Team No Comments

Weekly Market Commentary – Weaker than expected US jobs report splits market opinion

Please see below commentary received from Brooks Macdonald yesterday evening, which provides analysis of the market’s response to political events in the UK and economic developments in the US.

A significantly weaker than expected US jobs report leaves markets baffled

Markets were left baffled on Friday as the US employment report sharply missed expectations, making a US Federal Reserve (Fed) taper of asset purchases in June less likely. Equity markets rallied, with technology performing after a difficult week for growth equities.

The market was expecting around one million new jobs to have been created in the US in April but the final number, 266,000, was far below those lofty expectations1. As commentators scrambled to explain the numbers, there are broadly two camps, one group concluding that this reflects difficulty in making hires, the other that the recovery has less momentum than hoped. The truth will likely lie between these two but President Biden cited the report as evidence of the need for the stimulus that the White House has planned for this year. One of the theories for why the jobs number was so weak is that fiscal support is so large, there is less incentive to take on work, effectively saying that fiscal spending is crowding out private sector employers. If this is the case, additional stimulus could make this imbalance even starker. This could of course just be another short-term demand and supply imbalance and one that will be resolved over the coming quarters, as things return closer to normality.

A strong showing for the Conservatives last week may open legislative policy options

Sterling has begun the week on a stronger note, as investors view the lack of Scottish National Party majority (just) as reducing the risk of an imminent independence vote. Pro-independence parties still have a majority in the Scottish Parliament, however the results, on the margin, reduce the urgency of this question for markets. Tomorrow sees the Queen’s Speech which, given the recent by-election successes from the Conservatives, may be more legislatively ambitious than previously imagined. 

US CPI is released on Wednesday and is expected to contain some substantial year-on-year gains

Friday’s employment report has led to much confusion, particularly as the two interpretations end with contrasting inflationary and deflationary conclusions. This week we will see the unveiling of the April US CPI number which is expected to creep up to 3.6% year-on-year on a headline basis and 2.3% on a core basis (excludes energy and food)2. We are entering the period where the year-on-year comparison is flattering the inflation figures, but it will be interesting to see if bond markets can hold their nerve in the face of these figures, even if they ultimately prove transitory.

We will continue to publish market updates and relevant content as the UK approaches a further relaxation of lockdown rules. Please check in again with us soon. 

Stay safe.



Team No Comments

How can I spot someone trying to scam me?

Please see below article received from AJ Bell yesterday afternoon, which provides useful tips on how to avoid scams and illegitimate investments. As scammers become increasingly more cunning and commonplace, this article is certainly a must-read.

Financial scams are depressingly common and often target people’s hard-earned pensions. This has particularly been the case since 2015, when government reforms gave savers total freedom and choice over what they do with their retirement pot from age 55.

Official estimates from the Pension Scams Industry Group suggest £10 billion has been stolen from pensions in the past six years.

Scam activity has increased during the coronavirus pandemic, with fraudsters aiming to take advantage of increased vulnerability among UK savers.

And while efforts are being made by the authorities to protect people from financial crime – including banning pensions cold-calling and giving providers more power to reject suspicious transfers – the onus remains on individual investors to protect themselves.

Here are five things you can do:

  1. Be suspicious of unsolicited calls, texts or emails about
    your pension: 
    Scams often start with a call, text or email out of the blue offering ‘help with’ or perhaps a ‘review of’ your pension arrangements. To be safe, if someone you don’t know contacts you about your pension – or indeed your finances in general – do not engage with them. If you believe someone is trying to scam you, report them to Action Fraud to help protect other investors.
  2. Be extremely wary of anyone promising large, guaranteed returns: Another tell-tale sign of a scam is the promise of huge, guaranteed investment returns, often over relatively short spaces of time. These investment ‘offers’ take many weird and wonderful forms, while the rise in popularity of cryptocurrencies has also been an obvious target for financial fraudsters.
  3. Only deal with regulated companies and individuals: At the heart of scams are often unregulated ‘introducers’ peddling unregulated investments. While there is nothing wrong with investing in unregulated assets, where fraud occurs these often turn out be vastly overhyped or entirely fictitious. Even where an unregulated investment is real, if you suffer losses through misselling you will not qualify for FSCS protection worth up to £85,000.
  4. Do your due diligence: Scammers’ tactics have become more sophisticated in recent years, with ‘clone’ scams – where fraudsters impersonate a real firm to con you out of your cash – increasingly common. You can cross-check the phone number or email address provided by someone who contacts you with the FCA register to make sure they are who they say they are.
  5. Don’t be rushed and if in doubt, speak to a regulated financial adviser: High-pressure sales tactics – such as telling someone they need to invest by a set deadline – are a classic scam tactic and should immediately set off alarm bells. Do not under any circumstances be rushed into a decision you aren’t completely happy with. If you want help with your options or are unsure what to do, consider speaking to a regulated financial adviser or visit Government-backed retirement guidance service

We will continue to publish articles that are relevant and useful to our clients. Please check in with us again soon.

Stay safe.



Team No Comments

Where are we in the market cycle?

Please see below article received from AJ Bell yesterday morning, which provides analysis of the current market landscape and discusses potential investment opportunities.

