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Evelyn Partners Update – Bank of England MPC decision

Please see the below update from Evelyn Partners Investment Strategy team on today’s Bank of England MPC decision to continue to hold interest rates at 5.25%:

What happened?

The Bank of England (BoE) held the base rate at 5.25% at their meeting today. This was consistent with market expectations and marks the fourth consecutive meeting where rates have been held at this level.

Interestingly, the committee vote was split three ways, with two members voting for a hike, six voting to hold, and Swati Dhingra voting for a 25 basis point cut.

What does it mean?

As expected, the BoE held interest rates at 5.25%. Markets are now focused on when the Bank will cut interest rates and how far they will go. And perhaps Swati Dhingra’s vote to cut the base rate signals that the tide is set to turn. This was the first vote for a cut since the pandemic started almost four years ago. Although clearly this will continue to depend on the incoming data, which has been favourable since the Monetary Policy Committee (MPC) last met in December.

December CPI came in at 4.0% year-on-year, which was well below the Bank’s forecast of 4.6%. The headline figure was helped by services inflation, which was 0.5% percentage points below the Bank’s November forecast of 6.9% year-on-year. Similarly, the latest wage data shows further deceleration. The direction of travel seems encouraging, so much so, that the consensus forecast is that CPI will be 2.1% by the second quarter of this year.

The guidance published today by the MPC provided more hints on how they see the economic outlook. Compared to December’s guidance, the MPC dropped the language mentioning the risk of further interest rate tightening, signalling they are less concerned about inflation remaining stubbornly high. We also received the Bank’s latest forecasts. It expects GDP growth of 0.25% in 2024 and 0.75% in 2025. Similar to the consensus view provided in the Bloomberg survey of economists, the Bank sees inflation decelerating to 2% in Q2 2024, before it picks up again in the second half of the year.

This should give the Bank the ammunition it needs to cut rates around the middle of the year. Money markets are split on whether the base rate will be cut in May, but they have more conviction that we will see at least one cut by June. They are also pricing 100 basis points of cuts by the end of 2024.

Bottom Line

The BoE held interest rates at 5.25%. We expect to see the first rate cut around the middle of the year as inflation decelerates to the 2% mark.

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

Andrew Lloyd DipPFS


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Brewin Dolphin: Markets in a Minute

Please see below, Brewin Dolphin’s ‘Markets in a Minute’ which provides a brief analysis of the key news from global economies. Received late yesterday afternoon – 14/11/2023

Stocks mixed on hawkish central bank comments

Stocks gave a mixed performance last week following hawkish comments from central bank policymakers.

After enjoying its longest winning streak in two years, the S&P 500 slumped on Thursday after Federal Reserve chair Jerome Powell said the central bank was not confident it had done enough to rein in inflation. A tech-driven rally on Friday helped the S&P 500 end the week up 1.1%.

Powell’s comments weighed on indices in Europe, with the Stoxx 600 slipping 0.1%. European Central Bank (ECB) president Christine Lagarde added to concerns about rates staying higher for longer, saying it would take more than the next couple of quarters for the ECB to start cutting rates. The FTSE 100 declined 0.8% after Bank of England governor Andrew Bailey said it was “really too early” to talk about cutting rates.

In Asia, China’s Shanghai Composite declined 0.6% after consumer prices fell in October, adding to concerns about the country’s economic outlook.

Investors await US inflation data

Stocks were mixed on Monday (13 November) as investors awaited the release of US inflation data on Tuesday. The Stoxx 600 rose 0.8%, the FTSE 100 added 0.9% and the S&P 500 edged down 0.1%. In economic news, figures from Rightmove showed new seller asking prices in the UK fell 1.7% this month, the largest November drop for five years. Nevertheless, Rightmove’s director of property science Tim Bannister said the year so far had been better than many expected, with new seller asking prices just 3% behind May’s peak.

The FTSE 100 was flat at the start of trading on Tuesday as figures from the Office for National Statistics (ONS) showed wage growth cooled slightly in the three months to September. Earnings excluding bonuses were 7.7% higher than in Q3 2022. This was a slight slowdown from 7.8% in the previous period, which was the highest since comparable records began in 2001.

