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Please see this week’s Markets in a Minute update below from Brewin Dolphin, received yesterday afternoon – 14/01/2025

We may never know whether former Prime Minister Liz Truss was thinking “this is my moment” while her chancellor delivered the government’s growth plan (known colloquially as the mini-budget) to the House of Commons. It has, however, been known ever since as the ‘Liz Truss moment’ and has become shorthand for markets dumping a country’s assets in protest of an unsustainable tax and spending plan.

‘Liz Truss moment’ ranks alongside ‘Lehman Brothers moment’ as a descriptor of a severe market reaction. But perhaps it bears more in common with the more dramatically named ‘Black Wednesday,’ which the UK suffered in 1992 when it was forced to devalue the pound and leave the European Exchange Rate Mechanism (ERM).

In that instance, the Bank of England (BoE) was charged with maintaining the pound’s level within a 6% band against other members of the ERM. The band was too high for the UK, and as the pound started to slide out of it, the BoE was charged with buying sterling to bolster it. The central bank couldn’t, however, hold back a tidal wave of speculative flows betting that the pound would eventually be allowed to fall. Inevitably, it eventually did.

In doing so, many argue, the markets caused a devaluation that enabled the UK economy to emerge from recession, which the government’s misguided exchange rate policy may have prevented.

The all-powerful market

The similarity between that event and Liz Truss and Kwasi Kwarteng’s mini-budget was that the market showed itself to be more powerful and influential than the government. This is something that motivated Bill Clinton’s political adviser James Carville’s famous quote: “I used to think that if there was reincarnation, I wanted to come back as the president or the pope or as a .400 baseball hitter. But now I would like to come back as the bond market. You can intimidate everybody.”

The bond market, in these instances, is sometimes referred to as a group of bond vigilantes; individuals who enforce the law despite having no authority to do so. They differ, of course, from true vigilantes, who would be motivated by civic duty. This is because bond vigilantes are motivated by self-interest alone, with occasional policy improvements being a happy consequence rather than an objective.

Is this a ‘Liz Truss moment’?

That was then, this is now. After the mini-budget, UK ten-year borrowing costs reached 4.5%; they are 4.8% now. So, is Chancellor Rachel Reeves now having her ‘Liz Truss moment’?

The most obvious similarities are the adjacency to a budget, and the unusual phenomenon of a falling currency more-or-less coinciding with rising bond yields (which would normally attract foreign bond buyers).

The last UK budget was the end of October. In it, the chancellor, who had criticised Truss for having crashed the economy with a debt-fuelled tax-cutting programme, announced a debt and tax-fuelled spending programme. It was poorly received by the market, although the dominant emotion was probably disappointment rather than shock.

Here was a former BoE economist, who had been the shadow chancellor of the exchequer for three years. Reeves came with the endorsement of former Bank of England Governor Mark Carney and had committed to not raise taxes on working people. So, a budget that delivered a big increase in borrowing, and a big increase in employment taxes was very underwhelming.

However, it was less shocking because Reeves had at least allowed scrutiny by the Office for Budget Responsibility (OBR), and there was some recognition that she was facing an almost impossible task (improving public services whilst maintaining any semblance of fiscal credibility).

Therefore, there wasn’t the same dramatic reaction as to the Truss budget, but borrowing costs have risen and now eclipse those seen during the crisis. A lot of that reflects rising yields globally, particularly since the U.S. election. In fact, the degree to which the UK stands out is small but significant.

Why is the UK in the crosshairs?

There are a few possible reasons. It could reflect the UK’s higher inflation during 2022/3, although in truth it wasn’t much worse than the Eurozone. The UK’s budget deficit is wide relative to many developed economies, but not the U.S. or France, whose bonds have been less weak. Wage growth has been more persistent in the UK than in the U.S., which makes it harder for the BoE to cut interest rates. 

It may partly reflect the political system and budget process in the UK. As the government has an enormous majority, it’s in a much stronger position to pursue a tax and spend policy if it desires. Other countries tend to see protracted periods of negotiation amongst different parties, allowing the markets to absorb and respond to proposed spending increases more gradually.

It could be argued that the Labour government is faced with relatively few institutional constraints due to its parliamentary majority. However, political and market constraints remain. Ensuring the market gains or regains confidence in the government is a function of maintaining the right rhetoric. The Treasury stated on Wednesday that, “no one should be under any doubt that meeting the fiscal rules is non-negotiable and the government will have an iron grip on the public finances”. Then it needs to ensure that actions follow that rhetoric.

