Please see below article received from AJ Bell this afternoon, which informs investors of the key factors driving stocks, bonds and other assets in the markets currently.

Many investors are frustrated that a lot of the stocks, funds and bonds in their portfolios have fallen in value this year. It’s been a chaotic time on the markets and negative events keep unfolding.

Inflation is at levels not seen for decades, the first major European war of the 21st century has broken out, and after years of ultra-low interest rates central banks are starting to tighten monetary policy.

Inflation has accelerated over the past year

Investors face a tricky task of determining when things might get better and what they should do with their investments in the meantime. Sitting tight and staying invested is a good strategy, but more active investors might be interested in tweaking their portfolios based on the outlook.

In this article we look at what the experts are forecasting for inflation, economic growth and interest rates and what market observers think has already been priced in. Our aim is to give a picture of how bad life could get or whether things might already be starting to improve.

UKRAINE SHAPES THE OUTLOOK

There is one key source of uncertainty which makes gauging the outlook difficult, namely the progress of the tragic conflict triggered by Russia’s invasion  of Ukraine.

As Andrew McCaffery, global chief investment officer for asset manager Fidelity, observes: ‘The war in Ukraine has already caused significant economic damage, and it will continue to shape the near-term outlook for global economies, particularly Europe. Outcomes over the coming quarter will be heavily influenced by the timeline to a resolution and the easing of trade disruptions.

‘In the meantime, any hopes for a moderation in energy prices and supply-chain disruptions have been dashed. Together, these dynamics will continue to dampen growth and put upward pressure on already high inflation.

‘This paints an extremely complex picture, both for policymakers and the markets. We believe the market has yet to reflect the full range of possible outcomes, which span extreme left and right tail risks.’

These ‘tail risks’ refer to more positive or negative outcomes than expected. In this context it’s useful to see what is being anticipated by forecasters and what are the best and worst-case scenarios.

Trying to second guess what happens next in Ukraine is difficult. Chief Europe economist at consultancy Capital Economics, Andrew Kenningham, says: ‘Unfortunately assumptions about the war have steadily got worse over the past two months. We were hoping and assuming the conflict would ease towards the end of the year.

‘Without forecasting exactly what will happen on the ground we are now working on the assumption the conflict will continue with no early resolution but also no major escalation.’

Assuming this reasoning proves correct, companies and countries may be able to adjust to the disruption but if the conflict widens or deepens in any way this could present a new risk for financial markets.

INFLATION

The supply chain issues and high food and energy prices which have contributed to rising prices remain in place. The reintroduction of Covid restrictions in China, the so-called factory of the world, has only added to these inflationary pressures.

UK consumer price inflation forecasts (Q4 2022)

However, there are reasons to think we are close to peak levels of inflation. Investment bank Berenberg expects US inflation to peak at 8.1% and UK inflation to peak at 8.6%, both in the second quarter.

Jennifer McKeown, at the consultancy Capital Economics, says: ‘Globally inflation is going to come down this year thanks to very strong base effects linked to the reopening of economies in the second half of last year.’

Saying that inflation has peaked, for now, is not the same thing as predicting a rapid fall in prices. Berenberg forecasts inflation will remain above 6% in the final quarter of 2022 in the US and the first three months of next year for the UK.

Consensus forecasts on UK inflation may not go far enough. Panmure Gordon chief economist Simon French was already on record as saying UK inflation could hit double digits in 2022 before the Bank of England surprised many observers with a prediction for inflation to peak above 10% at the end of this year.

This would represent the highest level in 40 years but doesn’t seem too extreme given UK inflation data, up to the end of March, is yet to reflect Ofgem’s lifting of the energy price cap by 54% at the beginning of April, with a further big increase expected in October.

The chances of wholesale energy prices easing substantially are limited by attempts on the part of European countries to wean themselves off Russian gas and oil. The US, which is effectively energy independent by comparison, is more insulated on this front.

Tight labour markets, particularly in the developed world, are also contributing to inflation as wages increase. 

