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Stocks rise as wholesale gas prices hit record high

Please find below, an update received from Brewin Dolphin yesterday, on how the increase in prices for wholesale gas have impacted stock markets.

Most major stock markets ended last week in the green after a volatile few days that saw wholesale gas prices hit record highs.

 The S&P 500 gained 0.8% as the rise in UK and European gas prices boosted energy stocks. The Dow ended the week up 1.2%, with stocks rallying on Thursday amid reports that the Senate had passed a bill to raise the debt ceiling and enable the government to keep paying its bills through early December.

The pan-European STOXX 600 and the UK’s FTSE 100 both added 1.0% as fears about the impact of rising energy prices eased throughout the week.

In contrast, Japan’s Nikkei 225 slumped 2.5% on concerns that new prime minister Fumio Kishida would increase capital gains tax in an attempt to rectify wealth disparities.

 Last week’s market performance*

• FTSE 100: +0.97%

• S&P 500: +0.79%

• Dow: +1.22%

• Nasdaq: +0.09%

• Dax: +0.33%

• Hang Seng1 : +1.07%

• Shanghai Composite2 : +0.67%

• Nikkei: -2.51%

* Data from close on Friday 1 October to close of business on Friday 8 October.

 Closed Friday 1 October.

Closed Friday 1 October to Thursday 7 October.

Wall Street slips on inflation concerns

US indices fell on Monday (11 October) as fears about inflation and supply chain constraints continued to weigh on investor sentiment. The S&P 500, Dow and Nasdaq all lost 0.7% as the surge in oil prices fuelled concerns about tighter monetary policy. In contrast, the FTSE 100 gained 0.7%, boosted by strong performance in its large mining sector.

UK and European indices started Tuesday in the red, with the FTSE 100 and the STOXX 600 down 0.8% as investors mulled the latest UK jobs data. Figures from the Office for National Statistics showed that while unemployment fell to 4.5% in the three months to August, vacancies rose to a record high of 1.2 million, indicating that companies are struggling to fill jobs.

Investors are looking ahead to this week’s US inflation and retail sales figures, and for any signs of ‘stagflation’ – a period of high inflation and unemployment coupled with slow economic growth.

Wholesale gas prices soar

UK wholesale gas prices hit a new all-time high on Wednesday, surging by nearly 40% in just 24 hours. High global demand and reduced supply has seen prices soar this year, resulting in several UK energy firms collapsing. Prices subsequently fell back after Russia’s president Vladimir Putin said the country would help to ease the crisis by boosting supplies to Europe.

UK gas prices Markets

There are concerns higher prices will lead to unaffordable bills for some businesses, especially those requiring heat as part of their production processes. This could result in lower production, factory closures and unemployment. Businesses could also pass on higher energy bills to consumers, thereby squeezing household finances.

Europe has also seen rising gas prices, but European Central Bank president Christine Lagarde said last week that policymakers should not ‘overreact’ to rising energy prices or supply shortages because ‘our monetary policy cannot directly affect those phenomena’. Minutes of the ECB’s September meeting, reported by the Financial Times, showed some policymakers were concerned about ‘upside risks’ to inflation and had called for a bigger cut in asset prices than was ultimately decided. Policymakers said inflation could exceed the ECB forecasts ‘if a different path materialised for oil prices’ and if supply chain issues lasted longer than expected.

 US payrolls miss expectations

Last week also saw the release of the closely watched US nonfarm payrolls report, which showed payrolls rose by 194,000 in September – well below the Dow Jones estimate of 500,000. This followed an upwardly revised gain of 366,000 in August, according to the Labor Department.

Several newspapers are speculating about whether the jobs report could encourage the Federal Reserve to start tapering its support for the economy. The Fed previously said it would continue its current asset purchasing programme until there was substantial further progress on two goals: inflation averaging around 2% and maximum employment.

Although the headline payrolls figure missed expectations, other aspects of the jobs report were more positive. For example, whereas the number of Americans on government payroll fell by 123,000, there was a 317,000 increase among those on private payrolls, suggesting hiring strength in the private sector. Meanwhile, the unemployment rate fell to 4.8%, the lowest since February 2020 and better than the expected 5.1%.

New Japanese PM takes office

Over in Asia, Fumio Kishida, who won the leadership race for Japan’s ruling Liberal Democrat Party, was confirmed as the country’s new prime minister. This was thought to be one of the reasons behind last week’s slump in Japanese stocks, with investors rattled by suggestions that Kishida might push for an increase in capital gains tax. On Sunday, however, Kishida announced that he had no such plans for the time being, and that he would pursue other steps to rectify wealth disparities first.  To view the latest Markets in a Minute video click here

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

David Purcell – Operations Administrator

13th October 2021

Team No Comments

Weekly Market Performance Update

Please find below, an update on market performance, received from Invesco yesterday.

A number of competing macroeconomic factors have been at play in recent months that have impacted financial markets. While vaccination rates continued to rise, the spread of the Delta variant has seen a large increase in new Covid cases, which saw further containment measures, notably in “zero-tolerance” countries, such as China. Despite that there was a general trend towards a further re-opening of economies and a return to normality. However, PMIs have been weakening as the pace of the recovery slows. Talk of a period of stagflation has increased, with inflation having risen sharply as base effects, supply chain issues and labour shortages have all impacted. While most Central Bankers and economists see the inflation risk as transitory, the underlying trend in monetary policy is for the removal of some of the extraordinary support that has been put in place over the past 18 months, led by tapering and ending of asset purchase programmes and rate hikes in due course. Concerns around US fiscal policy and the debt ceiling were increasingly in focus towards the end of the quarter. In China regulatory pressures and the fate of Evergrande, the second largest property developer, also weighed on investor market sentiment. Against this backdrop it was hardly surprising that financial markets have generally found it much tougher going as we approach autumn.