As regular readers will know, one of this column’s favourite market sayings comes from fund management legend Sir John Templeton, who once asserted that: ‘Bull markets are founded on pessimism, grow on scepticism, mature on optimism and die on euphoria.’

Applying this test can potentially help investors spot where value and future upside opportunities can be found. It can also help avoid areas which are so popular they could be overvalued and capable of doing damage to portfolios.

It is hard to avoid investments everyone is talking about with great excitement and resist ‘fear of missing out’. Yet history suggests looking at assets, stocks or funds no one is interested in is the best way to make premium long-term returns.

The last 12 months are a fine example of how some careful, but not wilful, contrarian research could have yielded rich rewards. As the pandemic began to make its presence felt, share prices plunged, oil collapsed into negative territory and government bonds’ haven status meant their prices rose and yields fell. Cryptocurrencies were tossed aside amid the general panic, too.

Yet wind on a year, and equities have beaten bonds hands down, with commodities not far behind. Technology is no longer the leading equity sector and defensive areas such as healthcare are relatively out of favour. Commodities (with the notable exception of precious metals) are doing well and cryptocurrencies are going bananas, as evidenced by the flotation of America’s leading crypto exchange just last week, namely Coinbase.

Studious analysis of these trends may therefore help investors to spot value and dodge the traps that the coming 12 months and beyond may offer.


Incredible as this would have seemed a year ago, ‘risk’ assets are showing the best total returns in sterling-denominated terms over the 12 months, as equities and commodities easily outpace bonds. Within fixed income, the riskiest option – high-yield corporate paper – continues to lead government and investment-grade corporate debt.

Within equities, Asia and Japan are doing best, perhaps owing to the relatively limited impact of Covid-19 upon their populations’ health and their economy.

Emerging markets overall are coming in from the cold (in another win for contrarians), and America’s dominance of the geographic performance tables is waning a little, too.

By equity sector, it felt like technology was the only game in town a year ago, with defensive areas like healthcare also proving popular. Yet cyclical, turnaround sectors now lead the way, with defensives and income-generating bond proxies lagging badly.

All of this fits the prevailing narrative that the combination of vaccination programmes, government fiscal stimulus and ultra-loose monetary policy from central banks will see the economy through the pandemic and provide a firm base for a robust economic recovery.

So too do the losses on long-duration government bonds and the outperformance of high yield debt. The latter tends to correlate more closely to equities than it does fixed income. A strong economic recovery would help to bring financially stretched firms back from the brink and leave them better placed to meet their obligations.


Analysis of those performance statistics means this column currently sees the major asset classes like this as we head into summer 2021, using Sir John Templeton’s four phases as a framework.

Euphoria – and optimism – are a lot easier to find than they were a year ago. This is not to say that markets are primed for a collapse, but it may not take much to shake them up a bit as a result.

Scepticism pervades fixed income and government debt, so anyone who fears disinflation or deflation more than inflation could take this as a cue to top up allocations.

Conversely, anyone who sees the world returning to normal pretty quickly could seek out value on commercial property stocks or funds, especially those with exposure to office space, while those portfolio builders who are wary of a market wobble – and suspect that central banks will respond with every greater monetary largesse – may note with interest the underperformance of gold and miners of precious metals.

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

Stay safe.



Team No Comments

Stocks rise as US earnings season kicks off

Please see below ‘Markets in a Minute’ article received from Brewin Dolphin yesterday evening. The commentary provides an update on market performance as it reacts to current global news events.

Most major stock markets rose last week as the start of the US earnings season helped to offset concerns about a resurgence in Covid-19 infections.

The pan-European STOXX 600 added 1.2%, marking its seventh consecutive week of gains. Germany’s Dax rose 1.5%, despite chancellor Angela Merkel warning that the country was firmly in the grip of the third wave of the pandemic. The FTSE 100 advanced 1.5% after official data revealed the UK economy grew by 0.4% in February following a 2.2% contraction in January.

In the US, the S&P 500 gained 1.4% with healthcare and mining stocks performing particularly strongly. The release of earning results from several banking giants also helped to boost investor sentiment. The Dow added 1.2% and the Nasdaq gained 1.1%.

Over in Asia, the Nikkei ended the week down 0.3% amid a spike in coronavirus infections in Tokyo and Osaka. China’s Shanghai Composite fell 0.7% whereas Hong Kong’s Hang Seng managed a 0.9% gain.

Last week’s market performance*

  • FTSE 100: +1.50%
  • S&P 500: +1.37%
  • Dow: +1.18%
  • Nasdaq: +1.09%
  • Dax: +1.48%
  • Hang Seng: +0.94%
  • Shanghai Composite: -0.70%
  • Nikkei: -0.28%

*Data from close on Friday 9 April to close of business on Friday 16 April.

Dull start to the week as investors take profits

US stocks pulled back from record highs on Monday as investors took profits ahead of the peak of the earnings season. The S&P 500, the Dow and the Nasdaq closed down 0.5%, 0.4% and 0.9%, respectively. Nearly half of S&P 500 companies are set to release their first quarter results over the next two weeks, including the majority of the FAANGs.