Eurozone unemployment hit a record low of 6.8% in March and the US reported record job openings for the same month.

GDP

Surging inflation is one of the key reasons economists have been busily revising down growth forecasts this year. In its latest World Economic Outlook, published in April, the International Monetary Fund lowered its global growth forecast to 3.6% in 2022 and 2023. This was 0.8 and 0.2 percentage points lower respectively than in the January report.

UK GDP 2022 forecasts

There is little debate over whether the post-Covid economic recovery has been hit by the Ukrainian conflict. The question is whether it could be derailed entirely. We are already facing stagflation, which is a toxic combination of slowing growth and rising prices.

The yields on two-year and 10-year US government bonds recently inverted, i.e., the longer-dated debt offered a lower yield than the more short-term debt, which is often seen as a signal of recession and US GDP unexpectedly contracted 1.4% in the first quarter.

Nonetheless, non-profit research organisation The Conference Board does not believe a US recession is likely in 2022 – even under its modelling of some extreme scenarios, including oil hitting $200 per barrel.

COVID STILL A PROBLEM

The two main risks to this view are policy mistakes on the part of the US Federal Reserve and mutation or resurgence of Covid-19. Remember the pandemic continues to rage in some parts of the world.

There seems to be a greater risk of recession in Europe. Russia and closely linked emerging European economies look particularly vulnerable to a downturn but developed Europe too could risk slipping into a slowdown.

Capital Economics’ Andrew Kenningham says: ‘For the Eurozone overall we are forecasting almost flat second and third quarters with Italy and Germany at risk of falling into technical recessions; France and Spain should avoid that.’

A technical recession is defined as two consecutive quarters of negative growth and while the Bank of England thinks this fate can be avoided, it is forecasting a 0.25% contraction in UK GDP for 2023.

Outside of the US and Europe, China may be on a different trajectory with the easing of restrictions as Covid cases come down, helping growth to increase through the course of the year. Whether it can hit Beijing’s target of 5.5% is open to question.

INTEREST RATES

The finely balanced outcomes on inflation and economic growth create a tricky backdrop for central banks. It seems certain the Federal Reserve, Bank of England and, even the laggard of the three, the European Central Bank will end the year with higher interest rates.

However, the exact pace and trajectory of those increases remains in question. In its latest update (4 May) the US Federal Reserve lifted rates by 0.5 percentage points for the first time since 2000 but signalled it was not considering a 0.75 percentage point increase in rates for now.

The central bank did nothing to suggest consensus expectations for rates to finish 2022 somewhere around 2.5% were out of whack.

Nick Clay, who runs investment manager Redwheel’s global equity income team, observes: ‘I think the Fed’s been boxed into a corner. It will lead on this, but bond yields particularly in America have already priced a lot of that in.

‘Corporates and governments because of their levels of indebtedness are going to find it difficult to suffer higher interest rates for any length of time. By the time we get to the end of this year we will look back at this period and realise this was the peak in interest rates within the bond yield even if the Fed is still raising rates.’

The negative economic assessment which accompanied the Bank of England’s latest rate hike to 1% (5 May) suggests it may look to avoid hiking rates materially from here. Consensus expectations are for UK rates to reach a high of 2% next year but not everyone agrees with this assessment.

Capital Economics’ chief UK economist Paul Dales says: ‘We think longer-lasting domestic price pressures will mean the MPC (Bank of England’s Monetary Policy Committee) ends up raising rates to a peak of 3% next year, which compares to the peaks of 2.5% priced into the markets and 2% expected by other analysts.’

The European Central Bank may not have moved on rates yet, but it opened to the door to a July rate rise at its meeting in April.

The central bank faces an even more difficult task than the Fed and Bank of England given it needs to balance the needs of economies with very different dynamics. Inflationary pressures are also more acute in the Eurozone given its heavy reliance on Russian energy imports.

Berenberg forecasts two 0.25 percentage point interest rate rises in the third and fourth quarter of this year which would still leave Eurozone rates a long way behind those in the US and UK.