Not even a strong rally on Wall Street on Friday was enough to prevent global equities from having their worst week (MSCI ACWI -2.2%) since February. With China ending the week with small gains (MSCI China 0.4%) this limited EM losses (-1.1%) and ensured outperformance relative to DM (-2.3%). EM EMEA continued to benefit from rising Energy prices, rising 1.1% and leaving it up 22% YTD. Within DM weakness was across the board with Japan (-4.3%) and Europe ex UK (-2.6%) seeing the worst of the major market declines. Small Caps (-1.5%) outperformed slightly with DM and EM performing in-line. At a sector level performance was again dominated by Energy (4.6%) and it is now up 37.1% YTD, leaving it just over 13% ahead of the next best sector, Financials, which also had a good relative performance week (-0.1%). Underperformers were led by IT (-4.1%) and Health Care (-3.2%). Sector mix ensured that Value had a very strong week relative to Growth, falling just -0.9% compared to -3.4%. Rising yields have hurt long-duration assets. Quality (-3.4%) also had a tough week. UK equities had another strong relative week with the All Share down just -0.8% on the back of large cap outperformance (FTSE 100 -0.3%), as mid (FTSE 250 -2.7%) and small caps (FTSE Sm Caps -2%) struggled. Performance was boosted by a very strong Energy sector (6.9%), while Basic Materials (0.1%) also eked out a small gain. Industrials (-3.7%) and Utilities (-2.4%) were the main laggards.

Government bond yields were generally biased higher, albeit the moves in the UST and EZ bonds were marginal. The largest DM rise was in Gilts where the 10yr rose 8bp to close at 1%, its first time at that level since May 2019. It is now up 81bp since the start of the year. A further -1.5% for the Gilt index during the week left it down -7.6% YTD. Weak Gilts spread into £ IG with yields rising 10bp and the YTM above 2% for the first time since mid-2020. Yields rose less in US and Euro IG, with commensurate better relative performance. In HY, yields also rose 10-11bp across the board, but shorter duration meant that the sector outperformed IG, albeit still suffered small losses.

The US$ hit a one-year high during the week ending with the US Dollar Index seeing a gain of 0.8%, leaving it up 3.6% YTD. Both £ and the Euro lost 1%, with both close to their YTD lows. EM currencies also weakened with the JPM Emerging Market Currency Index down -0.5%, leaving it -4% YTD.

In commodities the Bloomberg Commodity Spot Index gained 2% and is now up 28.8% YTD. Energy (4.8%) and Softs (4%) led the gains again. While Oil prices saw a modest gain (1.5%) Natural Gas continued its sharp rise higher with an 8% gain. Industrial Metals struggled with Copper falling -2.2% and at 17.9% YTD is well below its 34.8% high. A contraction in the Chinese Manufacturing PMI for the first time in 19 months and a stronger US$ weighed. Gold eked out a small positive return (0.2%) its first in four weeks but is still down -7.5% YTD. Silver’s woes, however, have been far greater. It is down -14.6%.

Market performance last week (%)

Past performance is not a guide to future returns. Sources: Datastream as at 3 October 2021. See important information for details of the indices used.1

YTD market performance (%)

Past performance is not a guide to future returns. Sources: Datastream as at 3 October 2021. See important information for details of the indices used.1

Chart of the week: ICE UK Natural Gas NBP Futures (US$/MMBtu)

Past performance is not a guide to future returns. Source: Datastream as at 2 October 2021.

  • There have been some spectacular moves in commodity prices this year and none more so than what has happened to natural gas prices, particularly in the UK and Europe. In the UK the ICE future for the current month has risen 490% YTD and 84% since the start of September.
  • This substantial jump matters for UK consumers and businesses given its importance as a source of power. EDF estimate that 78% of buildings are heated with gas. In the US by comparison it is just 50%. In terms of electricity generation, in 2020 35% came from gas, ahead of wind at 24% and nuclear at 14%. The impact on consumers is clear for all to see in Ofgem’s 12% and 13% hike to the energy price caps for default tariffs and pre-payment customers respectively, that took effect from last Friday. A further, potentially substantial, rise is likely when Ofgem reviews the cap again in February. Clearly this will have consequences for inflation with gas and electricity prices making up 3% of the CPI Basket. Deutsche Bank estimate that it could add 50-60bp to headline CPI. And household spending and industrial activity could also be impacted (fertiliser production being a recent example), so yet another headwind for an economy that is already showing signs of slowing.
  • Why have prices risen so much? A smorgasbord of factors have been at play. After a cold winter and spring, supplies have not been replenished as much as expected. The UK has the added problem compared to many other major European economies of having very little storage capacity, just 2% of its annual demand. Consequently, the country relies more on pipeline and LNG imports, with the UK importing more than half its gas (75% from Norway and Qatar). With competition for LNG supplies high due to elevated levels of demand in Asia, alongside restrictions to US LNG supply and the overall lack of LNG terminals and shipping, it is hardly a surprise that prices have surged. Pipeline flows from Norway, the biggest source of gas imports (55% of total in 2020), have also been under pressure due to higher levels of gas field maintenance this year and increased domestic demand due to water shortages for hydro. Nature hasn’t been helpful in the UK either with a lack of wind limiting the use of wind power.
  • How long will this surge in prices last? Some of the factors should be transitory; the wind will blow soon (!) and some shorter-term supply issues are likely to be resolved. However, key further out will be how long the surge in Asian demand continues and what sort of winter we experience. And while inventories remain depleted, prices could well remain elevated until well into next year. That’s certainly what futures are telling us in the UK with prices not dropping from current levels until the spring and then remaining well above pre-pandemic levels thereafter. This has obvious negative consequences for the growth/inflation outlook.