The chancellor has set fiscal rules that, at current interest rates, she seems on course to break. Therefore, she may need to consider government spending cuts or tax increases if interest rates don’t drop by March when the next OBR forecasts are prepared. 

Will UK taxes be rising again?

Whether UK taxes will be raised depends on a few factors.

The most obvious is the outlook for the UK economy. If the economy remains strong, interest rates will remain high, and the government’s headroom will be diminished. If the economy were very weak, welfare payments would increase. Ideally, continued positive growth with an ebbing of inflation is needed.

In the UK, a rise in government bond yields has a fairly direct impact on the economy. It means that swap rates, and therefore mortgage rates, are likely to continue to increase, which is a headwind for housing market activity. The outlook for house prices has been quite strong in recent months, so it’s unlikely we’ll see price declines – but as mortgage rates creep up and affordability becomes more stretched, there must be some impact on housing market momentum.

Jobs growth is also expected to be weaker because of last year’s increase in employment taxes. If the current trend of weaker jobs growth continues, the BoE will be more willing to cut interest rates and bond yields will decline accordingly. A slowdown in wage growth would be particularly beneficial, as this has been the Achilles heel of the UK economy.

And beyond the UK?

There are external factors to consider here as well. If OPEC (the Organisation of the Petroleum Exporting Countries) countered the increase in U.S. oil production with a price war, inflationary concerns would ebb away quite quickly, but that doesn’t currently seem to be on the cards.

Another external factor would be a global economic slowdown.

Friday’s U.S. payroll growth figures suggest the world’s largest economy is still performing well, perhaps a bit too well. 256,000 new jobs were created during December, well above the forecast. These numbers could be revised but they indicate strength.

It was perhaps fortunate that there was little impact on wage growth, which has slowed over the last year. However, strong jobs growth raises concerns about how the labour market might react if the Trump administration is successful in taming immigration and thereby restricting labour supply.

As far as the balance of risks and opportunities is concerned, the most frequent challenge to the stock market, that of a recession, seems a distant prospect right now. Whether inflation continues to come down is increasingly in doubt.

We shall get a window into that this week, with inflation data for most major economies, including the UK and the U.S, due on Wednesday. Earnings season also begins this week. Earnings growth is expected to be strong over the next year.

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

Charlotte Clarke

15/01/2025

Please see the below article from Brooks Macdonald detailing their thoughts on the latest economic data. Received this morning 14/01/2025.

What has happened

Markets have seen a small reprieve from inflation nerves overnight, with Bloomberg reporting that the incoming US Trump-administration is considering a slower ramp-up in international trade tariffs, rather than a ‘one-and-done’ increase. While thought to be better at helping Trump and his team in negotiating global trade concessions, markets have taken it as a potential sign of a slighter softer trade tariff outlook – following this thinking through, with hopes of less tariff pressure and less inflation risk, the US dollar has edged lower overnight while equity futures are up currently.

UK prime minister has “full confidence” in Chancellor Reeves

Monday saw continued pressure on sterling and Gilt bond yields. As the government tried to shore up sentiment, prime minister Starmer announced yesterday that he has “full confidence” in Chancellor Reeves. With the recent jump in borrowing costs eroding most if not all of the financial cushion against her fiscal rules according to some estimates, the risk is that Chancellor will be forced into cutting public spending and/or raising taxes – the next scheduled fiscal update, the Chancellor’s Spring forecast, is due to be held on 26 March.

Rising oil prices add to inflationary concerns

Brent crude oil prices yesterday briefly tipped above US$81 per barrel intraday, reaching their highest levels since August last year. The catalyst was a new round of US sanctions announced at the end of last week, targeting Russian oil revenues – in the crosshairs were Russian oil producers Gazprom Neft and Surgutneftegas as well as Russia’s shadow-fleet of vessels for shipping Russian oil principally to India and China. Investors were left to weigh up the fall-out, with the risk of higher oil prices ahead adding to broader inflation worries in financial markets.

What does Brooks Macdonald think

Tomorrow, we have two sets of consumer inflation data due: US and UK Consumer Price Index (CPI) readings, both for December. For the US, annual core CPI (excluding energy and food prices) inflation was running at +3.3% in November, and for the UK it was higher at +3.5%, both still stubbornly above US and UK central bank inflation targets of 2%. Should this week’s inflation data show a hotter number, that would heap pressure on an already nervous bond market.