WHERE WILL THE MARKETS END UP?

How much of the increase in rates, reduced growth prospects and higher inflation have been factored in by the markets?

There is no question that investors have reacted to these events. The first quarter saw bond and stock prices fall in tandem for the first time in nearly 30 years.

The table shows how global stock markets have performed year-to-date and it paints an ugly picture in most places. The UK’s FTSE 100 index is doing best thanks to its strong commodities exposure. In the US, the Nasdaq receives the wooden spoon as investors turn away from highly rated growth stocks.

Rupert Thompson, investment strategist at asset manager Kingswood, comments: ‘The falls in both bonds and equities have been driven by the move towards stagflation, the unpalatable combination of high inflation and stagnation in economic activity. Worries on this front have been bolstered by recent developments.’

How major stock markets have fared in 2022

Will there be more pain to come for stocks? In early April, investment bank Goldman Sachs updated its year-end forecasts for the S&P 500 index in the US for a closing level at the end of December of 4,700.

This would represent a modest drop versus 2021’s closing level of 4,766 and compares with a current level of 4,125. This represents its best-case scenario. In the event of a recession the bank thinks the index could fall to 3,600.

Bank of America says there have been 19 bear markets in the past 140 years. A bear market is a 20% decline or more from recent highs.

The average price decline in these 19 bear markets was 37.3% and an average duration of 289 days. It says: ‘Past performance is no guide to future performance, but if it were, today’s bear market ends on 19 October 2022 with the S&P 500 at 3,000 and the Nasdaq at 10,000. The good news is many stocks are already there, e.g., 49% of companies in the Nasdaq are more than 50% below their 52-week highs.’

S&P 500

Elsewhere, Morgan Stanley forecasts the S&P 500 to end 2022 at 4,200, JPMorgan predicts 4,900 and Barclays estimates 4,800.

Gains for US stocks have been driven by the big technology companies and as Redwheel’s Nick Clay says, ‘They are very expensive. Even the best company in the world at the wrong valuation becomes the riskiest company. Your expectations are so high they can’t even deliver on those extended expectations.’

Corporate earnings are holding up well. On 29 April Factset said that of the 55% of companies in the S&P 500 which had reported results for first quarter to that point, 80% had reported earnings per share above estimates, which was greater than the five-year average of 77%.

As we write, about half of the STOXX 600 companies in Europe have reported so far and 71% of those have topped analysts’ profit estimates according to Refinitiv IBES data. Typically, one might expect just over half of companies in this index to beat estimates in a quarter.

The question is whether results for the first three months of 2022 reflect the full impact of rising input costs and reduced consumer spending. After all, some businesses are still enjoying a post-pandemic recovery in demand and may also have been able to react to inflation by driving efficiencies.

It will be worth keeping close tabs on the second quarter and first half reporting season to see if earnings can continue to beat forecasts or if mounting inflation and weaker demand start to have a wider negative impact.

Clay at Redwheel says: ‘I think interest rates aren’t going to go up as much as people ultimately fear they might have to, and therefore by the end of this year we’re going to start talking about when they are going to stop raising rates and start cutting them again. The backdrop has plateaued. We’ve had the worst of it.’

WHAT SHOULD INVESTORS DO?

Many readers will be nursing portfolio losses but it is important not to panic. It is worth having a good look at your investments and if any specific holding has performed very poorly, particularly if it has fallen more than the 13.4% year-to-date decline in the MSCI World, then it is worth taking a good look at why.

However, unless anything fundamental has changed on an individual investment then it is worth staying invested and riding out the volatility if you have time on your side. Time in the market is better than trying to time the market.

Asset manager BlackRock found that if you had invested a hypothetical $100,000 in the S&P 500 index of US stocks between 1 January 2001 and 31 December 2020 you would be sitting on $424,760 if you stayed invested but by missing just the best five days that number dropped to $268,277. Often the best days follow some of the very worst.

One way of smoothing out the impact of volatility and remaining invested in the markets is to invest regularly. By doing so you benefit from an effect called pound cost averaging.

