News

Please see below article received from EPIC Investment Partners this morning, which provides an economic update for the UK.

The Organisation for Economic Co-operation and Development (OECD) has provided an updated economic outlook for the United Kingdom, projecting modest growth in the coming years. According to the latest forecasts, the UK economy is expected to expand by 0.8% in 2024, followed by a slight increase to 1.5% in 2025. While these projections indicate a gradual recovery from post-pandemic challenges and the economic impact of Brexit, they still represent relatively subdued growth compared to pre-pandemic levels. However, despite this moderate outlook, the UK’s growth is anticipated to be stronger than several of its European counterparts, including Germany, which is forecast to experience slower growth due to structural economic challenges. 

The OECD attributes the UK’s tepid growth to several factors, including persistent inflationary pressures, rising interest rates, and global economic uncertainties. The organisation noted that while the UK has made progress in stabilising its economy, it faces structural challenges that could hinder more robust growth. These include a tight labour market, stagnant productivity growth, and lingering uncertainties surrounding trade relations with the European Union. 

In its broader economic outlook, the OECD highlighted the importance of global fiscal discipline in sustaining economic stability and growth. The organisation emphasised that while short-term fiscal support measures were necessary during the pandemic, countries must now focus on prudent fiscal policies to manage public debt and support long-term economic resilience. According to the OECD, excessive public debt and deficits could undermine global economic stability, especially if combined with high interest rates and reduced market confidence. 

For the UK, this means balancing the need for public investment to support growth and the imperative of maintaining fiscal responsibility. The OECD recommends that the UK government should prioritise investments in infrastructure, education, and innovation to boost productivity while ensuring that these investments do not lead to unsustainable fiscal positions. 

Globally, the OECD pointed out that coordinated fiscal discipline among advanced economies is crucial to mitigating potential financial risks. The organisation suggested that countries should work together to avoid competitive devaluations and protectionist policies that could further destabilise the global economy. The OECD also warned that failure to adhere to sound fiscal practices could lead to increased volatility in global markets, higher borrowing costs, and reduced investment, which would be particularly detrimental for countries like the UK that are already navigating a challenging economic environment. 

Separately, for those planning to indulge in a restaurant meal this weekend, be sure to read the fine print! One Florida restaurant has taken things to a new level by slapping a “crime” fee on diners who dare to share a meal. Yes, sharing is now a luxury service! The menu reads more like a legal contract, insisting that every guest order their own entrée. So, unless you want to be penalised, keep your fork to yourself! 

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

Chloe

27/09/2024

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

Midea Group raised HK$31bn (USD3.9bn) through its secondary listing on Hong Kong this week. It is the largest IPO in more than three years. The issue was heavily oversubscribed, priced at the top end of the range (HK$54.80) and is trading some 15-20% above the IPO price. The household appliances manufacturer is reasonably well known to investors having listed on the Shenzhen Stock Exchange back in 2015. The company’s market capitalisation is approximately US$75bn and it trades on a low double-digit price earnings multiple. 

Bonnie Chan, chief executive of Hong Kong Exchanges and Clearing Ltd, hailed the “very positive momentum” for listings following Midea’s debut. A resurgence in the IPO pipeline would do wonders for Hong Kong Exchanges and Clearing, which is held in our Asian portfolios. 

The other side of the coin is equally encouraging. Stock buybacks in Hong Listed stocks have soared over the past five years. In 2019 buybacks totalled $1.4bn. This rose to $2.1bn in 2020, $5.5bn in 2021, $13.2bn in 2022 and $23.9bn in 2023. Year to date buybacks total $30.7bn suggesting total buybacks for 2024 could exceed $45bn. A thirty two fold rise over five years! 

Over the past five years (to end August 2024) the Hang Seng Index has declined 16.6%. This compares to the 28.8% gain in the regional index (Asia ex Japan) and the 109.1% rise in the S&P500. 

With the Hong Kong market trading on 0.9x book value and yielding 4.4% the incentive to accelerate buybacks is obvious. 