UK economy stagnates in third quarter

As well as interest rate commentary, last week saw the release of some important pieces of economic data, including the latest UK gross domestic product (GDP) figures. The data from the ONS showed GDP was flat in the third quarter compared with the previous three months, following a 0.2% expansion in the second quarter. There was a 0.1% decline in services sector output, which offset a 0.1% increase in contraction sector output and broadly flat production sector output.

The 0% figure was in line with the Bank of England’s expectations and better than the 0.2% contraction forecast by economists. Flat growth means the UK has managed to avoid a recession this year, which is defined as two consecutive quarters of declining GDP.

Eurozone retail sales fall for third straight month

In the eurozone, the latest retail sales data continued to point to a weak European economy. Retail sales fell for the third consecutive month in September, declining by 0.3% from the previous month, according to Eurostat. An increase in sales of food, drinks and tobacco was offset by falls in non-food products and automotive fuel. The decline was worse than the 0.2% drop expected by analysts, although sales for August were revised up from -1.2% to -0.7%.

On an annual basis, sales were 2.9% lower than in September 2022. This was worse than the 1.8% year-on-year decline in August, but better than the 3.2% contraction forecast by economists.

US consumer sentiment drops to six-month low

In the US, consumer sentiment fell for the fourth-consecutive month in November, according to the University of Michigan’s preliminary consumer sentiment index. The headline index fell from 63.8 in October to 60.4 in November, the lowest level since May. The preliminary gauge of current conditions fell from 70.6 to 65.7, and the expectations index declined from 59.3 to 56.9. Joanne Hsu, the University of Michigan’s surveys of consumer director, said the decline was in part due to growing concerns about the negative effects of high interest rates, as well as geopolitical concerns.

The report also showed that year-ahead inflation expectations rose from 4.2% to 4.4%, the highest since April 2023, while long-run inflation expectations rose from 3.0% to 3.2%, the highest since 2011.

China’s consumer prices fall in October

Over in China, consumer prices fell in October, according to the National Bureau of Statistics. The consumer price index fell 0.2% year-on-year after being unexpectedly flat in September, underscoring the country’s fragile economic recovery since the pandemic. Food prices were the main culprit, with overall food prices down 4.0% from a year ago. Pork prices were 30.1% lower than in October 2022.

Meanwhile, producer prices declined 2.6% year-on-year, compared with a fall of 2.5% in September. The producer price index has now been in negative territory for 13 consecutive months.

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

Alex Kitteringham

15th November 2023

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Brooks Macdonald: Daily Investment Bulletin

Please see below, Brooks Macdonald’s ‘Daily Investment Bulletin’ which provides a brief update on global investment markets. Received this afternoon – 28/09/2023

What has happened?

US bond yields continued their grind higher yesterday with the US 10-year Treasury yield now at 4.61% after another rise in oil prices stirred fears of a higher for longer inflationary backdrop. With these moves the US dollar has also been appreciating further, with the dollar index almost back to levels seen in November last year. US equities managed to stay flat for the day, but this conceals a high level of intraday volatility and general uncertainty.

Bond moves

Bond markets are certainly leading broader financial markets now with bonds seeing another heavy selloff yesterday. The Bloomberg aggregate global bond index, a widely used measure of the broad bond market, reached its lowest price level of 2023 as the benchmark 10-year and 30-year Treasury prices fell. These moves are quickly moving into the real economy with the US 30-year mortgage rate now at 7.41%, the highest level since December 2020. While the lag is relatively short, mortgage rates do act with a delay so there is likely further upside to these rates in the coming weeks. European bonds were also under pressure with 10-year bund yields hitting a 10-year high and Italian bonds underperforming after the Italian government unveiled a 4.3% expected deficit for 2024.

Oil Prices

The latest move higher in bond yields, which move inversely to prices, has been catalysed by growing inflation expectations caused by the uptick in energy prices. Brent crude closed above $96 per barrel yesterday, a fresh high for 2023. The US oil benchmark, WTI, saw an even greater percentage climb yesterday with the price moving to a one-year high of $93.68. While recent moves have been spurred by supply cuts, yesterday’s moves reflected lower-than-expected storage levels in the Cushing oil reserves.

What does Brooks Macdonald think?

Robust US economic data has been a key pillar of the soft-landing narrative in recent months however the recent consumer confidence data, and yesterday’s card spending data, suggests that the US consumer is showing signs of slowing. The US consumer discretionary sector has declined by almost 10% over the last fortnight as investors start to price in a heightened risk of a hard landing.