European stocks also retreated slightly from record highs, following the weaker open in the US and rallying currencies. The FTSE 100 dipped 0.3% yet managed to stay above the 7,000 mark after figures from Rightmove revealed UK house prices rose by 2.1% in April to a record high of £327,797. This marked the second time in only five years that prices have increased by more than two percentage points in a month.

The FTSE 100 was down 0.4% to 6,972 in early trading on Tuesday following mixed employment data from the Office for National Statistics. The unemployment rate fell slightly from 5.0% in January to 4.9% in February, but 56,000 workers were cut from company payrolls in March – the first monthly drop since November.

UK economy expands in February

Last week saw the release of encouraging economic data in the UK. Official figures showed the economy grew by 0.4% in February as companies prepared for the easing of coronavirus restrictions. Growth was helped by the first rise in factory output since November, and a pickup in sales among wholesalers and retailers.

The data also suggested that trade between Britain and the EU partially recovered in February. Goods exports to the EU fell by 12.5% year-on-year in February, versus a 41.4% year-on-year decline in January. Imports declined 11.5% year-on-year in February, compared with a 19.2% drop the month before.

Despite this, UK GDP remained 7.8% below its level in February 2020, shortly before the pandemic struck. It was also 3.1% lower than its level in October, just before further lockdown restrictions hit the services sector.

Non-essential shops and outdoor hospitality venues reopened on 12 April, and it is hoped most restrictions will be lifted before the end of June.

US consumer spending rebounds

Over in the US, figures showed retail sales grew by an eye-catching 9.8% in March, far higher than the 5.8% monthly increase that analysts were anticipating. This followed the continued reopening of restaurants and retail, and a recovery from the severe weather-induced 2.7% contraction in February.

Meanwhile, weekly jobless claims plunged to their lowest level since the pandemic began, and a key gauge of factory activity in the mid-Atlantic region hit its highest level in nearly five decades.

US inflation data revealed headline consumer prices rose by 0.6% in March from the previous month and by 2.6% compared with the same period a year ago. The year-on-year gain was the highest since August 2018. Gasoline prices were the biggest contributor to the monthly increase, surging by 9.1%.

China sees record growth

China’s economy achieved year-on-year growth of 18.3% in the first quarter of 2021 – the biggest jump since the country started keeping quarterly records in 1992. Industrial production rose 14.1% year-on-year, while retail sales surged by 34.2%.

However, the headline growth figure was skewed by the huge economic contraction witnessed in the first quarter of 2020, when China imposed a nationwide lockdown at the peak of the Covid-19 outbreak. On a quarterly basis, China’s GDP grew by a far smaller 0.6% – well below expectations and slower than the revised 3.2% expansion recorded the previous quarter.

We will continue to publish further analysis and input as the UK enjoys an easing of lockdown restrictions. Please check in again with us soon.

Stay safe.



Team No Comments

The economic outlook improves, but the shadow of COVID lingers

Please see below article received from Invesco yesterday afternoon, which conveys a positive outlook for the global economy despite concerns over a ‘fourth wave’ in countries such as Brazil and India.

IMF upgraded its economic outlook

The International Monetary Fund (IMF) provided a press briefing last week, sharing recent alterations to its global economic outlook for this year. The IMF now expects the global economy to grow 6% in 2021 — the highest level of growth since 1980.1 This is an upward revision from its previous estimate in October of 5.5% growth in 2021 for the global economy.

This is a reflection of the optimism created by the discovery and rollout of effective vaccines as well as significant fiscal stimulus, which is already having a positive impact on some countries such as the United States. It dramatically revised its growth expectations for the US economy in 2021 from 5.1% to 6.4%.1 The IMF modestly upgraded its expectations for economic growth in China in 2021 from 8.1% to 8.4%.1 One key takeaway from the IMF’s press briefing is that the world is on divergent recovery paths. The US and China, the two largest economies in the world, are leading the recovery, but other countries are experiencing a far slower recovery and are not expected to reach pre-pandemic GDP levels until 2023.

Eurozone PMIs point to improvement

The final eurozone composite Purchasing Managers’ Index (PMI) reading for March was 52.5 versus 48.8 for February.2 More importantly was the final services PMI reading for March: 49.6 versus 45.7 in February.2 We saw significant improvement in a number of countries including Ireland, the UK, and Germany. And so while it’s no surprise to me that manufacturing continues to strengthen, led by manufacturing powerhouse Germany, it is surprising — and encouraging — to see the services sector improving in some countries despite rising COVID-19 infections and lockdowns.

Chris Williamson of IHS Markit explained what is happening in the euro area: “The survey therefore indicates that the economy has weathered recent lockdowns far better than many had expected, thanks to resurgent manufacturing growth and signs that social distancing and mobility restrictions are having far less of an impact on service sector businesses than seen this time last year. This resilience suggests not only that companies and their customers are looking ahead to better times, but have also increasingly adapted to life with the virus.”2

This is good news, given that the vaccine rollout in the eurozone has been disappointing. While I don’t expect a robust recovery until COVID-19 is well controlled, the PMI readings suggest the economy can still recover in an environment of slow vaccinations and higher stringency.