Key economic data in the week ahead

  • Employment data from the US will be the most scrutinised release of the week as the Fed has said the recovery in the labour market is key to its path towards tightening policy. Progress in Washington on the fiscal front and around the debt ceiling will be closely monitored. OPEC+ meets on Monday to review its output policy against the backdrop of an oil price that has recently risen above $80bbl for the first time since 2018.
  • In the US September’s ISM Service Index is released on Tuesday and although expected to remain strong at 59.9 this would be lower than August’s reading of 61.7. Before Non-Farm Payrolls, the ADP Employment Change published on Wednesday is estimated to show a 430k increase, higher than August’s 374k and the YTD average of 418k. Initial Jobless Claims unexpectedly rose for the third week in a row last week to 362k. Thursday’s reading is estimated to see a small decline to 350k. Friday’s September Non-Farm Payrolls are forecast to add 470k new jobs, an improvement on last month’s disappointing 235k. The unemployment rate is forecast to fall to 5.1% from 5.2% in August.
  • Although there will be no significant economic data released from the UK this week, the Chancellor of the Exchequer will speak at the Conservative Party conference on Monday and is expected to announce a package of grants to help households facing a cost-of-living crunch.
  • Retail sales in the EZ on Wednesday are forecast to have increased 0.9%mom in August following the 2.3%mom fall in July. This would leave it up 0.4%yoy, which would be the lowest rate of growth since March when the continent was emerging from stringent lockdown measures.
  • It is the Golden Week holiday in China. The Caixin Services Index for September is expected on Friday to show the sector still in contraction but improving to 49.2 from 46.7 in August.

Nothing of note from Japan this week.

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

David Purcell

5th October 2021

Team No Comments

Will food prices fuel inflation?

Please find below an article from AJBell Investcentre, received Sunday afternoon, exploring whether food prices could be a source of inflation.

“If music be the food of love, then play on; give me excess of it that, surfeiting, the appetite may sicken and so die,” is a very famous line spoken by The Duke of Orsino, in Shakespeare’s Twelfth Night.

Investors may or may not care for the work of the Immortal Bard. But they will be interested – even concerned – to ascertain whether food prices will be the source of a sustained bout of inflation and one which may do damage to consumers’ ability and desire to spend.

Central bankers will want to know too, in case inflation forces their hand and requires a tightening of monetary policy in the form of a tapering of Quantitative Easing and higher interest rates.

“The United Nations’ FAO Food Price Index requires attention. The benchmark, which spans key agricultural materials such as cereals, vegetable oils, meat, dairy products and sugar, is up 33% year-on-year. That is the fastest rate since 2011.”

In this context, the United Nations’ FAO Food Price Index requires attention. The benchmark, which spans key agricultural materials such as cereals, vegetable oils, meat, dairy products and sugar, is up 33% year-on-year. That is the fastest rate since 2011.

Global food prices are surging

Source: Food and Agricultural Organisation of the United Nations

History play

“There do seem to be some one-off factors involved in the food price surge. These range from global shipping and port bottlenecks, to a shortage of truck drivers, to bad weather in countries such as Brazil, where drought and then unseasonal frost is badly affecting supply of oranges and coffee to the global market.”

No doubt central bankers, to defend their view that the current spike in inflation is ‘transitory,’ will be keen to point out some of the factors involved in the food price surge. These could range from global shipping and port bottlenecks, to a shortage of truck drivers, to bad weather in countries such as Brazil, where drought and then unseasonal frost is badly affecting supply of oranges and coffee to the global market.

But even the comparison against two years ago, before the pandemic struck in 2020, shows a 36% increase, so the current surge may not just be the result of a (low) base effect, even allowing for the role of these one-off factors.

In many cases, the best cure for high prices of a product is high prices, as they either choke off demand or encourage additional supply. The latter may happen in time, if the weather helps, but it is not easy for people to stop eating, as they need their daily calorific intake. (In this context investors may need to keep an eye on the political situation too. Food shortages and soaring prices helped to spark the Arab Spring protests and uprisings in 2011, the Chinese Tiananmen Square protests in 1989 and before that the Russian and French Revolutions of 1917 and 1789).

There appear to be some grounds for arguing that food prices are fuelling the current spike in inflation on both sides of the Atlantic, even if the UK CPIH inflation basket has a weighting of just 8.9% toward food and soft drinks (with a further 10.4% weighting toward alcohol, tobacco and restaurants and hotels), and the US equivalent weighting is 7.6% (with a further 6.2% from eating out and 1.6% from alcohol and tobacco). These weightings reduce food’s overall influence and that helps to explain why the UK headline rate of inflation is 3.2% and America’s 5.4%, along with how grocers and suppliers decide to handle cost increases, either by passing them or taking the margin hit themselves.

Rising global food prices may be nudging UK inflation higher…

Source: Food and Agricultural Organisation of the United Nations, Office for National Statistics

…and they could be fuelling US inflation too

Source: Food and Agricultural Organisation of the United Nations, US Bureau of Labor Statistics

Emerging problem

It may be of little comfort to consumers that the way in which baskets of goods are constructed to measure inflation is limiting the impact of rising food prices. Leave the economists’ desks behind and get out in the real world and this issue matters, especially to those who are less well off and where a greater percentage of income is spent on life’s essentials.