When markets rise, a monthly contribution buys fewer shares or units in a fund. When markets fall the same contribution buys more shares or fund units.

In terms of what you should invest in, Fidelity’s Andrew McCaffery says: ‘We believe focusing on high quality companies, rather than sector selection, is the best approach given the rising geopolitical and stagflation risks.

‘Companies with pricing power and the ability to protect margins should perform relatively strongly in this environment. Equities should still provide a robust source of income, now that balance sheets have been repaired following the worst of the pandemic.’ 

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

Chloe

12/05/2022

Please see below a Weekly Market Commentary, received from Brooks Macdonald, yesterday evening – 10/05/2022

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

11th May 2022

Please find below, an update on markets, received this morning from Blackfinch – 03/05/2022

Personal insolvencies have reached a three-year high, as the cost-of-living crisis has left more people unable to repay their debts. There were 32,305 individual insolvencies in England and Wales in the first quarter of 2022, according to the Insolvency Service, which was a 17% increase on insolvencies in the previous quarter.

April’s Industrial Trends Survey from the Confederation of British Industry, the first quarterly survey since Russia’s invasion of Ukraine, suggested a sharp fall in confidence from UK manufacturers. Business optimism fell to a net balance of -34% in April, from -9% in January.
 

The US Federal Reserve’s preferred measure of consumer inflation – the Personal Consumption Expenditures (PCE) price index – hit a 40-year high. It increased 6.6% in the year to March, with energy prices up 33.9% and food up 9.2%.

The US economy shrank unexpectedly for the first time since the initial COVID-19 outbreak. According to the US Bureau of Economic Analysis. US gross domestic product (GDP) in the first quarter of 2022 fell 0.35%, or at an annualised rate of 1.4%.

US consumer sentiment improved in April, according to a University of Michigan survey. Its index of consumer sentiment increased from 59.4 in March to 65 in April, but was still significantly below the 88.3 reported in April 2021. Most of the improvement came from gains of 21.6% in the year-ahead outlook for the US economy and an 18.3% jump in personal financial expectations.

The number of Americans filing new claims for unemployment support fell last week, according to the US Labor Department. There were 180,000 ‘initial claims’ filed, down from 185,000 the previous week, suggesting the jobs market remains solid.
 

The Eurozone faces stagflation (slowing economic growth and high inflation) after statistics agency Eurostat reported growth slowed to 0.2% in the first quarter of 2022 while inflation hit a record level of 7.5%.

Natural gas prices jumped as much as 20% as Russia’s energy company Gazprom cut gas supplies to Poland and Bulgaria, after both countries refused to pay for gas in roubles.

Consumer confidence in Germany has reached an all-time low, according to analytics firm GfK. Its confidence index, based on a poll of 2,000 Germans, fell from -15.7 in April to -26.5 in May, far worse than expected.
 

Russia’s central bank lowered interest rates from 17% to 14%. Economists had expected a smaller cut to 15%, but borrowing costs are still much higher than before the Ukraine war.

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

3rd May 2022

Please see below a positive article received from AJ Bell this afternoon, which reminds us of several things that have improved when it comes to managing our finances.

Whether it’s been tax hikes, the cost of living crisis, or the war in Ukraine, doom and gloom hasn’t exactly been hard to find in April. The downbeat mood around household finances is palpable, and understandably so, with the price of essential items rising so rapidly.

At tough times like these, we find it natural to focus on the problem at hand, and batten down the hatches. But it might also help to cheer ourselves up a bit by remembering the positive developments we have seen in the personal finance arena in recent times.

STRONG STOCKS

Let’s start with the stock market. It’s been a decent period for investors, with £10,000 invested in the average global fund 10 years ago being worth £28,230 today. Even an investment in the spluttering UK stock market would have more than doubled your money, turning £10,000 into £20,360, if you had purchased a typical UK equity fund.

Right now, there are quite legitimate concerns around the valuation of the US tech sector, and the potentially damaging effect interest rate rises and inflation may have on global economic growth.