FOMC minutes represent a ‘have your cake and eat it too’ moment

The Federal Reserve upgraded its economic outlook — but that didn’t change its stance on accommodative monetary policy. The minutes from the March meeting of the Federal Open Market Committee (FOMC) were released last week, showing that its growth expectations for the US economy in 2021 were — similar to the IMF — upwardly revised to 6.5% from 4.2%, while unemployment expectations were revised down to 4.5% for 2021 from 5%.3 The Fed’s optimism was driven by the economic re-opening and increased fiscal stimulus. The Fed also upwardly revised its expectations for inflation, forecasting 2021 core personal consumption expenditures to increase by 2.2% — this is a substantial increase from its previous forecast of 1.8%.3

In my view, these minutes represent a “have your cake and eat it too” moment — a Fed that expects the economy to experience strong growth — but will not pre-emptively tighten as it has often done in the past. The Fed is expecting a brighter economic outlook, but wants to remain very accommodative. The minutes stated that it will be “some time before the conditions are met for scaling back the asset purchase program” — and the Fed still expects rates to remain zero through 2023.3 In these minutes, the Fed once again reiterated its plans to sit on its hands well beyond 2021, anticipating that the spike in inflation it expects this year will be transitory. Investors couldn’t ask for a nicer Fed.

We heard lots of ‘Fedspeak’

We didn’t just get the minutes from the March FOMC meeting last week. We also heard from various Fed officials. Here are the highlights:

  • Last week Fed Chair Jay Powell suggested that COVID-19 infections are the biggest risk to the economy. He shared a cautionary message about the pandemic last week despite growing optimism about the economy: “Cases are moving back up here, so I would just urge that people do get vaccinated and continue socially distancing. We don’t want to get another outbreak; even if it might have less economic damage and kill fewer people, it’ll slow down the recovery.”4
  • St. Louis Fed President James Bullard shared his view that the Fed should not even consider any changes to its monetary policy until we have certainty that the pandemic is over. In my view, this could further delay monetary policy normalization given that it could tether future Fed considerations to health-related accomplishments.
  • Then, last night, Powell appeared on an American TV news show, “60 Minutes.” He reiterated that the principal risk to the economy is a resurgence of the pandemic. Powell stated that the US is “at an inflection point,” and he expects growth to be very strong in the back half of 2021. One important line from his interview, “The Fed will do everything we can to support the economy for as long as it takes to complete the recovery.”5

Signs of inflation in PPIs

The US Producer Price Index (PPI) rose substantially in March, exceeding expectations. However, markets barely flinched. And this rise in PPI is not specific to the US; China also experienced a big rise in producer prices. My view is that these data points are to be expected, a combination of base effects and short-term supply disruptions. However, that doesn’t mean we won’t want to follow future inflation data closely, including US Consumer Price Index this week.

Fears of a ‘fourth wave’ continue

The Fed’s concerns about COVID-19 are well-founded. COVID-19 cases are on the rise in a number of countries, most notably Brazil and India. Bruce Aylward, a World Health Organization official, described the situation in Brazil in stark terms, “What you are dealing with here is a raging inferno of an outbreak.”6 I believe concerns about infections, especially a rise in the spread of more contagious variants, will continue to be an intermittent cause of concern for markets.

So what happened in markets?

The big news is that the yield on the 10-year US Treasury backed down materially last week. This came as a surprise to many, given that the outlook for the economy continues to improve — as have expectations for inflation.

I think there are several possible reasons for this.  First of all, it could be a reaction to rising COVID-19 infections in parts of the world, which could be causing investors to actually lower expectations for growth. Similarly, all this talk of rising taxes in the US could also be dampening expectations about a very strong economic recovery. Or perhaps investors are finally starting to believe the Fed when it says it will not be tightening any time soon.

Not surprisingly, because yields backed down, there was a rotation within stocks. Stocks in general made gains last week, but technology stocks and other more growth-oriented stocks — as well as larger-cap stocks — assumed positions of leadership. Going forward, I would expect a continuation of this trend: rotations in leadership tied to changes in the 10-year yield. But make no mistake — I am in the camp that expects yields to rise this year. Despite last week’s downward moves, I expect the yield on the 10-year US Treasury to reach 2% or higher this year.

Looking ahead

There is a lot to look forward to in the coming week, from US retail sales to UK gross domestic product (GDP) to the business outlook survey from the Bank of Canada. Here are a few items I am focused on:

  • Eurozone retail sales. The services PMIs mentioned previously suggest that the pandemic and lockdowns don’t seem to be having as big an effect on the service sector of the economy. This data should help confirm that theory.
  • Beige Book. The Fed’s “Beige Book” is chock full of anecdotal information from businesses in the different Fed districts across the country. It gives you a real sense of what they are experiencing — and thinking about.
  • China GDP. China has clearly helped lead the economic recovery in the early innings. This will give us a sense of how strong that leadership has been in the last quarter, and what parts of the economy it has come from.
  • Earnings season. Earnings season begins this week. Many companies abandoned guidance in the midst of the pandemic, but I am hopeful we will get more guidance this quarter. Any kind of outlook will be valuable.
  • Global vaccination levels. As always, I remain most concerned about our ability to control the pandemic, and the speed with which we vaccinate populations plays a critical role. As Fed Chair Powell has made clear, he believes the pandemic is the greatest risk to the economy this year. When I went to receive my second COVID-19 vaccine yesterday, the physician’s assistant who inoculated me ominously warned me against laminating my vaccination card. She matter-of-factly explained, “You will be back periodically for boosters. This is not over.” That’s because variants are spreading, especially where COVID-19 hasn’t been controlled, and will likely make it quickly to other parts of the world. There is a funny expression in the US about the city perhaps best known for gambling and general fun that is arguably more decadent: “What happens in Vegas, stays in Vegas.” But there is no such thing when it comes to a pandemic. What happens in Sao Paolo (or New Delhi or Paris or Amsterdam or Los Angeles) doesn’t stay there. It can happen everywhere. So we need to care about vaccinations everywhere.

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

Stay safe.



Team No Comments

Investment Intelligence Update – Weekly Market Performance

Please see below commentary received from Invesco this morning, which analyses market performance over the past week – as the IMF predicts strong economic recovery this year.

The IMF’s latest World Economic Outlook, published last week, reaffirmed the forecasting community’s expectation of a strong economic recovery in 2021. The rollout of multiple vaccines, better than expected adaption to pandemic life, additional fiscal support in some countries, particularly the US, and continuing monetary accommodation (the Fed reaffirmed during the week that the bar for tapering asset purchases, the first stage in tightening policy, remains high) underpinned the IMF’s 50bp upgrade to 2021 forecasts, from an already strong 5.5% to 6%. However, the IMF continues to expect that differences in the pace of the vaccine rollout, the extent of policy support and structural factors, such as the reliance on tourism, will ensure any recovery will be a multi-speed one. The US leads the way among advanced economies (see chart of the week) and is forecast to surpass its pre-Covid GDP levels this year, while many others (including the UK) won’t do so until 2022. It’s a similar picture in emerging economies, where China already returned to pre-Covid levels in 2020, but many others are not expected to do so until 2023.

While global equities had a good week overall (MSCI ACWI 1.8%), hitting a new all-time high, not all markets made gains. While DM were up 2.2%, EM continued to struggle, falling 0.6%, led lower by Asia (EM Asia -0.8%). EM are now over 7% below their 12.5% YTD high and are around 4.5% behind DM. As markets have rallied, expectations of future volatility have declined, with the VIX dropping to below 17 for the first time since pre-pandemic, but that remains well above the historical lows (<10) of the late 2010s.  DM performance was led by US equities, with the S&P 500 up just under 3% and hitting a new all-time high. Europe also made gains and is the strongest DM region YTD (MSCI Europe ex UK 10.4%). While Small Caps underperformed (0.8%) they remain well ahead of the overall market YTD. EM and DM small caps have risen broadly in-line. At a sector level, tech-related sectors dominated performance, with IT (3.8%) and Communication Services (2.3%) leading the way. Energy (-2.5%) struggled against a weaker oil price, although remains the best performing sector YTD. In a risk-on environment, defensive sectors underperformed and remain the market laggards. Consumer Staples and HealthCare are only up 2-3% YTD. It was a rare week of Growth (2.8%) outperformance against Value (0.9%). Momentum (2.6%) and Quality (2.4%) also performed well. UK equities outperformed (All Share +2.8%), with both mid and small caps hitting new all-time highs. A weaker £ and an easing of lockdown measures underpinned the market.

Government bond yields were relatively stable, with 10yr USTs, Gilts and JGBs seeing 1-2bp declines. There was modest upward pressure in EZ yields with the 10yr Bund and BTP up 3bp and 11bp respectively. Overall global government bonds are still down YTD (-2.9%), with Gilts and USTs the main laggards. Credit yields and spreads edged lower in both IG and HY, with the latter outperforming (0.5% vs 0.2%). HY is comfortably ahead YTD (1.3% vs -2.7%) with the EZ the best of the regional markets in both IG and HY.

The US$ gave up some of its recent gains with the US Dollar Index down 0.9%, its worst week since December, as both the Euro (1.1%) and Yen (0.9%) appreciated. £ was an outlier, declining 0.7% and back close to its YTD lows at just over $1.37.

After a strong start to the year (up 34% at one point), oil prices have struggled in recent weeks and gave up 2.5% last week as virus-related demand concerns remained and OPEC+ decided to increase supply between May and June by 2mbd. Although it saw a small gain, Copper has struggled to regain momentum since reaching a 9-year high in February as demand concerns, a stronger US$ and rising inventories have weighed on sentiment. Gold (0.8%) has bounced off its lows as a stabilisation in real yields and a weaker US$ have provided some support. It is still down 8% YTD.

Market performance last week (%)

Past performance is not a guide to future returns. Sources: Datastream as at 11 April 2021. See important information for details of the indices used.

YTD market performance (%)

Past performance is not a guide to future returns. Sources: Datastream as at 11 April 2021. See important information for details of the indices used.