“The apparent correlation between the cost of foodstuffs and an indicator inflation may explain why emerging markets such as Brazil, Russia and Mexico are leading the charge when it comes to interest rates rises in 2021.”

Emerging markets are a case in point. It is possible to argue that food prices are a much bigger issue, if the apparent correlation between the cost of foodstuffs and an indicator inflation surprises is any guide. It is therefore no wonder that emerging markets such as Brazil, Russia and Mexico are leading the charge when it comes to interest rates rises in 2021. According to, there have been 52 individual hikes to borrowing costs around the world this year and all but two (first moves from Iceland and South Korea) have come from emerging markets.

Rising food prices are a big issue in emerging markets

Source: Food and Agricultural Organisation of the United Nations, Refinitiv data

End game

It may well be that the weather comes to the rescue and the combination of rising supply, an end to shipping chaos and 2021’s higher base for comparison means that food price inflation (and price rises more generally) ease in 2022, to the relief of investors and central bankers alike. But caution is needed. If consumers start to accept higher prices, and get higher wages so they can pay them, inflation can become entrenched.

Inflation came in three waves in the 1970s

Source: Office for National Statistics, FRED – St. Louis Federal Reserve database

“There were three distinct waves of inflation in the 1970s and the last one was the worst of all.”

There were three distinct waves of inflation in the 1970s and the last one was the worst of all. Only then did the Paul Volcker-led Federal Reserve and the UK’s Conservative government set about dealing with inflation by jacking up interest rates to double-digit levels, something that neither consumers nor financial markets will want to see in a hurry.

Past performance is not a guide to future performance and some investments need to be held for the long term.AuthorProfile Picture

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

David Purcell

27th September 2021

Team No Comments

Alibaba and Apple face increasing regulatory scrutiny

Please find below details in relation to the market values of Alibaba and Apple, received from AJ Bell, yesterday afternoon.

The tide seems to be turning against large tech no matter where they are listed as regulators hit back

Thursday 16 Sep 2021 Author: Martin Gamble

E-commerce giant Alibaba has lost roughly half its market value since founder Jack Ma criticised China’s financial regulators last October.

That has led to the current backlash against not just the technology sector but also the gaming, education and entertainment industries. A Goldman Sachs basket of US-listed Chinese shares has halved since peaking in early 2021.

For Alibaba, all roads seem to lead to its mobile payment platform company Ant whose initial public offering, thought to be worth around $37 billion, was suspended last November.

On 13 September 2021, Alibaba’s shares were again under pressure after state regulators said they wanted to break up Alipay, Ant’s leading mobile payment app which has over 1 billion users.

Beijing wants to create a separate independent app for the loans business which issued around 10% of the country’s non-mortgage consumer loans last year.

In addition, it is requiring Ant to share user data in a new credit scoring system which would be partly state-owned, according to the Financial Times.

The real issue for the regulators is maintaining control of the monetary system, argues current affairs magazine The Diplomat.

Alipay customers use a currency issued by the platform’s parent company Alibaba, rather than the state currency renminbi, when they use their phones to make a transaction.

It just happens that the Alipay currency has a one-to-one exchange rate with the state currency (renminbi) and is backed by reserves held by Alibaba. The problem is that Alibaba isn’t regulated as a commercial bank and therefore operates outside the financial system.

The Chinese central bank is looking to solve this problem by being one of the first to issue its own digital money and integrating Alipay and other private payment systems, regaining control of the currency.

It’s not just China cracking down on large technology companies. Phones and computer giant Apple lost a pivotal case against gaming company Epic Games, maker of the hugely successful Fortnite. Apple had blocked the game after Epic tried to bypass the Apple app store payment system.

While US District Judge Yvonne Gonzalez Rogers stopped short of calling Apple a monopolist and found that the commission it charged app developers (30%) wasn’t a violation of competition law, Rogers said Apple’s conduct was anti-competitive.

The ruling means Apple is forbidden from stopping other companies’ apps including buttons or external links that direct customers to purchasing mechanisms as well as in-app purchases.

Benedict Evans, an independent technology analyst, says Apple generated around $15 billion last year from app commissions which only represents 5% of company revenue, so even if they were to eventually disappear it would be small beer in the bigger picture.

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

David Purcell

17th September 2021

Team No Comments

Watch margin debt as tech giants keeps powering S&P 500

Please see below article received from AJ Bell yesterday afternoon, which examines which factors could disrupt the stocks currently leading the US market to record highs.

The S&P 500 index continues to barrel higher, setting fresh peaks as it does so. The American benchmark has advanced for seven straight months, its best run without a loss since its 10-month romp between April 2017 and January 2018, even if some of the market technicals have not convinced everyone.

As this column noted last month, the small-cap Russell 2000 index and the Dow Jones Transportation index have yet to set fresh peaks, to imply the current advance lacks the breadth that provides confidence in the foundations of the upward move.

In this context it is interesting to note the first dip in US margin debt since February 2020, just as the pandemic hit and investor confidence quickly drained away.

Margin debt is the amount of money an investor borrows from their broker via a margin account to buy shares (or even short sell them).

This looks smart when markets are rising (as the investor or trader can get more exposure) but looks less clever when markets are falling. Indeed, falling asset prices can force so-called margin calls where the investor or trader must start repaying the loan – and sometimes they must sell other positions to fund that repayment, creating a negative feedback loop in markets.