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

Alex Kitteringham

28th September 2023

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The Daily Update: Bean Counters

Please see below article received from EPIC Investment Partners this morning, which reports on yesterday’s Republican debate in Milwaukee.

Last night, eight of the nine Republican presidential hopefuls took to the stage in Milwaukee for the first time. There was a sense that it would be a bit of a damp squib without former president Trump. However, that was not the case. There were various attacks on President Biden’s policies and each other whilst they attempted to close the gap on the GOP frontrunner Donald Trump.

The hopefuls also sparred over abortion, leadership experience and climate change.

As the debate progressed, they did diverge on the question of whether they would back Trump as the party’s nominee in the event of his conviction in any of his four legal cases. Six of the eight indicated they would still support him even if he is convicted of a crime.

Trump, who leads the GOP field by double-digit margins, chose not to participate in the debate, effectively treating his potential nomination as a foregone conclusion. Instead, the current frontrunner shared a pre-recorded interview with former Fox host Tucker Carlson, which was broadcast on X, the platform formerly known as Twitter. Trump is also not planning to participate in the next debate, due to be held at the Ronald Reagan Presidential Library in Simi Valley on September 27.

Trump, who has spent years claiming that the 2020 election was rigged, is already floating groundless claims that 2024 will be stolen from him too.

He was asked by Carlson, “If you’re saying they stole it from you last time, why wouldn’t they do the same this time?” Trump replied: “Oh, well they’ll try. They’re going to be trying, yeah. And not only me.”

Whilst Trump was not on the stage in Milwaukee, both he and President Biden used the debate to try to raise cash for their respective campaigns. Biden’s fundraising committee ran ads on Facebook during the debate, calling the GOP candidates a “threat to our democracy.”

Trump’s campaign set out his pitch saying that as long as there are still other GOP candidates in the race, the party is wasting resources that could be spent attacking Biden.

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



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Brewin Dolphin – Markets in a Minute

Please see the below article from Brewin Dolphin commenting on the latest stock market movements, received after close of business yesterday.

Stocks fall as China’s economy impacts sentiment

All major indices ended the week in the red as fears over China’s economic recovery impacted investor sentiment.

The FTSE 100 dropped 3.3% as UK core inflation remained flat and wage growth accelerated, indicating the Bank of England may need to raise interest rates further. In Europe, the Dax fell by 2.1% and the Stoxx 600 declined 2.5% amidst fears that interest rates may remain high for a prolonged period.

Over in the US, the S&P 500 fell by 2.7%, the Nasdaq dropped 3.6% and the Dow lost 2.3% as the benchmark ten-year US Treasury yield reached its highest level since October.

Meanwhile in Asia, Hong Kong’s Hang Seng lost 4.4%, China’s Shanghai Composite dropped 1.5% and Japan’s Nikkei 225 declined 1.9% after disappointing economic data out of China.

China reduces key interest rate

Markets were mixed on Monday (21 August), with sentiment affected in part by the People’s Bank of China reducing its key interest rate for the second time in three months.

The central bank reduced its one-year prime loan rate, which is primarily used for corporate lending, by 10 basis points to 3.45%. The bank’s five-year loan prime rate remained unchanged. The decisions surprised economists, who had anticipated a 0.15 basis point reduction to both rates. Investors will now be looking ahead to the Federal Reserve’s annual Jackson Hole Symposium conference, which will run from Thursday to Saturday.

Over in the UK, house prices fell by 1.9% in August to an average £364,895, the sharpest decline so far this year, Rightmove’s House Price Index shows. The average five[1]year fixed mortgage rate has fallen to 5.81% from 6.08% three weeks ago.

UK public sector net borrowing (which excludes public sector banks) was £4.3bn in July, £3.4bn less than in July 2022, and below economists’ forecasts of around £5bn. It was the fifth highest July borrowing since records began in 1993.

UK headline CPI – YoY % change

Core CPI, excluding energy, food, alcohol and tobacco, rose by 6.9% in the 12 months to July, remaining unchanged from June.

Producer price inflation (PPI) also fell in July, with input prices declining 3.3% in the year to July, down from a fall of 2.9% in the year to June, according to the ONS.