On a more humorous note, we spotted this quote from a Chinese lady bemoaning the authorities proposed upward adjustment to Chinese retirement ages. “When I was born, they said there were too many. When I gave birth, they said there were too few. When I wanted to work, they said I was too old. And when I retire, they say I am too young”. Priceless. 

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Chloe

20/09/2024

Please see below article received from EPIC Investment Partners this morning, which provides a global market update with particular focus on China.

China’s digital yuan has experienced remarkable growth since its inception in 2014. By June 2024, transactions using the digital yuan soared to CNY 7tn (USD 982bn), quadrupling from the previous year’s figures, according to Lu Lei, Deputy Governor of the People’s Bank of China (PBoC). 

The PBoC’s decade-long research and four-year pilot program, spanning 17 provinces and municipalities, have validated the digital yuan’s feasibility across various sectors, including retail, dining, and wage payments. Operating on a unique “two-tier structure,” the digital yuan balances central bank oversight with operational institution involvement, enhancing financial inclusivity and payment efficiency. 

Internationally, China is collaborating with Hong Kong, Thailand, and the UAE on mBridge, a cross-border digital currency project led by the Bank for International Settlements (BIS). This initiative aims to revolutionise global payment systems, as demonstrated by the recent successful international remittance between China’s eCNY and the UAE’s digital dirham via the National Bank of Ras Al Khaimah. 

Despite these advancements, the digital yuan faces significant hurdles in challenging the US dollar’s global dominance. The dollar, used in 88% of foreign exchange trades and comprising 60% of global reserves, derives its strength from America’s deep capital markets and trusted government securities. For the yuan to compete, China would need to implement substantial financial liberalisation, including removing capital controls and increasing economic transparency – steps Beijing appears hesitant to take. 

However, the dollar’s true vulnerabilities lie not in external challengers but in potential US policy missteps, such as overusing financial sanctions or mishandling debt obligations. These actions could gradually erode global trust in the currency’s stability. 

As China refines its digital currency, the global financial community watches with keen interest. According to the BIS, 24 central banks are looking to launch their own versions of digital currencies by 2030. 

While the digital yuan represents significant technological progress, its long-term impact on international monetary systems and economic relationships remains uncertain. Nevertheless, the PBoC’s commitment to steady development suggests that the digital yuan will continue to play an increasingly important role in shaping the future of global finance and cross-border transactions. 

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

Chloe

17/09/2024

Please see below article received from Brooks Macdonald this morning, which provides a global market update for your perusal.

What has happened

After last week’s dismal performance for global equities in general, Monday saw a modest bounce as trader ‘dip-buying’ took over. In local currency terms, the UK FTSE100 equity index was up +1.09%, the pan-European STOXX600 equity index was up +0.82%, while the US S&P500 equity index was up + 1.16%, with US megacap technology stocks leading the market. But the gains were muted. For context, the S&P500 index last week had endured its worst week since March last year, and its worst start to a September since data going back to 1953.

Earnings season – what did we learn?

The latest US quarterly (calendar Q2) earnings season is now effectively done, with over 99% of US S&P500 companies having already reported as of last Friday. What did we learn? The picture is mixed, but overall constructive. According to Factset, for Q2 the annual earnings growth rate for the S&P500 is running at +11.3%, putting it at the highest rate since Q4 2021. In terms of reported earnings, 79% of companies beat consensus, running above the 10-year average (of 74%). However, the scale of the ‘beat’ at 3.6% is below the 10-year average (of 6.8%). Finally, and more encouragingly, as regards the outlook the aggregate estimate for S&P500 earnings-per-share for calendar year 2025 has gone up (by +0.3%) as measured between 30 June and 31 August.