This first dip in margin debt must be watched, especially in light of Securities and Exchange Commission queries about regulatory filings from the investment platform Robinhood and questions about its business model and whether payment for order flow is appropriate.

It remains to be seen whether this dampens some of the liquidity flow which has done so much to elevate certain sections of the US stock market but it may be no coincidence that what looked like some of the frothier areas have started to flag.


Whether trading losses are sparking a slight decrease in risk appetite or whether a more cautionary approach (perhaps considering Federal Reserve reverse repo operations and talk of tapering) is lessening demand for initial public offerings, cash shells known as SPACs and growth and tech stocks is hard to divine.

But what is clear is that some of the hottest areas of the US market are showing some sign of cooling.

New market entrants have started to lose their appeal, judging by the performance of the Renaissance IPO ETF and Renaissance International IPO ETF. The former is currently tracking the performance of 72 American new floats, the latter 62 global ones.

The International vehicle may be suffering owing to its 44% weighting toward China and the US-oriented version is at least trying to claw back lost ground.

Enthusiasm for cash shells set up to acquire what they fancy is also waning. The Next Gen Defiance SPAC Derived ETF, which tracks a basket of nearly 300 SPACs is down by more than a third from its high.

This is perhaps less of a surprise when you consider the data from which shows how 308 SPACs are looking for a target even though 263 have already floated. In the end, supply may be outstripping demand.

Even Cathie Wood’s ARK Innovation ETF, the darling of growth and momentum-seekers, has found the going to be a bit tougher of late. The $22 billion behemoth, whose biggest holdings are Tesla, Teladoc and Roku, trades a fifth below its high (although supporters will counter that it is up by a quarter from its spring lows).

None of this is conclusive and the attempted rallies in the ARK Innovation ETF and the Renaissance IPO ETF could yet signal the next upward surge in US equities. Investors would do well to keep an eye on them and trends on the monthly margin debt figure from FINRA as useful indicators of market sentiment.

Yet for the US market to really roll-over its leaders must falter. And in fairness there is little sign yet of investors falling out of love with Facebook, Apple, Amazon, Netflix, Google’s parent Alphabet and Microsoft.

Their aggregate $9.8 trillion market cap is the equivalent of more than three times that of the FTSE 100 and they represent a quarter of the S&P 500’s value between them. If the S&P is to stumble, these names will have to do so.

Spotting what could cause that is the hard bit, such is their dominance, and in the absence of regulation it may take a jump in interest rates or a wider, unexpected shock to prompt investors to sell such core holdings, just as happened with the oil price shock and inflation in 1973-74.

This did for the previously unassailable ‘Nifty Fifty’, an informal designation for 50 popular large-cap stocks in the 1960s and 1970s.

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

Take care.



Team No Comments

Daily Investment Bulletin

Please see below, Daily Investment Bulletin, received from Brooks Macdonald yesterday afternoon, which provides information on economic developments impacting European and US markets.

What has happened

Monetary policy and COVID provided the drum-beat for investors on Tuesday. In Europe, markets fell as investors appeared to be nervous around the chances that the European Central Bank (ECB) might taper from its current ‘significantly higher’ level of PEPP (Pandemic Emergency Purchase Programme) asset purchases when ECB governors meet on Thursday. Meanwhile, over in the US, markets were similarly weak as the COVID delta variant continued to weigh on sentiment in the wake of last week’s weaker US jobs report. At a sector level, technology stocks were a relative outperformer on the day.

UK government signals tax rise on workers, businesses and shareholders

UK prime minister Johnson announced a tax hike for workers, businesses and shareholders on Tuesday. Billed as necessary to help support the NHS as well as social care spending needs, national insurance, which is tax on earnings, will rise by 1.25% from April 2022 for both employees as well as employers. As the Institute for Fiscal Studies noted on Tuesday, ‘it is really a 2.5 per cent tax rise on earnings … today’s announcements constituted a Budget in all but name’. The Institute of Directors also rounded on the tax plan this week, calling it ‘an extraordinary time to be considering adding to the cost of employing people’. As well as the increase to national insurance tax, there is also a hike on dividend tax with an increase of 1.25%. According to the plans announced, from April 2023, national insurance tax rates will revert back to the current level and the rise will be replaced by a new dedicated ‘health and social care levy’, which will become a separate tax on earned income from April 2023. Separately, the government also confirmed on Tuesday that the ‘triple-lock’ formula for annual state pension increases would be suspended for one year. Instead, the calculation will be based on the greater of 2.5% or inflation, while the third component of average wage increases would be disregarded for one year.

US plans COVID ‘six-pronged strategy’

On Tuesday it was confirmed by White House press secretary Psaki, that US President Biden would later this week on Thursday outline a ‘six-pronged strategy’ and which would involve ‘working across the public and private sectors to help continue to get the pandemic under control’. The announcement is likely to include an update on the plans, initially announced in August, around delivering COVID vaccine ‘booster jabs’ likely later this month. According to US CDC’s vaccine tracker (US Centers for Disease Control and Prevention), 75% of US adults have now had at least one vaccine dose.

What does Brooks Macdonald think?