Producer output prices also declined by an annualised 0.8% in July, down from a rise of 0.3% in the 12 months to June. It is the first time that output PPI has been negative since December 2020, and the twelfth consecutive month that the annual inflation rate has slowed.

On a monthly basis, input prices fell by 0.4% while output prices rose by 0.1% in July.

UK Labour market cools

The UK job market has shown signs of cooling as employment rates fell and unemployment rates increased in the three months to June compared to the previous quarter, according to the ONS.

The employment rate was estimated at 75.7%, a 0.1 percentage point decline on the first quarter of the year and 0.8 percentage points below pre-pandemic levels. The decrease was largely driven by a decline in full-time employees and self-employed workers.

The unemployment rate was estimated at 4.2%, up 0.3 percentage points than the previous quarter and 0.2 percentage points above pre-pandemic levels. This was primarily driven by those unemployed for up to six months.

Meanwhile, annual growth for regular pay (which excludes bonuses) was 7.8% in the three months to June, the highest level since records began in 2001. Average weekly earnings for regular pay were £613 in June, up from £610 in May.

China’s economic recovery weakens

China’s retail sales rose by 2.5% in July, falling short of an expected 4.5% increase. Industrial production also fell short of expectations, rising by 3.7% in July. Economists had predicted an increase of 4.4%.

Real estate investment fell by 8.5% year-on-year in July, with investment in residential buildings seeing a decline of 7.6%. Meanwhile, turmoil in China’s property sector continued as new home sales declined 19% year-on-year in July, while overall house prices fell by 0.2% month-on-month.

Please check our blog content for advice, planning issues and the latest investment, market and economic updates from leading investment houses.

Alex Clare


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Tatton Investment Management: Monday Digest

Please find below the Tatton ‘Monday Digest’ which provides an overview of global economic news from the past week. Received this morning – 24/07/2023

Another inflation driver turns over

Last week, markets yet again revolved around inflation, wages and profit margins. In the UK, we finally received some of the positive inflation news that has been stoking US markets. June’s consumer price index (CPI) decline to 7.9% year-on-year could be a watershed moment, giving the Bank of England (BoE) the green light to raise interest rates only by another 0.25% in August. To put this into context, last Tuesday markets were still pricing in a 0.50% hike.

The better-than-expected inflation news helped UK equity markets to storm higher on the week, egged-on by sharp falls in medium-term gilt yields (and parallel gilts price rises!). Sterling retreated from its recent highs against the US dollar, but UK stocks closed the week leading the rest of the world higher, even in UK sterling-based terms.

On the other side of the Atlantic, the US second quarter earnings season has showed that margins are finally coming under pressure across the board. Tesla withdrew its previous statement that margins would “remain among the highest in the industry,” and a cautious commentary left the door open for another round of price cuts soon. It’s not just Tesla, however, and margins have weakened substantially in other integral areas like trucking and freight (which we discuss in greater detail below). We have become used to the UK headlines about strikes, but if the US turns out to have a more entrenched inflation path because labour relations have worsened it may face the same worries as we have faced in the UK.

As the earnings season progresses, we appear to be in a new phase, where companies have lost pricing power but sales should hold up because they are not cutting labour aggressively. We will be listening very closely to what the US Federal Reserve tells us after this Wednesday’s Federal Open Market Committee meeting.

Chinese property developers are on their own

Since property giant Evergrande defaulted on its debt two years ago, the world’s most leveraged property developer has been in a lengthy restructuring process which, for the most part, has looked like artificial life support rather than a cure. Its slow-motion collapse has been a major part of China’s property crisis, and is a substantial drag on growth for the world’s second-largest economy. None of the property developer’s problems should surprise us anymore, and yet, its latest announcements cannot help but make collective eyes water. In just two years, Evergrande made losses of $81 billion. The incredible losses are driven mostly by asset depreciation, thanks to sinking values in China’s building industry. Analysts have suggested that the fact such dire figures are now being released shows an acceptance the hoped-for improvement is not coming anytime soon.

The Chinese government has seemed surprisingly uninterested in arresting the decline. The last few months have been horrendous for the ailing property sector, but policy support has been minimal. If Beijing does let large developers go bankrupt, equity and foreign bondholders will be the least protected. The distress also has big implications for China’s banks – which are among the largest financial institutions in the world. Developers’ financial struggles seriously impact banks, which will inevitably mean tighter lending conditions for everyone. That could well dampen any help that comes from the authorities.