These issues raise the question of whether a stock market correction is waiting in the wings. This is actually always a possibility, and simply part and parcel of stock market investing. But the good news is that even if share prices take a big tumble, many investors would still be sitting on a healthy profit, thanks to the returns made by the global stock market over the last decade.

FALLING COSTS

The cost of investing has also fallen significantly over the years. 1% used to be a fairly competitive dealing commission for stockbrokers to charge twenty years ago. So on a £10,000 trade, you might pay £100 in dealing fees. Now you’re more likely to pay a flat fee somewhere in the region of £10.

Indeed, some platforms don’t charge any commission for share deals. Annual fund charges have come down significantly over the years too. It’s now possible to invest in a plain vanilla index tracker fund for as little as 0.2% a year, including platform charges.

By way of contrast, consider that when the government introduced stakeholder pensions as a ‘cheap’ option for savers in 2001, the annual charges were capped at what was then a competitive 1% a year, and the funds on offer were largely passive.

PENSION FREEDOMS

Pensions themselves have also made great progress. The pension freedoms introduced in 2015 mean that savers have much more control over how they draw on their pensions, rather than being shunted into an annuity.

As interest rates have tracked lower, and taken annuity rates with them, the pension freedoms have undoubtedly helped many people avoid locking into a low income stream for life. It’s also almost ten years since automatic enrolment was introduced, which requires employers to set up, and pay into a pension for their staff.

Since the reforms were introduced in 2012, the proportion of private sector workers saving in a workplace pension scheme has more than doubled from 32% to 75%.

Critics will say that the 8% total contribution rate doesn’t go far enough to replace the final salary schemes of yesteryear. That may be so, but the cost of final salary schemes simply became unaffordable as life expectancy shot up. That was a good thing of course, but with financial consequences.

Detractors can also point to the fact that automatic enrolment doesn’t do anything for the self-employed, who have to fend for themselves on the pensions front. Again, that’s true, but the numbers show that automatic enrolment has still been a success story, and offers a good foundation from which it can be expanded.

That’s particularly the case when you consider that at the launch of the scheme, naysayers predicted automatic enrolment would simply flop, because workers would just opt out in their droves.

A MENTION FOR ISAS

The humble ISA is also worthy of an honourable mention. It’s a tax shelter that can all too easily be taken for granted. The £20,000 allowance is now extremely generous, and is supplemented by a £9,000 allowance for Junior ISAs too.

That compares to an annual allowance of £7,000 when ISAs were introduced in 1999. We often expect tax allowances to be uprated in line with inflation. Well, if that had been the case for ISAs, the annual allowance would now be just £11,350.

None of this is to whitewash the genuine financial pain that is being felt by people up and down the country, but if you want to read about that you have plenty of options right now. Hopefully some of the positive developments listed above might make you feel a bit more upbeat about the current state of personal finances, if only for a while.

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

Chloe

28/04/2022

Please find below, an update on markets, received this afternoon from Blackfinch – 25/04/2022

• Retail sales fell 1.4% in March, following a 0.5% drop in February, according to the Office for National Statistics, as people cut back on fuel and food spending amid soaring prices. Overall, sales volumes were 2.2% above pre-pandemic levels in February 2020.
• 2,114 UK businesses became insolvent in March, more than double the figure in March 2021 (999), and 34% higher than the pre-pandemic figure of 1,582 in March 2019.
• In April, the Purchasing Managers’ Index (PMI) for the UK services sector dropped materially from March’s 10-month high, while the new orders index plunged to 54.6, down from 60.4 in February. The slowdown also caused firms to slow their pace of hiring; the employment index fell to 55.8 – its lowest level since April 2021 –  from 58.4 in March.
• The UK government set out 26 new sanctions against Russia over its invasion of Ukraine, including sanctions on military figures and defence companies.