The UK rise in national insurance contributions breaks a key Conservative manifesto pledge not to increase any of the main rates of tax. That said, it’s worth remembering that this promise pre-dates the COVID pandemic which went on to up-end many governments’ spending plans around the world. In terms of what it means for markets, perhaps more significant is the broader cadence from policy makers, in that following the unprecedented levels of fiscal support during the pandemic last year, this year, fiscal prudence seems to be the dominant theme. At the edges, this also perhaps adds a bit of a headwind for those investors looking for a sustained fiscal impetus to drive a durable reflationary narrative. As we have said before, with 2021 being a year of transition, this is not the year to try to decisively swing the asset allocation ‘bat’ behind any one particular investment style. Instead, balance in portfolios remains key.

Source: Bloomberg as at 08/09/2021. TR denotes Net Total Return.

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


9th September 2021

Team No Comments

Weekly Market Commentary – Spanner in the works from the US Jobs Report

Please see below commentary received from Brooks Macdonald yesterday evening, which presents market analysis following the European Central Bank’s latest monetary policy meeting. 

This week begins with a holiday Monday in the US for Labor Day, with markets closed in the country. In reality, this is just a brief respite before the pace picks up a gear, and there’s quite a lot to keep investors focused. 

The big event this week is the ECB’s latest monetary policy meeting due on Thursday, where attention will be on whether or not they decide to start to taper back their recent higher-level of asset purchases. Elsewhere, we also have central bank policy decisions from Australia (on Tuesday), and Canada (on Wednesday). 

The recent US Jobs Report significantly missed expectations

In the US, investors will be trying to figure out what last week’s US jobs miss means for the Federal Reserve (Fed) and for the timing of any tapering decision. Later this week, the US Producer Price Index (PPI) is due on Friday, which sets up the inflation-focus ahead of US Consumer Price Index (CPI) due the following week. Finally, according to recent reports from Bloomberg, US President Biden might decide this week who is going to be the next Fed Chair. Powell’s current term as Chair ends in February next year, but expectations are that he is likely to get a second term, not least given reports last month that US Treasury Secretary and former Fed Chair Janet Yellen has endorsed Powell’s renomination.

Just as markets had digested Fed Chair Powell’s Jackson Hole script, Friday’s US jobs report has put a bit of a spanner in the works. A week ago, Powell had indicated that with an inflation goal already met and an employment goal in sight, the Fed might soon start to taper its $120bn a month of asset purchases. But then Friday happened, and US non-farm payroll data showed just 235,000 jobs added in August. This is a big miss, given markets had been expecting a print more than three times bigger, versus 725,000 expected1

It was also well outside of the bottom of the forecast range (of 400,000 to 1 million). To put it in context, despite a positive revision to July, this was the lowest monthly jobs add in seven months. Behind the weakness, there was a sharp slowdown in hospitality and retail job creation. Employment in ‘retail trade’ declined over the month by 29,000 jobs, and there was also a loss of 42,000 jobs in ‘food services and drinking places’2. As the US Bureau of Labor Statistics report noted, ‘employment in leisure and hospitality is down by 1.7 million, or 10.0 percent, since February 2020.’ All in all, it’s hard not to see how this report will give some support to the view that the COVID-19 Delta variant is having an impact on both the pace of the economic recovery and the labour market recovery. In terms of how it might influence Fed-thinking, it will be interesting to see what Fed members say about the jobs report, and this week, we have a number of scheduled Fed-speaker events worth keeping an eye on. 

Investors will look to see if the ECB will slow down the Pandemic Emergency Purchase Programme (PEPP)

The highlight for markets this week will be the ECB’s latest monetary policy decision due on Thursday, along with ECB President Lagarde’s press conference that follows the statement as usual. The big question for investors is whether or not the ECB will decide to slow down the recent ‘significantly higher’ rate of Pandemic Emergency Purchase Programme (PEPP) purchases into calendar Q4. In the last week or so, we’ve seen a more public airing of views from both hawkish and dovish ECB governing members. On the outlook for inflation, on the one hand we’ve seen Germany’s Bundesbank chief Weidmann saying ECB members shouldn’t disregard the risk that inflation could accelerate faster than currently anticipated. Against this, ECB chief economist Philip Lane, who recently argued that inflation surprises still did not challenge his views about the temporary nature of price pressures as wage growth, remained muted in his view. All in all, it’s difficult to come down on one side or the other ahead of Thursday.

With the miss in the US jobs report, it is perhaps inevitable that investors will worry that a resurgent COVID-19 infection picture is impacting on the pace of the US economic growth recovery. As for the monetary policy outlook, for the Fed to green-light a future taper programme, the labour market needs to show continued improvement, and Friday’s print won’t have helped that cause. At the end of the day, we have to keep in mind that it’s only one data point. Instead, it now leaves the focus for markets on the Fed’s next monetary policy meeting later this month, on 21 – 22 September. However, the odds that the Fed will press the button on a taper start-date at this September’s meeting are now a little bit longer.

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

Stay safe.



Team No Comments

Powell reassures markets that the Fed wont rush rate hikes

Please find below an update from Invesco, received late on Friday, reassuring markets that the Fed won’t rush rate hikes.

Kristina Hooper, Chief Global Market Strategist, Invesco Ltd

Key takeaways

Some Fed officials took a hawkish tone

At Jackson Hole, several Federal Reserve officials were emphatic that tapering needs to begin – and soon.

Powell’s remarks calmed markets

But Powell offered a kinder, gentler view of tapering, declining to establish a timeline.

No rush on rate hikes

Powell also noted that rate hikes have a more stringent set of conditions and are uncoupled from tapering plans.

Last week — in the dead of August — the Kansas City Fed held its annual Jackson Hole Symposium. In a true sign of the times, the symposium was not actually held in Jackson Hole this year, as had been originally planned; instead, it was held virtually. This underscored the reality that things are not back to normal.