China’s hopes of a post-Covid boom have well and truly evaporated, pushing down asset values which rallied into the start of this year. The property developers’ financial problems are proving contagious as they are weighing down on consumer and business sentiment. As such, they have been at the heart of the weak post-lockdown rebound in Chinese consumption and that has led to rising savings rates and even weaker private sector activity. This is not to say that Beijing is against growth – both words and actions suggest the opposite. However, it wants growth in productive areas and property has become unproductive. Developers may already be resigned to being given nothing more than life support.

Freight not great

There are serious questions over the health of the US freight industry at the moment. Relations between companies, drivers and other workers have become highly antagonistic, just as revenues have been falling. UPS, the world’s biggest courier, has been in the spotlight due to its negotiations with the Teamsters Union, with the two sides failing to agree wage increases for part-time workers, who make up roughly half of UPS’s unionised workforce in the US. UPS isn’t the only company under pressure. Yellow Corporation, the parent company of Holland and Yellow Freight, announced it is $50 million short of the pension contributions it owes, and remains in severe financial distress.

Yellow’s likely demise is a symbol of America’s freight recession. Early in the pandemic, the surge in transport demand created huge capacity expansion in trucking, only for companies to find themselves short of drivers. Workers’ increased pricing power meant significantly higher wage bills, eating into profit margins and worsening financial metrics. When the post-Covid boom dwindled, revenues fell sharply and firms were caught out.

Some of the bad news for freight companies is good news for US consumers. The ongoing freight recession means lower costs, while the inventory situation could also mean the easing of goods prices. This would help inflation-bruised consumers and support demand but, as ever, this has to be balanced against the increased risk of defaults. A wave of defaults hurts everyone, making finances tighter than they already are. This is not happening yet, but is very much a live possibility for the freight sector.

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

Alex Kitteringham

24th July 2023

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Tatton Investment Management – Tuesday Digest

Please see the below article from Tatton Investment Management, providing a brief analysis of the key stories from global markets and economies over the past week. Received this morning – 02/05/2023

Overview: Let May’s sway guide your way

In recent weeks, it has been hard to ignore the rather directionless and decreasingly volatile bond, equity and currency markets. In particular, credit markets have been very stable or – as one could also interpret them – indecisive. There appears to be lots of investor demand for higher-yielding corporate bond securities without much new supply through issuance matching it. This demand overhang has cheapened credit spreads, or in layman’s terms the premium that corporates pay over governments. With the current total cost of capital at any maturity still higher than the return on capital that many companies appear to expect over the longer term, there is understandably little appetite among corporates to rollover existing debt, let alone create new finance. Instead, they appear to be collectively trying to sit out this yield high, hoping for better financing terms later in the year. We suspect many mortgage holders in the UK with their mortgage terms nearing expiry are having similar thoughts.

Last week’s earnings reports in the UK, Europe and in the US offered more evidence of companies trying to offset weak (often negative) volume growth by raising prices. Unilever and Procter & Gamble were notable in this respect. Companies don’t like to use whatever pricing power they have, but they will if they have to. We should hope that central banks recognise this as the last throes of a cycle, rather than worrying that the latest service sector-driven inflation data is indicative of a spiral.

As we head into the next round of rate decisions, it will be important for companies – and the risk assets that represent them – that central banks tell us they recognise they have done enough and the growing need to change course. The Federal Reserve Open Markets Committee meets tomorrow, the European Central Bank on Thursday, and the Bank of England meets next Thursday. The expectations are that we will get small rate rises but accompanied by the ‘cooing of doves’ – soothing sounds telling us that they expect inflation to cool and rates to be moved to less tight levels as inflation allows. Therefore, contrary to the old stock market adage of ‘sell in May and go away’ it seems to us that ‘let May’s sway guide your way’ may prove far better guidance for investors this year. We will certainly be monitoring central bank messaging, and the market perception of it, very closely.

Cash and money market funds: part 2

We wrote about US money market funds (MMFs) last week, noting how popular and systemically important they have become and what this might mean for capital markets going forward. MMFs are particularly prominent in the US, due to its specific financial and regulatory structure, and have been for many years. Today, money markets are a global phenomenon. As of late 2020, MMFs held over $5.3 trillion worldwide, $3.9 trillion of which came from institutional investors. More recent data is hard to come by, but we can only assume the current figure is much higher, given recent flows into MMFs.