Chart of the week: ISM Services PMI Index and S&P 500 performance

Past performance is not a guide to future returns. Source: Datastream as at 12 April 2021. Price only performance.

  • There have been a series of much stronger than expected US economic data releases since the start of April. These include the ISM Manufacturing PMI, that hit its highest level since December 1983, and Non-Farm Payrolls that at 916k came in much better than expected (albeit seasonal effects probably overstated the degree of the beat). Last Monday we saw the ISM Services PMI hit an all-time high of 63.7, rising from 55.3 and well ahead of consensus expectations of 59 (remember here that PMIs are diffusion indices, so tell us the percentage of firms that are experiencing an uptick in business and do not give a sense of the magnitude). While the Services PMI has a much shorter history (since 1997) than the Manufacturing PMI (since 1948), it remains a key guide to business sentiment in what is, of course, the dominant sector in the US economy.
  • And as the chart highlights there has historically been a close relationship between equity market performance and the Services PMI. The correlation is a high 64%, only marginally lower than the 67% correlation with the Manufacturing PMI over the same time period. Given this relationship and the strength of the Services (and Manufacturing) recovery from the pandemic lows, its hardly a surprise that the equity market performance has been so strong.
  • Clearly there is a big surge in activity under way as the weather improves. Alongside that, although new cases have picked up recently, the substantial drop in virus case numbers from the second wave peak and the successful rollout of the vaccination programme (34% have received their first shot) has allowed lockdown restrictions to be lifted at the same time as Biden’s $1.9trn in additional fiscal stimulus boosts incomes. And the improvement in the PMI has been broad-based, with all eighteen industries reporting growth. Among the key sub-components of the index the largest gains were seen in Business Expectations (+13.9pts to 69.4) and New Orders (+15.3pts to 67.2), both at record levels. Employment also saw an improvement, reflecting the strong Non-Farm Payrolls numbers, and at 57.2 is back at pre-pandemic levels.
  • For those concerned about a potential lift-off in inflation, there were further signs that inflation pressures continue to rise. The Prices index rose to 74, its highest level since 2008, a similar picture to what we saw with Manufacturing (85.6). Time will tell whether that turns into a sustained and/or substantial rise in inflation, forcing a change in policy stance from the Federal Reserve. For now, the Federal Reserve thinks not. The risk is that they are wrong.

Key economic data in the week ahead

  • A relatively quiet week ahead with China’s Q1 GDP and US inflation the main features.
  • In the US March’s Inflation data is out on Tuesday. Headline and Core are expected to rise 0.5%mom and 0.2%mom respectively. This would take them to 2.5%yoy and 1.6%yoy, the former the highest it has been since before the pandemic. Initial Jobless Claims posted a surprise uptick last week to 744k. It is expected to drop to 700k on Thursday – still elevated given the strength of the economic recovery. On the same day Retail Sales for March are also forecast to jump thanks to the latest round of stimulus cheques and improved weather. An increase of 5.5%mom is pencilled in following the 3% drop in February. Following the recent batch of positive economic data, the University of Michigan Consumer Sentiment index for April on Friday is expected to rise to 89 from 84.9, the highest reading since March of last year.
  • The only data point of note in the UK is February’s monthly GDP published on Tuesday. Although economic activity is expected to have picked up, increasing 0.5%mom after January’s 2.9% contraction, the rolling 3m number is expected to remain negative at -1.9%. Improvement in services is the key driver here, with February forecast at 0.5%mom after the 3.5%mom fall in January.
  • In the EZ Retail Sales data for February is released on Monday. A small 1.3%mom gain is forecast, but still leaving a -5.4%yoy shortfall. February’s Industrial Production numbers are released on Wednesday. A -1%mom decline is expected, leaving it at -1%yoy.
  • In China Q1 GDP is published on Friday. A quarterly gain of 1.4%qoq is forecast, leaving the economy higher by 18.3%yoy. The increase in economic activity is expected to be broad based, with Industrial Production, Retail Sales and Exports forecast to rise 27.6%yoy, 28%yoy and 28%yoy respectively.
  • There is no data release of significance from Japan this week.

We will continue to publish relevant market analysis and news as we enter the 10-week countdown to the end of the UK’s national lockdown.

Stay safe.



Team No Comments

Weekly Market Commentary – Gains for equities despite European lockdown concerns

Please see below detailed economic and market news update received from the in-house research team at Brooks Macdonald yesterday afternoon.

A far stronger than expected US employment report spurs gains in equities

While Europe was on holiday, a bumper US jobs report on Friday drove risk assets higher on both sides of the Easter weekend. Survey data also beat expectations, and this was enough to allow equities to look through the pickup in global COVID-19 numbers.

The closely watched minutes from the March Federal Reserve meeting are released on Wednesday

The number of new jobs created in the US in March hit 916,000, far in excess of expectations of 660,0001. Standout areas included leisure and hospitality sectors, which are both reopening after being the hardest hit areas from the curbs on activity. The broadest measure of US unemployment, U-6, which includes not only the unemployed but those that are underemployed or discouraged from the workforce, fell but remains in excess of 10%2. For context, this measure was at 6.9% in January 20203 before the pandemic hit and still points to a sizeable gap until the US economy returns to ‘full’ employment. This elevated level of broad unemployment is often cited by US Federal Reserve (Fed) Chair Powell as a sign of the economic output gap that needs to be filled before inflationary pressures could become sustained. 