Bloomberg as at 14/01/2025. TR denotes Net Total Return.

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

Alex Clare

14/01/2025

Please see below, an article from Tatton Investment Management analysing the key factors currently affecting global investment markets. Received this morning – 13/01/2025

UK bond yield surge – more than meets the eye

Bond markets took centre stage again last week. Globally, yields went up thanks to US economic strength – but UK media focussed on UK bond turmoil, as yields spiked more sharply than elsewhere. The sell-off in UK government bonds (Gilts) was not a ‘Liz Truss moment’ but it was similarly driven by structural selling pressures from UK pension funds. Despite all the talk about Britain’s weak economy, the rise in long-term real (inflation-adjusted) yields should reflect higher growth expectations – even though no one actually thinks growth has improved. The pension fund adjustment helps explain this discrepancy, but it doesn’t help explain why yields also spiked in other bond markets.

We think the global sell-off is a broader story about political uncertainty. Gilt traders don’t trust what the UK treasury says, and we have argued for a while that risk measures for US bonds have been increasing. The latter reflects perceptions of potential instability in the world’s largest economy – both in terms of public debt and the health of US institutions more broadly. Donald Trump’s military threats against NATO allies are clear examples, as are the attempts of his adviser Elon Musk to install preferred far-right candidates in the UK and Germany.

This uncertainty can impact markets. Government bonds being seen as more risky, for example, suggests investors are generally less keen to take on long-term risks. That is a problem for risk assets like equities, and it’s notable that recent bond turmoil coincided with increased volatility in US tech stocks. There is no sign of a broad equity sell-off yet, but this is a warning sign. 

Higher real yields means less market liquidity, which increases the ‘gap risk’. UK bond problems are only partly UK-specific. Global yield increases reflect waning risk appetite, in the face of political uncertainty. Politicians should heed bond market signs – regardless of their electoral mandates. If they don’t, the chance of an equity market shakeout increases. 

December asset returns review

There was no ‘Santa Rally’ in December, but thankfully none was needed. Global stocks lost 0.9% in sterling terms on the month, but finished 2024 up 19.6% overall, and every major stock market was in the black. Last month’s troubles were mostly down to the US Federal Reserve signalling fewer interest rate cuts. Bond yields rose, making equities relatively less attractive. Big US tech stocks fell in the aftermath – which is strange, as they are cash rich and therefore immune to higher interest rate costs. That suggests a valuation pullback reaction to the Fed, rather than changing economic expectations, and for the month overall tech stocks gained 2% in sterling terms versus a 0.9% loss for broader US equities.

European also dropped 0.9%, but had a tougher 2024 overall, gaining just 1.9% through the year. UK stocks performed the worst in December, losing 1.3% after the Bank of England kept rates steady. Japan was one of the few positive performers last month, gaining 1.1% thanks to the Bank of Japan’s stimulus plans and upwardly revised growth figures. China was the best performer – up 3.6% through December. This was again due to government stimulus expectations, but there were also signs of economic improvement. Incredibly, China was the second best performer in 2024 overall, gaining 18.8% in sterling terms.

December was a drab end to a great year for globally diversified investors. However, after two years of strong returns, some might wonder whether this can be repeated in 2025, and whether December’s wobble might be the start of something worse. We don’t think last month’s troubles say much about the market mood (it looked more like year-end rebalancing) but there is a lot of economic activity expectations ‘priced in’ to markets. Assets aren’t under threat, but returns might not live up to recent standards.

Global earnings growth

Stock markets are at the moment more sensitive than usual to earnings growth expectations. Analysts think US earnings will yet again power ahead of other regions in 2025, and investors seem to agree. This is largely about Donald Trump: markets think tax cuts and deregulation will help American companies, while tariffs will hurt global companies. Business sentiment indicators back this up, as does recent retail sales data – suggesting US consumers buy the American exceptionalism story. Some worry that tariffs might undermine confidence, but they could also mean that a larger share of US consumption filters through to US corporate profit.