The main selling point for any MMF is its ability to offer cash-like liquidity with better returns than a regular bank deposit. But, given the focus on extremely safe assets, the actual differences in return – both between MMFs and deposits and between MMFs themselves – are naturally quite low. (Though, as noted last week, when base interest rates change as rapidly as they have, banks’ slowness to adjust can create some pretty wide spreads) Even so, not all MMFs are the same, varying on expected duration, risk level, returns or accounting structure.

UK money markets still operate according to European Union regulations, and in the post-Brexit environment, some investors have been concerned about funds under European jurisdiction. For those that wish only to have a UK-regulated fund, there are only a few choices. Almost all funds are under Irish regulation, some under Luxembourg. The main reason appears to be that the jurisdiction can be costly for both investors and fund managers – Ireland remains the cheapest. Interestingly, MMFs in the US can be quite expensive, despite their prominence and popularity with retail investors. Most MMFs in the US now charge around 0.5%, while the median figure is much closer to 0.15% in the UK. This is a positive for us, as Sterling-based investors. MMFs do not compete much on performance, nor would we really want them to, as the incentive to up returns would go against the need for low risk, low volatility. But being competitive on price is exactly what you would want from cash-like assets.

The resurrection of Bitcoin?

It might be surprising to hear that the largest cryptos have had an incredibly good year so far. At the time of writing, Bitcoin is up nearly 80% year-to-date, while Ethereum has jumped more than 60%. Cryptocurrencies suffered a devastating 2022, and Bitcoin and Ethereum are both still below half their late 2021 peaks. Still, the current rallies are impressive, all the more so given the wider market challenges. Bitcoin’s rebound coincided with the US government’s decision to bail out SVB and Signature Bank depositors. Since, prices have climbed to more than $30,000 per token in mid-April, a level it has bounced around since.

Some of that renewed optimism is because of expectations of looser monetary policy from the Fed in reaction to the banking sector concerns. Many analysts have posited that the crypto world still has a tight correlation with global (and particularly US) money supply growth. But industry insiders also point to the slower rate of Bitcoin mining – the process by which new tokens are produced – as a longer-term reason for price growth. In a year’s time, the world’s biggest crypto is set to go through another round of ‘halving’. This is the process every four years that cuts in half the amount of reward Bitcoin miners receive for their work. It is designed to eventually limit the total Bitcoin supply to 21 million tokens. Prices hit new records after each of the last three halving events, and analysts estimate that only 50% of the upcoming supply reduction is priced in, based on previous cycles. While this might not take Bitcoin to a new record – the $69,000 achieved in November 2021 – analysts think $50,000 is an achievable target.

Although advertised as a long-term alternative to fiat currencies, Bitcoin has mostly traded like a speculative risk asset. Indeed, Morgan Stanley notes that the last 10 years for Bitcoin mirror the behaviour of gold prices in the 1970s, when exchange rates became free-floating, asset price speculation was rife, and the price of gold rose by several orders of magnitude. The similarities with gold hint at a deeper problem with Bitcoin as a functional currency. Halving means Bitcoin is by its very nature limited in supply, which gives holders a huge incentive to hold onto their tokens rather than transact them, as they are likely to increase in value. But transaction is one of the key functions of a currency, and so this disincentive could be Bitcoin’s undoing, whereas Bitcoin’s younger sibling Ethereum is not limited in supply.

One of the reasons gold did so well in the 1970s was that holders of seemingly weaker currencies – those from less-trusted nations and markets – had a huge incentive to buy it before their savings depreciated. A similar dynamic seems to be happening with cryptos increasingly being used as alternatives to Emerging Market (EM) currencies, as recently evidenced by Argentina’s letter of intent to the International Monetary Fund in March, which effectively admitted that EM investors see Bitcoin or Ethereum as more credible than some of the regional currencies. Chinese corporations and wealthy individuals have a longstanding desire to move money out of government control, so given the market hype around China this year, this could go some way to explaining Bitcoin’s recent incredible strength. It could even provide a crucial backstop to Bitcoin’s value in the months ahead. The crypto rally might run out of steam, but it is unlikely to reverse.

Please check our blog content for advice, planning issues and the latest investment, market and economic updates from leading investment houses.