Since the Fed meeting in March, we have seen the market price in additional rate hikes as the vaccine rollout continues amidst the aforementioned stronger data. The Fed’s last statement said relatively little about how the bank would respond should benchmark Treasury yields continue to rise. As a result, this will be keenly watched for in the minutes released on Wednesday. The disconnect between what the market believes will occur and Fed guidance is widening by the day, so any sign that they will take concrete action will be important for the central bank to remain in the driving seat. This week also sees the European Central Bank minutes released on Thursday, where investors will be looking for further guidance on the pace of quantitative easing purchases over the next few months.

Third COVID-19 wave concerns continue in Europe as France enters lockdown

The counter to the data optimism is the third wave of the coronavirus pandemic which has caused Europe to move further towards lockdowns, with France beginning its lockdown over the weekend. This will remain a hot topic this week as the complicated interplay of vaccine rollouts and rising cases continues to muddy the short-term economic outlook.

Although the UK has been successful in its vaccine rollout so far, it is important for Europe and the rest of the world to achieve mass-vaccination as well. We will continue to publish relevant content as the lockdown rules continue to be relaxed.

Stay safe.



Team No Comments

Equities mixed as third wave undermines recovery

Please see below article received from Brewin Dolphin yesterday evening, which analyses the performance of markets in relation to the big news events of the past week. 

Global equities were mixed last week after renewed lockdown restrictions in Europe dented hopes of a broad economic reopening.

Stock markets in Asia suffered the most, with Japan’s Nikkei declining 2.1% and Hong Kong’s Hang Seng falling 2.3%. In Japan, the recent lifting of the state of emergency in Tokyo provided some optimism, but this was outweighed by concerns that Europe’s third wave of Covid-19 infections could delay the global economic recovery.

France’s CAC 40 ended the week in the red after the country extended its lockdown to cover a third of the country. Germany’s Dax and the UK’s FTSE 100 posted gains of 0.5% and 0.9%, respectively, following a rebound on Wall Street and positive UK retail sales data.

In the US, the S&P 500 edged up 1.6% following Joe Biden’s pledge to vaccinate 200m Americans in the first 100 days of his administration – double his previous target. Energy stocks performed particularly strongly after the closure of the Suez Canal boosted oil prices. The Nasdaq declined 0.6% amid ongoing interest rate and inflation concerns.

Stocks flat after hedge fund fire sale

Stock markets were largely flat on Monday as investors turned their attention to the fall-out from the collapse of family office hedge fund Archegos Capital Management.

Archegos was forced to sell billions of dollars’ worth of shares after its positions turned sour, prompting a margin call from its prime brokers. Nomura and Credit Suisse, who were among the banks handling Archegos’ trades, warned of significant losses after Archegos defaulted on the margin calls, forcing brokers to dump shares.

So far, the impact of the fire sale has been limited to the stocks that were part of Archegos’ portfolio and its banking and brokerage partners. The Dow edged up 0.3% on Monday, while the S&P 500 and the Nasdaq ended the day down 0.1% and 0.6%, respectively.

European shares also managed to brush off the fall-out from Archegos, with the STOXX 600 adding 0.1% and Germany’s Dax gaining 0.5%. The FTSE 100 closed down 0.1% as the pound gained 0.03% on the dollar.

The FTSE 100 was up 0.7% in early trading on Tuesday, following encouraging news about the vaccine roll out in the UK and the US.

Suez Canal blockage disrupts trade

Last week’s headlines were dominated by the blockage of the Suez Canal – one of the world’s busiest trading routes. On 23 March, the 200,000-tonne ship Ever Given ran aground, resulting in a queue of approximately 370 ships either side. Some ships resorted to rerouting around the southern tip of Africa.

Around 12% of world trade flows through the canal, carrying more than $1trn worth of goods every year. Delays can cause severe disruption to supply chains, ultimately leading to a shortage of goods and higher prices. On the day after the ship ran aground, there was a 5.8% spike in the price of Brent crude oil.

The Ever Given was finally freed yesterday (29 March), but clearing the backlog of container vessels, tankers and bulk carriers is expected to take several days.

Europe extends lockdown restrictions

Last week also saw renewed lockdown restrictions in several European counties, as a third wave of Covid-19 infections spreads across the continent.

Data released on Sunday revealed the number of new Covid-19 patients in intensive care units in France has risen to 4,872 – close to the November peak but below the high of 7,000 in April 2020. In Germany, the incidence of the virus per 100,000 rose to 130 on Sunday, from 104 a week ago.

Rising infections, a slow vaccine rollout and renewed lockdown measures are threatening Europe’s economic recovery. The European Commission is calling for tougher controls on vaccine exports, after its own data suggested 77m doses have been exported outside the bloc, while 88m doses have been delivered to its members.