Some Fed officials took a hawkish tone

In the run-up to Federal Reserve Chair Jay Powell’s speech, several Fed officials were emphatic that tapering needs to begin soon. Kansas City Fed President Esther George said she expects the Fed to start tapering shortly. Dallas Fed President Robert Kaplan called for tapering to be announced by September and to begin by October or soon thereafter. Perhaps most surprising — and most hawkish — were the words of St. Louis Fed President James Bullard.

Bullard worried that the Fed’s balance sheet expansion is creating a housing bubble. He said that the tapering process should be finished by the end of the first quarter. What’s more, he articulated serious concerns about inflation; he seems sceptical that inflation is actually transitory and argued that by March 2022, the Fed would be able to assess whether inflation had moderated. He suggested that if inflation hadn’t moderated, the Fed would have to get “more aggressive,” which I would presume to mean rate hikes, and that would be sooner than expected. Not surprisingly, these hawkish comments rattled markets.

Powell’s remarks calmed markets

But then came Powell’s speech, and markets breathed a sigh of relief.  It’s true that things are certainly not back to normal, and Powell made that clear. He recognized that the pace of the recovery has exceeded expectations — and has been far swifter than the recovery from the Great Recession, with even employment gains having come faster than expected. However, he underscored the unusual nature of the recovery – he described it as “historically anomalous” — with personal income actually having risen. He said that while labour conditions had improved significantly, they were still “turbulent.” And of course, he pointed out that the economic recovery is being threatened by the resurgence of the pandemic.

Powell also underscored the unevenness of the economic recovery, that the Americans least able to carry the burden are the ones who have had to do just that. He emphasized that the services sector has been disproportionately affected, noting that total employment “is now 6 million below its February 2020 level, and 5 million of that shortfall is in the still-depressed service sector.”1

A kinder, gentler tapering

While George, Kaplan and Bullard took a more hawkish stance on tapering, Powell offered a kinder, gentler view. He recognized that the “substantial further progress” test for inflation had been met, but did not announce the start of tapering, or even call for it to be announced by September. He acknowledged that at the July Federal Open Market Committee (FOMC) meeting, most participants believed it would be appropriate to taper this year. And he recognized that in the month since the last FOMC meeting, there has been more progress on the economic front — but that there has also been further spread of the COVID-19 Delta variant. My read on this is that tapering is likely to be announced soon, but that Powell would like to maintain some flexibility given the uncertainties presented by COVID.

Powell seemed more certain in his assessment that inflation is largely transitory. He offered up compelling arguments to support that view, especially pointing to longer-term inflation expectations remaining anchored. I found this gave credibility to his more dovish stance.

The key takeaway: A ‘conscious uncoupling’

Powell channelled his inner Gwyneth Paltrow in asserting that rate hikes are uncoupled from tapering. In other words, he suggested that we shouldn’t expect rate hikes to begin just because tapering has ended. He asserted that rate hikes have a different and far more stringent test: “until the economy reaches conditions consistent with maximum employment and the economy is on track to reach 2% inflation on a sustainable basis.”1 This was perhaps the most important takeaway from the speech, given that markets seem far more concerned with when rate hikes will begin rather than when tapering will begin.

Looking ahead

All eyes will be on the August jobs report, due out at the end of this week. There are whispers that this could be a blowout with more than 1 million non-farm payrolls created. If that happens, I believe the Fed would be even more comfortable announcing tapering in September and starting to taper in October.

Further off into the distance, questions are swirling about whether Powell will be re-nominated as Fed Chair. While I suspect there may be a little grumbling from the extremes on both aisles of Congress, my money is on his re-nomination. However, speculation about this — and the future of the vice chairs (the vice chair and the vice chair for supervision) — will certainly occupy some markets watchers’ time in the coming months.

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


6th September 2021

Team No Comments

Markets in a Minute – Stocks rebound as Fed calms rate hike fears

Please see below ‘Markets in a Minute’ article received from Brewin Dolphin yesterday evening, which provides up to date analysis on rising global stock markets.

Global stock markets rose last week as the US Federal Reserve signalled that interest rate hikes are still a long way off despite the recent rise in inflation.

The Nasdaq surged 2.8% and the S&P 500 gained 1.5%, with full approval of the Pfizer vaccine helping to offset concerns about the attack at the Kabul airport in Afghanistan. A surge in crude oil prices boosted energy stocks.

In Europe, the STOXX 600 added 0.8% amid encouraging economic data and comments from the European Central Bank that high inflation should prove temporary. The UK’s FTSE 100 also rose, despite figures showing a marked slowdown in the services sector.

Over in Asia, Hong Kong’s Hang Seng recovered from the previous week’s rout to gain 2.3%. Japan’s Nikkei also performed strongly, adding 2.3% despite another extension to the country’s Covid-19 state of emergency.

US indices reach record highs

US stocks started this week in the green amid ongoing optimism that the Federal Reserve will not immediately taper its support for the economy. The S&P 500 and the Nasdaq hit new record highs on Monday (30 August), ending the day up 0.4% and 0.9%, respectively. August was the S&P 500’s seventh consecutive month of gains – its longest winning streak since a ten-month run ending in December 2017.

The FTSE 100 struggled for direction on Tuesday, slipping 0.4% during its first trading session following the bank holiday weekend. The pan-European STOXX 600 also slipped 0.5% after data showed consumer price inflation rose by 3.0% in August – the highest level since 2011.

The FTSE 100 was up 0.8% at the start of trading on Wednesday, ahead of the release of the closely watched US ADP jobs report.