Alex Clare


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Brooks Macdonald – Weekly Market Commentary

Please see the below article from Brooks Macdonald providing their Weekly Market Commentary. Received this morning 18/04/2023.

A slightly lighter economic calendar, but more company results instead this week

Despite a weaker day on Friday in dollar terms, equity markets managed to finish the week in positive territory, as financial stress fears continued to recede after last month’s hiatus. The flipside though, is that markets have been rebuilding expectations around a Fed hike on 3 May when the Fed next meets, with probability of a 25bps hike now at 81. Turning to the week ahead, it’s a slightly lighter economic calendar. In terms of what to look out for, China’s Q1 growth following its reopening will be in the spotlight when it releases Gross Domestic Product (GDP) numbers tomorrow. Elsewhere, investors will be focusing in on labour market and inflation releases from the UK due tomorrow and Wednesday respectively. Over in the US, the Fed releases its latest ‘Beige book’ on Wednesday, where the regional Fed banks gather up anecdotal information on current economic conditions in their areas. With the US Q1 earnings season now underway, company results ramp up with more bank results due this week, including Bank of America, Morgan Stanley, and Goldman Sachs, as well as results from Tesla, IBM and Netflix. Finally, the global flash PMIs for April due Friday will bookend the week, as investors continue to focus on recession risks.

US bank sector results gets off to a good start

Friday saw US bank sector results get underway, with bellwether JP Morgan easily beating expectations. Alongside an expected boost to deposit inflows following customers seeking perceived safety in the bigger banks, JP Morgan also posted a huge jump in its net interest income (which is broadly speaking the difference between what it pays on deposits and earns on loans and other assets). Significantly, JP Morgan CEO Jamie Dimon and his team stressed that the 1Q deposit inflows were not driving its higher interest-income forecast, now expected to be $81bn this year, up from a previous estimate of $74bn, with Dimon saying that “the US economy continues to be on generally healthy footings, consumers are still spending and have strong balance sheets, and businesses are in good shape,” Clearly one bank’s results doesn’t dictate the whole sector, and it’s likely that results from some other US banks, including smaller regional banks in coming weeks might look less robust, but as results go, it was a good start to the earnings season, which investors are watching closely in terms of the expected earnings outlook for this year.

US debt ceiling talks still a tail-risk

Later today sees US House of Representative Speaker Kevin McCarthy (Republican) giving a speech that’s expected to cover the Republicans’ position on the issue. As a recap, the US is expected to come up against the debt ceiling again this summer, and the Republicans have said they want concessions like spending cuts in return for passing an increase. Since the Republicans now have a majority in the House of Representatives, versus a Democrat-controlled Senate, it suggests that there will have to be some concessions from both sides. For the time being, investors on balance seem to be framing these talks as largely political still, but that does leave a tail-risk for markets should the mood on Congress deteriorate.

What does Brooks Macdonald think

Despite firming expectations of a Fed hike next month, markets are still expecting cuts later this year, with the Fed December meeting rate expectation currently at 4.50%. While that’s up a long way from the 3.75% low at the height of the US banking turmoil last month, it is still at odds with a Fed which on balance is likely looking to want to hike and then hold rates at those higher levels. With the next Fed meeting only two weeks away on Wednesday, this week is the last time we’ll be able to hear from Fed speakers before their blackout period begins on Saturday.

Please check our blog content for advice, planning issues and the latest investment, market and economic updates from leading investment houses.

Alex Clare


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Evelyn Partners Update – March Fed rate decision

Please the below article from Evelyn Partners providing an update on the Federal Reserve decision on interest rates received yesterday, 22/03/2023.

What happened?

The Federal Reserve met today and chose to increase rates 25bps. This was in line with the latest market expectations and takes the target range to 4.75% – 5%. The Fed also published their quarterly ‘dot plot’ which shows where committee members see rates heading in the future. It showed rates peaking this year at a level of 5.1%, the same level they had thought at its last publication in December. The Fed’s quantitative tightening programme continues at its previous pace of up to $95 billion a month.

What does it mean?

Less than two weeks ago Fed chair Powell was suggesting that it may be appropriate to increase rates by 50bps at this meeting if the data continued to show strength. Since then, February’s 300k job growth and 0.5% MoM core CPI inflation bolstered this case, and the meeting may have delivered it were it not for problems in the banking sector. The failure of Silicon Valley Bank in the US and Credit Suisse in Europe caused market participants and the Fed alike to reconsider the path for interest rates in the US.