Vaccine rollout affecting services recovery

The speed at which vaccines are being distributed is having a profound effect on the recovery of the global services sector. In the eurozone, the manufacturing PMI has surged to a three-year high, whereas the services PMI is stuck in contractionary territory below 50. The recovery in services is expected to be pushed back because of delays in issuing the vaccine and the surge in new coronavirus cases.

In contrast, the UK’s services sector is outpacing manufacturing for the first time since the start of the pandemic. In March, the services PMI rose to a sevenmonth high of 56.8, while the manufacturing PMI stood at a three-month high of 55.6. The rebound in services suggests businesses are getting ready for a reopening from mid-April.

Meanwhile, the US manufacturing PMI rose to 59.0 in March, while the services PMI increased to 60.0 from 59.8. The University of Michigan revised its gauge of March consumer sentiment to 84.9, its highest level in a year, while weekly jobless claims fell more than expected to 684,000. Sales of existing and new homes tumbled in February, but this was largely because of severe winter weather.

We will continue to publish relevant content as lockdown restrictions begin to ease over coming the coming weeks. Please check in again with us soon.

Stay safe.



Team No Comments

Why emerging market financials are different

Please see below article received from AJ Bell yesterday afternoon, which presents the advantages of investing in emerging markets. The commentary advises that there is more scope for growth in this area due to large populations having no access to banking services.  

In the developed world the banking and wider financial industry is very mature with limited avenues for rapid growth and the focus from an investment perspective is typically on the income they pay out – subject to regulators’ approval.

Financial stocks in emerging markets are, on the whole, quite different. While technology firms have increased in importance in recent years, financial stocks remain a key component of the emerging markets story with the MSCI Emerging Markets index having a 17.5% weighting to this sector.

In contrast the MSCI World developed markets index has a weighting of 13.6% to the financial sector.

According to a 2017 report from the World Bank about 1.7 billion adults globally and 58% of people in developing nations remained ‘unbanked’ – although there is considerable diversity across different geographic regions.

Capturing these customers should allow emerging market financial firms to grow more rapidly than their counterparts in the West. It explains why Prudential (PRU) has pivoted away from markets in Europe and the US to focus more on Asia.

The question of how these unbanked customers are reached is an interesting one with financial technology and mobile payments, in particular, likely to play an increasing role.

The same 2017 World Bank report commented: ‘The benefits from financial inclusion can be wide ranging. For example, studies have shown that mobile money services — which allow users to store and transfer funds through a mobile phone — can help improve people’s income earning potential and thus reduce poverty.’

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

Stay safe.



Team No Comments

Brooks Macdonald – Weekly Market Commentary

Please see below this week’s Market Commentary from Brooks Macdonald, received late yesterday afternoon – 22/03/2021

Weekly Market Commentary | EU leaders to meet this week as concerns continue over vaccination pace

  • Weekly Market Commentary
  • COVID-19 updates

By Edward Park

  • Bond yields remain the primary driver of risk assets as central bank meetings conclude
  • Purchasing Managers’ Index (PMI) data to be released on Wednesday will highlight the relative successes between Europe and the US
  • Thursday’s European summit is likely to focus on the vaccine rollout and COVID-19 cases

Bond yields remain the primary driver of risk assets as central bank meetings conclude

Bond yields continued to climb last week with the effect that the US index closed marginally down but the European market, with a greater weighting to cyclicals, eked out a small gain for the week.

Purchasing Managers’ Index (PMI) data to be released on Wednesday will highlight the relative successes between Europe and the US

With a week of major central bank meetings behind us (though Powell and Yellen are speaking to Congress on Tuesday and Wednesday), markets are likely to start taking their direction from economic data. On Wednesday, flash PMI (economic survey) data will be released from around the world. Of note will be the headline differential between the US and European PMI data. US data is expected to be helped along by imminent stimulus cheques and loosening COVID-19 restrictions. By contrast, European countries are moving the other way with their COVID-19 cases and lockdowns are being announced across the continent.

Thursday’s European summit is likely to focus on the vaccine rollout and COVID-19 cases

On Thursday, EU leaders are holding their latest European Council summit in Brussels and, more than likely, COVID-19 and the vaccine rollout will feature heavily on the agenda. Having previously been held as a beacon of European solidarity during the COVID-19 pandemic in 2020, the European Commission’s strategy of joint vaccine procurement and delivery continues to be judged by many as being too slow and bureaucratic. The shortfall of pace of immunisation among the EU member countries versus the likes of the US and UK remains stark. Risking a rise in vaccine nationalism, the European Commission President von der Leyen has refused to rule out using Article 122 of the EU treaty. Article 122 would, in theory, allow the EU to take control of the production and distribution of vaccines, potentially placing export controls on vaccines that had been destined elsewhere, such as the UK.

While ultimately our expectation is that the vaccine lag for the EU will last maybe one or two quarters at most, it risks keeping EU member countries’ economies in various degrees of more stringent lockdown. At the same time, the length of time it is taking to effect fiscal spending disbursements from the EU’s Recovery Fund, which was agreed in July 2020, is also risking a later recovery path than what is currently expected in some other countries globally.

A good update from Brooks Macdonald on recent economic data and market news.

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

Charlotte Ennis