US politics on TV

Later today we see the first televised debate between US presidential hopefuls, Democrat’s Kamala Harris, and Republican Donald Trump. The debate kicks off at 9pm US Eastern Time but given that makes it 2am UK time tomorrow morning, I for one am not planning on watching it live! Keep in mind that the race to the White House is very close, and this TV debate is the only confirmed debate between the two candidates until election day which is now exactly 8 weeks today, on Tuesday 5th November. Even sooner, early voting in some states kicks off this month, including Pennsylvania next week on Monday 16th September, so this TV debate could prove very decisive for some voters. It may also carry some impact for markets potentially should one of the candidates in tonight’s debate come out decisively on top.

What does Brooks Macdonald think

Markets are still split on whether to expect a 25 basis points (bps) cut in US interest rates next week, or a larger 50bps cut instead. The latter case would only seem likely if the US Federal Reserve thought recession risks were rising. But some perspective is important. While there is some slowdown in jobs growth appearing in the latest labour market data, the signals are not consistent with an economy tipping into recession currently – as a case in point, last week’s non-farm payrolls showed average hourly earnings increasing month-on-month and beating expectations, while average weekly hours worked also ticked higher as well. All in all, then, a soft-landing remains more likely than either a hard- or no-landing at this stage. 

Bloomberg as at 10/09/2024. TR denotes Net Total Return.

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

Chloe

10/09/2024

Please see below article received from EPIC Investment Partners this afternoon, which provides an economic update for the US.

As we anticipated, the August U.S. payrolls report brought unwelcome news, indicating a more pronounced slowdown in the labour market than expected. The latest figures show job gains reached only 142,000, considerably lower than the market forecast of 165,000. Additionally, previous reports were revised downwards, with last month’s already weak figure of 114,000 adjusted even further to a mere 89,000. On the other hand, the unemployment rate fell to 4.2%, in line with market expectations. 

The weaker jobs report follows the Bureau of Labour Statistics’ annual benchmark revision of total non-farm employment, which recently reduced job figures by 818,000. 

In response to the report, the bond market reacted favourably, with the yield on the 10-year Treasury note dipping a few basis points from yesterday’s 3.73% to 3.68%. This decline highlights a shift in market sentiment regarding the Federal Reserve’s interest rate strategy, as investors anticipate potential adjustments to monetary policy in September in light of the weaker labour market. 

With U.S. interest rate expectations diminishing, the Japanese yen appreciated in the foreign exchange market, rising from 143.5 to 142.5 against the U.S. dollar. This movement reflects both a flight to safety as investors seek refuge in traditionally stable assets amidst growing economic uncertainty, and longer-term expectations of a U.S. dollar decline as interest rates fall. 

The implications of this payroll report are significant. While the disappointing job growth in isolation might suggest a 50 basis point cut, the steady unemployment rate could prompt the Federal Reserve to opt for a more modest 25 basis point reduction. It presents a challenging balancing act for the Fed, weighing the weakening jobs data over recent months against the fact that U.S. inflation has not yet reached its 2% target. 

As the markets digest this information, all eyes will be on the Federal Reserve’s upcoming September meeting, where officials will need to consider these labour market developments carefully.  

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

Chloe

06/09/2024

Please see below article received from Brooks Macdonald this morning, which provides a global market update for your perusal.

What has happened

Markets on Thursday looked to be a little softer on balance, as investors held their breath ahead of an arguably pivotal US jobs report due later today. Remember that the last monthly US payrolls data was one of the principal catalysts for an economic growth scare, putting markets in a brief but violent tailspin in early August. Otherwise, Thursday saw a slightly better-than-expected US Institute for Supply Manufacturing (ISM) Services Purchasing Manager Index (PMI) for August, coming in a 51.5, where 50 is the dividing line between month-on-month economic expansion versus contraction. Given services makes up around three-quarters share of the US economy, it puts the recent weaker manufacturing print earlier this week in some perspective.

Looking for a better set of US payrolls

Later today, we get the latest (August) monthly US employment ‘non-farm payrolls’ report. After the weaker than expected print last month, markets are hoping for a better showing this time around. According to the median estimate of a Bloomberg survey of economists, payrolls are expected to have risen by +165,000 in August, following July’s +114,000 increase. As for the unemployment rate, that is expected to have edged down to 4.2%, versus the 4.3% print last month. As an aside, it is worth keeping in mind that, as we saw last month, it is quite possible for the payrolls to show net gains, and still see the unemployment rate higher – rather than a sign of weakness, it can actually be a positive, as the unemployment rate ticks up to reflect more people coming back into the workforce available to work, but while looking for a job, are initially classified as being out of work. 