US outperformance is also about underperformance elsewhere. European companies are suffering from weak demand and high energy costs. UK profit expectations are gently improving, but from a low base. Japan’s corporate earnings have been relatively strong, but are stable rather than growing. We have argued before, however, that markets are overly pessimistic about growth outside the US. This negativity is probably clearest in Europe, where investors are arguably ignoring the upsides that might come from more accommodative monetary (and perhaps even fiscal) policy.

We’re less convinced about US dominance. There is a worrying divergence between the ‘soft’ sentiment data and the ‘hard’ economic data. It is hard to see how smaller companies can improve while interest rates are still high – and Trump’s policies have already pushed the Federal Reserve into a tighter stance. This might not be a problem if the biggest US tech stocks can maintain their stellar profits, but that would be doubtful if their customers are less healthy than hoped. 
US earnings growth will likely outperform for the first half of 2025, but the current projections seem too optimistic. Markets could be setting themselves up for disappointment. We will keep a close eye on earnings expectations in the months ahead.

Please continue to check our blog content for the latest advice and planning issues from leading investment management firms.

Alex Kitteringham

13^th January 2025

Please see the below article from EPIC Investment Partners received this morning 10/01/2025:

The dreaded congestion charge has finally made its way across the pond with New York City drivers now being charged $9 (£7) to enter parts of Manhattan during peak hours. The Metropolitan Transportation Authority (MTA) expects the scheme, the first of its kind in the US, to reduce traffic by 10-20% and raise USD 15bn for transit infrastructure improvements. The programme, launched on Sunday 5th January, aims to decrease vehicle traffic by 80,000 per weekday in an area that typically sees 500,000 to 700,000 vehicles daily.  

According to traffic-data analysis firm INRIX, in 2024 New York suffered some of the worst traffic in the world, with drivers losing 102 hours resulting from peak commuting congestions, only to be topped by Istanbul at 105 hours. For context, Londoners are fourth on the list, having lost 101 hours. It seems INTRIX hasn’t made it into Lagos yet. 

The congestion pricing initiative faces several challenges, including safety concerns about public transit alternatives, ongoing legal battles, and potential opposition from the incoming Trump administration.  

The MTA plans to use the revenue for crucial infrastructure projects, including extending the Second Avenue subway to Harlem and modernising train signals. Critics worry about the economic impact on businesses and commuters, while supporters emphasise the environmental and transit benefits. The programme includes various discounts and credits, with fees set to increase to $12 in 2028 and $15 in 2031. 

If New Yorkers think they are getting a raw deal, spare a thought for London drivers who shell out more than double their NY counterparts (£15), seven days a week. By 2028, most Londoners will be listing their kidneys on eBay just to make the daily commute. Driving in big cities is looking to become a luxury activity, right up there with buying a house or affording avocado toast. 

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

Andrew Lloyd

10/01/2025

Please see this week’s Markets in a Minute update below from Brewin Dolphin, received yesterday afternoon – 07/01/2025

In the first Markets in a Minute of 2025, Chief Strategist Guy Foster highlights three of the key economic challenges facing governments in the new year, and analyses why there’s a global slowdown in the manufacturing sector.

Happy New Year and welcome to 2025!

The start to the year was marred by news of tragic terrorist action in the U.S., which serves as a reminder of the fractious state of current affairs.

On the markets front, it’s been mercifully quiet. U.S. equities have gradually declined since Christmas Eve, and have therefore been the relative laggards over the festive period. Most other equity markets were little changed.

Just as the regional market leadership took a break, so has its sector leadership. Technology and communication services were amongst the worst performers while oil stocks outperformed. This follows a report on U.S. oil inventories, which suggested the market’s tighter than expected.

Without much news last week, we’ve taken the opportunity to look at how and when the action will return to the markets.

Last year was momentous, with half the world’s population voting in democratic elections, and the vast majority choosing to change their governments. Given that a quarter of the world live within dictatorships, we might expect a quieter year in 2025.

That would be a wild assumption. Elections can be triggered early (as France’s and the UK’s were last year, and Germany’s will be in February), and the impact of November’s U.S. election was felt as the House of Representatives appointed a speaker. Mike Johnson, who had the all-important endorsement from President-elect Donald Trump, was reelected by an incredibly slim margin of 218-215.

The Republicans won a five-seat majority in November, after which Matt Gaetz resigned. Johnson is not universally popular amongst the Republican congressmen (nobody is), so it was a test of Trump’s authority whether he could pressure them into supporting a single candidate.