• The European Commission’s confidence indicator rose by 1.8 points to -16.9 in the eurozone, and by two points to -17.6 in the wider European Union (EU).
• Consumer prices rose at an annual rate of 7.4% in March, rather than 7.5% as previously estimated, according to the EU’s statistics office Eurostat. Energy prices surged 44.4% in March, while unprocessed food cost 7.8% more. Even after stripping out these volatile components, annual inflation reached 3.2% in March, well above the European Central Bank’s 2% target.
• Production in the 19 eurozone countries rose 0.7% in February from January, according to Eurostat. The biggest monthly increases were in Italy (up 4%), Croatia (up 2.7%) and Ireland (up 2.4%).

• The International Monetary Fund (IMF) downgraded global growth forecasts with 2022 gross domestic product (GDP) growth revised to 3.6%, down from January’s prediction of 4.4%.
• The IMF said UK economic growth was expected to match growth in US during 2022, but will slump in 2023, taking the UK to the bottom of the league table of comparable economies in the G7 group of countries. The UK is also expected to face the highest inflation.

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

25th April 2022

Please see below ‘Markets in a Minute’ article received from Brewin Dolphin yesterday afternoon, which provides current market updates on a global scale.

The release last week of the first major US corporate earnings reports of 2022 was accompanied by a lacklustre few days for global equities.

In Europe, the STOXX 600 and the Dax ended their holiday-shortened trading week down 0.3% and 0.8%, respectively, as data from the US and UK showed a further spike in inflation. The FTSE 100 fell 0.7% as energy stocks declined and the pound strengthened against the dollar.

The S&P 500 tumbled 2.1% as disappointing retail sales figures and concerns about inflation weighed on investor sentiment. The financials sector underperformed after first quarter results from banking giant JPMorgan Chase missed analysts’ estimates.

In Asia, Japan’s Nikkei 225 added 0.4% after Bank of Japan governor Haruhiko Kuroda said the economy would continue to recover despite surging commodity prices. China’s Shanghai Composite declined 1.3% as cases of Covid-19 continued to climb in Shanghai, fuelling concerns about supply chain disruptions.

IMF cuts global growth forecast

Stocks were mixed on Tuesday (19 April) as traders returned from the Easter long weekend. The FTSE 100 ended the trading session down 0.2% after the International Monetary Fund (IMF) slashed its forecasts for global gross domestic product (GDP) growth to 3.6% for 2022 and 2023, down from 4.4% and 3.8% previously. The IMF said global economic prospects had been severely set back, largely because of Russia’s invasion of Ukraine. The UK is set to be the worst performing G7 economy year, with GDP increasing by just 1.2% amid the rising cost of living and tax increases.

The STOXX 600 also declined on Tuesday, whereas Wall Street stocks made solid gains as investors digested a slew of corporate earnings. The FTSE 100 took its cue from Wall Street to start Wednesday’s trading session up 0.1%.

US retail sales miss forecasts

Last week saw the release of the latest US retail sales figures, which revealed sales in March rose by just 0.5% month-on-month. This was the slowest pace in 2022 so far and lower than the 0.6% increase forecast in a Reuters poll.

The bulk of the increase was driven by sales at service stations, which surged by 8.9%. This came after prices at the pump soared to an all-time high amid Russia’s war against Ukraine (US retail sales are not adjusted for inflation). Excluding gasoline, retail sales fell by 0.3%.

The report from the Commerce Department also showed online store sales fell by 6.4% after declining 3.5% in February, the first back-to-back fall since the last two months of 2020.

US import prices accelerate

US import prices rose by the most in over a decade in March as the Russia-Ukraine war increased petroleum prices. Import prices rose by 2.6% from the previous month, the largest rise since April 2011, according to the Labor Department. On an annual basis, prices surged by 12.5% after advancing 11.3% in February.

This came after data showed consumer prices rose at their fastest rate for 41 years in March, increasing by 8.5% year-on-year. Meanwhile, producer prices rose by 1.0% in March from the previous month, roughly double estimates, and by a record 9.2% year-on-year.

With inflationary pressures persisting, investors will be keeping a close eye on this week’s speeches from Federal Reserve officials for any further guidance on how aggressively policymakers will raise interest rates this year.