Oil price having a difficult week

In commodity markets, the oil price, at one point down nearly -8% for the week earlier today, looks to be on track for its worst weekly loss in almost a year. With the Brent crude oil price down at around US$ 73 per barrel currently, its lowest level since late last year, the driver for the price weakness appears to be a difficult softer-demand versus ample-supply outlook. That outlook is despite the latest announcement from the OPEC+ oil producing group yesterday (denoting the Organization of the Petroleum Exporting Countries, plus certain non-OPEC countries, including Russia), where following a virtual meeting, the group announced that it would delay planned longer-term production increases (as part of unwinding their previous production curbs) by two months.

What does Brooks Macdonald think

There is an awful lot riding on the US employment report later today. Last month’s weaker than expected print could arguably be put down, in part, to the extreme weather disruption caused by hurricane Beryl. For context, readers will remember that this hurricane was the earliest-in-the-year maximum category-5 hurricane to ever be recorded in the Atlantic basin. There is no such weather excuse this time around. Instead, markets will want to see some reassurance that after some mixed jobs reports data of late, that the US economy is still doing relatively okay. In terms of what is currently being priced in for US interest rate cuts later this month (at the US Federal Reserve meeting decision due 18 September), markets are pricing in around 35 basis points of cuts, so still between either a 0.25% cut or a larger 0.50% cut.

Bloomberg as at 06/09/2024. TR denotes Net Total Return.

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

Chloe

06/09/2024

Please see below article received from EPIC Investment Partners this morning, which provides a global market update.

The global market rout that began on Monday showed signs of easing on Tuesday, with the Nikkei 225 rebounding more than 8% after its worst day since 1987. However, investors remain on edge as they grapple with the implications of a potential US economic slowdown and the Federal Reserve’s policy stance. 

The catalyst for the sudden risk-off sentiment appears to be growing fears of a “hard landing” as central banks, particularly the Fed, attempt to tame stubborn inflation without tipping economies into recession. Friday’s shockingly weak U.S. jobs report crystallised these concerns. It raised doubts about the health of the economy and the Fed’s ability to engineer a soft landing while keeping rates at 23-year highs. 

According to Mohamed A. El-Erian, the market turmoil can be attributed to five key factors: worries about a US growth slowdown undermining “American exceptionalism”, concerns that the Fed’s policy stance is too restrictive, crowded investment positions being caught offside, geopolitical risks in the Middle East, and domestic political developments ahead of the US presidential election. 

Nonetheless, the volatility outburst underscores the precarious and non-linear path to policy normalisation. As central banks attempt to delicately balance cooling demand whilst avoiding a hard landing, markets are prone to air pockets. Investors should brace for choppy and potentially divergent conditions across asset classes in the coming months. In this environment, selectivity and relative value are crucial. 

Within equities, companies with pricing power and resilient margins are likely to weather the storm better. In fixed income, high-grade credit offers attractive yields with lower default risk. Wealthy nations’ bonds are a strong addition to the portfolio aside from plain vanilla US Treasuries given global recessionary risks. 

Looking ahead, incoming US inflation and jobs data, as well as the Fed’s Jackson Hole Symposium, will be key watchpoints for any hints of a monetary policy pivot. More broadly, staying nimble and reactive will be critical as even small data surprises can spark outsized market moves in this fragile environment. While the path ahead might remain bumpy, the volatility spike does not fundamentally alter the broader macroeconomic backdrop at this stage. 

In this “middling” macro regime, a focus on quality, value, and resilience across asset classes remains the prudent approach. If the market’s ups and downs leave you feeling a bit queasy, just remember: every roller coaster eventually comes to a stop. 

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

Chloe

07/08/2024