spiral in wages and inflation.

Second, so far there is little sign of a significant pick-up in consumer prices from supply chain disruption and rising shipping costs caused by Houthi attacks in the Red Sea. Energy prices are also stable: Brent crude oil is still falling on a year-on-year basis. This reduces the risk of upside in retail petrol and diesel fuel prices.

Third, lead indicators point to more disinflation ahead. Given their statistical relationship with underlying producer prices, both core goods CPI inflation and services inflation are set to come down over the coming months. For instance, core goods CPI prices could well be flat on a year-on-year basis by the Spring from rising around 2%.

Bottom Line

The broader trend of inflation deceleration is continuing. Importantly, headline CPI inflation is running slightly below the BoE’s forecasts over the last few quarters. This supports the narrative that we have reached the end of the interest rate hiking cycle. Expect the BoE to cut interest rates in the coming months and provide some support to the gilt market.

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

Chloe

14/02/2024

Please see below article received from Brooks Macdonald this morning, which offers a global market update.

What has happened

Yesterday’s trading session saw a notable divergence with the Magnificent Seven underperforming the broader market. This underperformance was primarily driven by a significant drop in Tesla’s shares, which fell by 2.81%, making it the second-worst performer in the S&P 500 index for the year 2024, with a 24.3% YTD loss. In contrast, Nvidia managed to carve out a new record high, closing up by 0.16% and securing its status as the top-performing stock in the S&P 500 for this year, boasting a 45.9% YTD increase. Meanwhile, market optimism continued to flourish in Japan, with the Nikkei index climbing 2.57% this morning to reach a 34-year peak.

US CPI preview

Looking ahead to the US CPI report, the mood was bolstered by the New York Fed’s inflation expectation survey, which indicated a decline in 3-year inflation expectations to 2.35%, the lowest since 2013, from a previous level of 2.62%. The 1-year inflation outlook remained relatively stable at 3%. With the upcoming release of the US CPI data, Wall Street analysts are predicting a reduction in the core y-o-y CPI to 3.7% and a decrease in the headline CPI to 2.9%.

What does Brooks Macdonald think

We are closely monitoring the upcoming release of the US CPI data, scheduled for 1300 GMT today. This report is anticipated to be a critical indicator for the Federal Reserve’s monetary policy decisions, particularly any potential interest rate cuts for the remainder of the year. The Fed is looking for further evidence that inflation is headed to its 2% target before considering cutting rates; hence confirmation of a continuing downward trend could significantly influence market expectations and Fed commentary.

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

Chloe

13/02/2024

Please see below article received from EPIC Investment Partners this morning, which provides an update on Chinese and Hong Kong stock markets.

Chinese stocks bounced aggressively overnight in anticipation of a more forceful response to the ongoing rout, with regulators also planning to brief President Xi Jinping on market conditions. Although it remains uncertain if the upcoming meeting will result in new measures to bolster the market, investors are hopeful for a positive change after many false dawns.  

Since reaching their peak in 2021, Chinese and Hong Kong stock markets have lost approximately USD7tn in value, USD1tn of that in the last 13 days until last night’s rally. The Hang Seng closed over 4% higher, with the CSI 300 up nearly 3.5% and the CSI 1000 gaining 7%.  

Efforts by policymakers to stimulate the economy and stabilise the markets have so far not yet yielded any success in improving investor confidence. With the Lunar New Year holiday approaching, stabilising the stock market has now become a crucial goal for policymakers to prevent further damage to consumer confidence.  

Following the news of President Xi’s meeting, there were a series of statements earlier in the day. One notable statement came from the massive USD11.4tn Central Huijin Investment, a company holding stakes for the Chinese government in major financial institutions, which pledged to increase its purchases of exchange-traded funds. Additionally, the securities regulatory authority emphasised their commitment to ensuring stable market operations in a subsequent remark. 

Authorities have once again tightened trading restrictions, banning some hedge funds from placing sell orders, cracking down on short selling, and stopping investors from cutting stock positions in their leveraged market-neutral funds. On Monday, the securities regulator said it will guide brokerages to adjust their margin call levels and maintain “flexible” liquidation lines to limit forced selling.  

Earlier efforts had already included curbs on short selling, coupled with the state’s share purchases across the nation’s largest banks. However, the measures so far have shown little success in restoring investor confidence, which has been hurt in recent years by an economic slowdown, the implosion in the property sector, as well as Xi’s tightening grip on private enterprise.  

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

Chloe

06/02/2024

Please see below article received from Brooks Macdonald this morning, which provides a market update with specific reference to the US and the UK.

What has happened

The US stock market experienced a notable rebound, with the S&P 500 climbing 1.25% and largely offsetting the previous day’s 1.61% drop. Despite a second consecutive day of losses for US regional banks, which saw a 2.28% decline, and ongoing concerns about New York Community Bancorp, the broader market appeared to recover.

Big tech earnings continue

After the market closed, tech giants Apple, Amazon, and Meta reported earnings that surpassed expectations. Meta’s shares soared approximately 15% after hours, buoyed by higher-than-anticipated revenue forecasts for the first quarter and the announcement of further share repurchases and its inaugural dividend. Amazon’s shares rose 7%, reflecting a robust profit forecast for the first quarter, despite its sales guidance falling slightly short of expectations. Apple’s shares, however, dipped nearly 3% after hours due to a significant sales decline in China, which overshadowed an otherwise modest earnings beat.

Bank of England

In the UK, the Bank of England maintained its interest rates, in line with market expectations. The Monetary Policy Committee (MPC) was divided, with the majority opting to keep rates steady, two members advocating for a 25 basis point hike, and one member favouring a 25 basis point reduction. Governor Bailey emphasized the need for more evidence of inflation trending towards the 2% target before considering rate cutes. Similar to the Federal Reserve, the MPC’s stance appeared to be gradually shifting towards the possibility of rate cuts, as indicated by the removal of the previous explicit tightening bias and the statement that the MPC is prepared to adjust policy as necessary. Market expectations for a rate cut by May decreased, but the likelihood of significant rate reductions by the end of 2024 remained high.

What does Brooks Macdonald think

Looking forward, the focus will be on the US jobs report for January, which will provide early data for 2024 and could influence the Federal Reserve’s rate cut decisions, with March’s outcome still uncertain despite recent comments from Fed Chair Powell. Recent macroeconomic indicators suggest the possibility of a ‘soft landing’ for the US economy. However, historical patterns remind us that the effects of a rate hike cycle can be delayed and unpredictable, often culminating in significant economic impacts.

Bloomberg as at 02/02/2024. TR denotes Net Total Return

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

Chloe

02/02/2024