Futures markets had expected interest rates in the US to peak at around 5.5% in July and remain at this level for the foreseeable future. SVB hit the headlines on 10 March and investors digested the likely fallout over the weekend. By the close of business on Monday, markets were pricing in a peak of just 4.75% as soon as May and a full percentage point of reductions by the year end – a remarkable turnaround. Since then, those expectations moved back higher, and earlier today the peak was expected at around 5% in May before declining to around 4.5% by the end of 2023. Expectations for today’s meeting declined from a 50bps increase to 25bps prior to the announcement, although at one stage markets were suggesting the most likely outcome was no change.

The unusual level of volatility in expectations prior to today’s meeting shows the market’s changing expectations for how the Federal Reserve was going to balance the pressing need for financial stability alongside its mandate of price stability. Clearly stress in the banking sector has added to uncertainty and made the Fed’s job more difficult. In the statement today, they remark “Recent developments are likely to result in tighter credit conditions for households and businesses and to weigh on economic activity, hiring, and inflation. The extent of these effects is uncertain.”

They also changed elements of language in the statement from last month “ongoing increases in the target range will be appropriate” to the softer “some additional policy firming may be appropriate”. Markets’ initial reaction to the statement was dovish, with the yield curve steepening and stock prices broadly increasing. Given the robust economic numbers coming out of the US, some commentators had expected a move higher in the ‘dot plot’ which did not come.

Bottom Line

Today, the Fed followed the European Central Bank in delivering an expected interest rate increase at their March meeting – we expect the Bank of England will do similarly tomorrow and increase their base rate by 25bps. Clearly central banks believe that fight against inflation is not yet won and while recent turbulence in the banking sector is of concern, it is not enough for a significant change of course. After the statement, market expectations are for rates to peak at the next meeting in May, and we continue to suggest increasing duration in government bond portfolios as the Fed comes ever closer to the end of this hiking cycle.

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Adam Waugh


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Brooks Macdonald daily market update

Please see below an article received from Brooks Macdonald today 17/03/2023 which provides their views on recent global market events:

What has happened

Equities stabilised, then rallied yesterday as investors concluded that contagion risks were receding in the aftermath of the SVB and Credit Suisse issues.

Bank crises

Shares in First Republic Bank, a regional US bank considered to be one of the most exposed to a SVB-style event, opened lower yesterday but started to recover as reports suggested that a support package was imminent. Just before the market closed, a consortium of major US banks contributed $30bn of uninsured deposits to First Republic. First Republic announced after the market close that it would be suspending its dividend and will be seeking to repay some debt instruments. Credit Suisse equity rallied yesterday after the overnight news that the bank would be using a Swiss National Bank liquidity facility to meet near-term liabilities. The bond market was less impressed however with credit default swaps, effectively an insurance contract on the bank’s debt, remaining elevated and their bonds remaining under pressure.

ECB meeting

The ECB chose to follow through on its pre-announced 50bp interest rate hike despite the meeting coming within the midst of the current banking sector turmoil. Arguably the outsized hike was a ‘dovish’ move in that the ECB made no future commitment to the path of interest rates, stressing a data-dependent approach going forwards. This is no real surprise as the ECB must have felt boxed in by their previous 50bp guidance and one wonders whether they would have proceeded with that larger hike without the prior commitment. The ECB said that it was monitoring the current market volatility closely, adding that the ‘euro area banking sector is resilient, with strong capital and liquidity positions.’

What does Brooks Macdonald think

With the ECB meeting out of the way, investors are already looking ahead to the Fed meeting next week with markets broadly pointing to a 80% probability of a 25bp move and 20% probability of no change at all. With the Treasury market the release valve for SVB tensions over the last week, as some of the immediate fears have subsided the yield curve is unwinding its emergency pricing with the 2-year yield up over 25bps yesterday alone. The other important change has been a heavy revision of the number of Fed rate cuts expected in the second half of this year, with bond investors now pricing in a longer pause and decline after the Fed reaches its terminal rate.

Bloomberg as at17/03/2023. TR denotes Net Total Return

Please check out blog content for advice, planning issues and the latest investment, market and economic updates from leading investment houses

Adam Waugh