UK inflation hits 7%

Here in the UK, inflation hit a fresh 30-year high in March as fuel prices surged. Consumer prices rose by 7.0% year-on-year, up from 6.2% in February and ten times the 0.7% increase seen in March 2021, according to the Office for National Statistics. Transport fuel prices surged by 30.7% from a year ago, and prices of other items such as furniture, cooking oil, clothing, second-hand cars and hotels all rose at a double-digit annual rate. Core inflation, which excludes energy, food, alcohol and tobacco, rose by 5.7% year-on-year.

The figures could add further pressure on the Bank of England to accelerate the pace of interest rate increases. The Bank has increased the base rate three times since December from 0.1% to 0.75%. Its next monetary policy decision is scheduled for 5 May.

China’s economy slows in March

China’s economy slowed in March after a strong start to 2022. Data from the National Bureau of Statistics revealed GDP grew by 4.8% in the first quarter from a year ago, beating expectations for a 4.4% gain and above the 4.0% growth seen in the fourth quarter of 2021. However, figures for March showed annual retail sales fell by the most since April 2020, down 3.5%, as coronavirus restrictions were imposed across the country. The jobless rate rose to 5.8%, the highest since May 2020.

The Chinese government is sticking to its zero-Covid policy despite growing fears about the hit to the economy. Fu Linghui, a spokesperson for the National Bureau of Statistics, warned of “frequent outbreaks” of Covid-19 in China and an “increasingly grave and complex international environment”. On Monday, China’s central bank said the country would step up financial support for industries, firms and people affected by coronavirus outbreaks. It has published a list of 23 measures that include lending guidance for banks, general pledges for more credit or other financial support, and making it easier for companies to expand the crossborder use of the yuan.

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

Chloe

21/04/2022

Please find below, a daily update on markets, received this morning from Brooks Macdonald – 14/04/2022

What has happened?

US bond prices continued the recent rally on Wednesday as markets pared back expectations for an aggressive series of interest rate rises from the US Federal Reserve. Following the latest US Consumer Price Index data for March published on Tuesday, which showed a weaker than expected core month-on-month rise in prices, hopes have risen that the near-term inflationary pressures might be at or near a peak. US 2 year bonds, which are more sensitive to monetary policy decisions, have seen yields fall more than 10 year yields this week, with the 10 year-less-2 year yield curve having risen around 40bps since the nadir at the start of the month. In equity markets, the principle of regional proximity to the Ukraine conflict weighed again on Wednesday; while equities were mixed in Europe, US equities were stronger, while across sectors, technology shares outperformed wider equity benchmarks. Overnight, Asia equity markets are broadly higher on reports that China’s policy makers may look to make further cuts in banks’ reserve requirement ratios alongside other policy tools to support the economy. Looking ahead to today the European Central Bank (ECB) holds its latest monetary policy meeting decision, though markets are not expecting much change to the ECB’s recently more hawkish messaging.

US calendar Q1 2022 company results season gets underway

The US bank JP Morgan kicked off the latest calendar Q1 2022 company results season on Wednesday. Seen as a bellwether for the broader US economy, JP Morgan reported profits which fell 42% in Q1 2022 compared to the same quarter period a year ago, and missing analyst EPS estimates amid a more cautious outlook generally. Aside the market impact from Russia’s invasion of Ukraine, investment banking revenue was lower as companies looked to have delayed deal activity in recent months. The US bank also increased reserves saying the possibility of an economic downturn had moved from ‘low’ to ‘slightly less low’. JP Morgan CEO Dimon warned of twin economic uncertainties arising from Ukraine as well as near-term inflationary headwinds. Putting pressure on policy makers, Dimon said “we remain optimistic on the economy, at least for the short term … consumer and business balance sheets as well as consumer spending remain at healthy levels … but see significant geopolitical and economic challenges ahead”. He added that “the Fed needs to try to manage this economy and try to get to a soft landing, if possible.” Asked whether the US could face a recession, Dimon said that “I am not predicting a recession. Is it possible? Absolutely.”