Fed clarifies position on interest rates

Last week’s economic headlines were dominated by Fed chair Jerome Powell’s speech at the Jackson Hole symposium, in which he signalled that while the central bank could begin dialling back its support for the economy later this year, interest rate hikes are still a long way off.

The Fed has repeatedly stated that it will maintain its pace of asset purchases until it sees ‘substantial further progress’ towards its goals of 2% inflation and maximum employment. On Friday, Powell said the first of these thresholds has been met, and clear progress has been made on the second.

Powell reiterated his view that the recent rise in inflation will prove temporary, and insisted that any tapering of economic support would not be a direct signal to increase interest rates. (Higher interest rates are a headwind for stocks because bond yields rise, making stocks look less attractive in comparison.)

UK business output growth slows

Here in the UK, figures suggested growth in the manufacturing and services industries slowed in August amid staff shortages and supply chain constraints. IHS Markit’s preliminary composite purchasing managers’ index (PMI) measured 55.3 in August, down from 59.2 in July. The reading was still above the 50.0 mark that separates growth from contraction, but marked the slowest expansion of output since the UK private sector returned to growth in March.

The services sector suffered the biggest loss of momentum, falling to 55.5 in August from 59.6 in July. Manufacturing output slipped to 54.1 from 57.1 the previous month.

Chris Williamson, chief business economist at IHS Markit, said: “Although the PMI indicates that the economy continues to expand at a pace slightly above the pre[1]pandemic average, there are clear signs of the recovery losing momentum in the third quarter after a buoyant second quarter. Despite Covid-19 containment measures easing to the lowest since the pandemic began, rising virus case numbers are deterring many forms of spending, notably by consumers, and have hit growth via worsening staff and supply shortages.”

Eurozone economy keeps expanding

In contrast, business activity in the eurozone continued to grow in August at one of the strongest rates of the past two decades. Despite supply chain delays, the IHS Markit flash eurozone composite PMI held close to its 15-year high, slipping slightly from 60.2 in July to 59.5 in August.

Growth in the services sector overtook that of manufacturing for the first time since before the pandemic, as lockdown restrictions continued to ease. At 59.7, service sector growth was only marginally lower than July’s 15-year high. Manufacturing output also remained strong at 59.2, down slightly from 61.1 in July.

The report showed inflation in input costs and selling prices remained elevated, although the European Central Bank’s chief economist, Philip Lane, sought to allay fears by telling Reuters that recent inflationary pressures are likely to prove temporary.

China to cooperate on US auditing

Elsewhere, China’s securities regulator said it will ‘create conditions’ to cooperate with the US over how it supervises the auditing of Chinese companies, potentially signalling the end of a long-running dispute between the two countries. Previously, China refused to let US securities regulators inspect the financial audits of its US[1]listed companies on the grounds they could hold state secrets. Earlier this year, Chinese firms were warned they could be delisted if they refused to comply with the US audit rules, raising concerns the two countries’ financial systems could become decoupled.

According to the South China Morning Post, the China Securities Regulatory Commission hasn’t yet released details on how audits will be made more transparent.

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

Stay safe.



Team No Comments

A unique event on Prudential’s ‘smoothed’ funds – a Unit Price Reset

Please see below details relating to the unique event impacting Prudential’s ‘smoothed’ funds.

The Pru PruFund ‘smoothed’ range of funds have been in existence since 2004 in an investment product.  Late yesterday afternoon, for the first time in c 17 years, Prudential announced a Unit Price Reset (UPR).  This is an increase in fund value in this case.

It looks similar to a Unit Price Adjustment (UPA) and is also a part of the ‘smoothing’ mechanism for PruFund funds.  If you look in their guide to the smoothing process, you can see it mentioned on the bottom of page 3;

Why is this happening now?

We have been through an unprecedented time in 2020 with the sharpest and quickest falls in markets and then subsequent recoveries.  The underlying fund performance has been strong since March 2020 and this UFR ensures that this is fully delivered to you.  To quote the Pru ‘It’s being done because it’s the right thing to do for all policyholders.’

It’s about treating customers fairly, in this case for clients like you in the Pru’s ‘smoothed’ funds.  Unusual circumstances can require unfamiliar solutions – all subject to a rigorous framework and governance and overseen by a specialist actuary, a specialist committee and signed off by the Prudential Assurance Company board.

How does impact on me?  The following UPRs have been announced:

ProductFundUnit Price Reset
Flexible Retirement PlanPruFund Growth+5.66%
Flexible Retirement PlanPruFund Risk Managed 4+4.56%
Trustee Investment PlanPruFund Growth+5.66%
Prudential ISAPruFund Growth+5.66%
Retirement AccountPruFund Growth Series D+5.66%
Retirement AccountPruFund Risk Managed 4 Series D+4.56%
Retirement AccountPruFund Growth Series E+3.63%
Retirement AccountPruFund Risk Managed 4 Series E+3.69%
Retirement AccountPruFund Risk Managed 5 Series E+5.02%

The difference in the UPRs is based on the current position, for example, if UPAs have been applied more frequently, as is the case with Series E funds.  It is also based on your risk profile, different funds such as the Risk Managed 4 and 5 funds have a different risk profile.

The only funds that have not been affected by this UPR is the brand-new range of smoothed funds, the five funds that are PruFund Planet.  I’ve outlined the main funds in the table above that affect our clients. It’s nice to get some good news at the moment, hopefully this will add to your enjoyment of the Bank Holiday weekend!

Steve Speed