Brooks Macdonald’s Asset Allocation Committee weighs up the investment outlook

Brooks Macdonald’s Asset Allocation Committee held its latest monthly meeting on Wednesday, and as part of discussions, weighed up the latest investment outlook in terms of the twin market drivers of economic growth and inflation. While the broader economic growth outlook remains constructive and above longer-term trend rates of growth, the Committee are mindful that there has been a downward revision of estimates in aggregate. The Committee views a lower economic growth backdrop as likely given the impact that near-term inflationary pressures may have on the cost-of-living squeeze and corporate margins. Whilst it is too early to say whether inflation will slow meaningfully by the end of the year, the base effects mean that headline inflation is likely to slow even if inflationary pressures remain a theme into 2023.

What does Brooks Macdonald think?

Our Asset Allocation Committee is, in aggregate, presently somewhere between a so-called ‘Soft-Landing’ scenario (describing a low inflation, low economic growth outlook) and a ‘Stagflation’ scenario (high inflation, low growth). Whilst both of these scenarios might favour more growth/defensive investment styles, the Committee is maintaining its equity barbell balance at the current time. There is likely to be continued volatility in markets in the near-term as central banks in particular look to try to thread the policy needle against post-pandemic distortions and the war in Ukraine, and as such, we are keen not to be drawn prematurely in favour of either a growth/defensive or value/cyclical narrative.

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

14th April 2022

Please find below, a market update received from Blackfinch Group this morning – 11/04/2022

UK gross domestic product (GDP) rose just 0.1% in February, 0.2% less than economists expected. The UK economy is now around 1.5% larger than just before the UK’s first lockdowns two years ago, according to the Office for National Statistics.

The three storms, Dudley, Eunice and Franklin, which hit the UK in mid-February weighed on the construction sector, leading to a 0.1% drop in output.

UK house prices continued to surge in March, lifting the average house price to a new record high of more than £282,000. Since the first pandemic lockdown began two years ago, the average UK house price has jumped 18%, or £43,577. 

UK households and businesses were hit by the biggest monthly jump in motor fuel prices in at least two decades. Average UK petrol and diesel pump prices increased by 11p and 22p per litre respectively in March, according to the RAC’s Fuel Watch.

The number of Americans filing for unemployment benefits fell to just 166,000, the lowest figure since 1968, according to the US Labor Department.

In the US, the total volume of mortgage applications fell another 6% last week, according to the Mortgage Bankers Association’s seasonally-adjusted index. This left mortgage applications 41% lower than one year ago.

In the Republic of Ireland, inflation as measured by the Consumer Price Index (CPI) jumped 6.7% in the year to March 2022, the highest annual inflation rate since November 2000.

German manufacturing orders fell by an unexpected 2.2% in February, in the run-up to Russia’s invasion of Ukraine. The decline, which was led by a drop in overseas orders, was much worse than economist forecasts of a 0.3% fall.

In Turkey, inflation soared to 61.1% in March, its highest reading since 2002 as rising energy and commodity costs intensified Turkey’s cost-of-living crisis.

As the UK Foreign Office joined the US in announcing sanctions on Vladimir Putin’s two adult daughters, it said it expects Russia’s GDP this year to contract by between 8.5% and 15%. Around £275bn, or 60% of Russian foreign currency reserves, are currently frozen, which has hampered Moscow’s ability to support its economy. 

Russian consumer prices jumped 7.61% in March alone, the fastest monthly increase in inflation since 1999. Annual CPI inflation rose 16.69% in year-on-year terms in March, sharply up on February’s 9.15%.

The United Nations’ Food and Agriculture Organization (FAO) reported that world food prices reached record highs in March as the war in Ukraine drove up prices. The FAO’s food prices index rose nearly 13% in March, adding to global inflationary pressures.

Global trade fell 2.8% between February and March as Russia’s invasion of Ukraine hit imports and exports, according to the Kiel Institute of the World Economy.

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David Purcell

11th April 2022