Normally, we would have had U.S. employment data to discuss on the first Friday of the month. However, in deference to the holidays, they will be released this week. The expectation is that 150,000 new private sector positions were added during December. The unemployment rate probably stuck at 4.2% and wage growth at 4% per annum.

Economic growth in the U.S. was probably still quite strong, with consumer spending growing at an annual rate of at least 2% – however, purchasing managers indices released on Thursday suggested the manufacturing sector has ground to a halt. Manufacturing was contracting for most of last year in continental Europe and has been losing momentum in the UK, too. The services sector saw a marginal expansion of business activity in December, with the index increasing to 51.1 from 50.8 in November, according to the S&P Global UK Services PMI.

With this being a new year, investors will be excited to hear how companies performed during the last quarter. The earnings season starts next week, with the big day of banking results falling on 15 January.

This week is a quiet one for company news with the jobs report and the sitting of a new Congress looking like the main events for now.

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

Charlotte Clarke

08/01/2025

Please see the below article from EPIC Investment Partners detailing their thoughts on China and the domestic/international headwinds the economy faces. Received this morning 07/01/2025.

The World Bank has raised its 2024 growth forecast for China to 4.9%, a modest increase from its previous 4.8% projection. This cautiously optimistic revision comes as the world’s second-largest economy faces significant domestic and international headwinds.

The World Bank projects a moderate cooling of growth to 4.5% in 2025, highlighting the need for structural reforms. Mara Warwick, the World Bank’s country director for China, identified key priorities: “Addressing challenges in the property sector, strengthening social safety nets and improving local government finances will be essential to unlocking a sustained recovery.”

In its most dramatic monetary policy shift in over a decade, Chinese authorities have adopted a “moderately loose” stance for 2025. This pivot has already yielded tangible results, with the People’s Bank of China’s (PBoC) signals of forthcoming interest rate and reserve requirement cuts driving 10-year government bond yields to unprecedented lows beneath 1.6%.

The economic outlook is further complicated by resurging US-China tensions, exemplified by yesterday’s confusion surrounding proposed US “universal” tariff policies. However, Beijing appears more strategically prepared this time, implementing a comprehensive approach combining retaliation, adaptation, and market diversification.

China has demonstrated its economic leverage by controlling exports of vital chipmaking minerals to the US and launching targeted antitrust investigations. Beyond these defensive measures, Beijing is actively expanding its global economic footprint, exploring preferential trade arrangements with alternative partners and investing in strategic infrastructure projects, including a major deep-water port development in Latin America.

On the currency front, the PBoC has markedly shifted its exchange rate management strategy. The central bank’s latest MPC meeting notably omitted previous references to “exchange rate flexibility,” instead introducing “three resolutes” focused on maintaining market stability and preventing excessive currency fluctuations. This explicit change in language suggests the central bank is taking a firmer stance against renminbi depreciation against the dollar.

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

Alex Clare

07/01/2025

Please see below, an article from Tatton Investment Management analysing the key factors currently affecting global investment markets. Received this morning – 06/01/2025

December’s market-moving events – most notably the Fed telling markets ‘bah humbug’ – didn’t spoil 2024’s year-long party in US equities; they just stopped it a little early. Investors have grown extremely confident about US growth since Trump’s election win, expecting tax cuts and deregulation, somehow coupled with ultra-efficient government and a reduced budget deficit. The ‘soft’ data (measuring confidence) has backed this up but the ’hard’ data (actual activity) has not so far. Americans will want to quickly see that their confidence is well-founded this year. 

That will be difficult if the Trump administration starts fighting itself. The Trump coalition’s ultra-conservative wing is already confronting the Elon Musk “tech bro” wing over skilled immigration. Trump himself has always been coy on policy specifics, but the specifics are now needed – which may make markets slightly less optimistic. 

Investors have been getting ever more dour about Europe and the UK. We think energy prices are still Europe’s main handicap, and the energy outlook is uncertain. Russia is now halting all gas pipeline deliveries through Ukraine – causing prices to spike – but this is being portrayed as a consequence of Ukraine’s rather than Russia’s actions, and European relations are fractured. It’s uncertain, but this plausibly could be positioning ahead of an end to fighting. That should mean lower energy prices and perhaps a brighter 2025 for Europe. 

Markets are negative about the UK. Growth is non-existent, but commentators suggest that Britain’s wage inflation will be higher than elsewhere because of short labour supply and the government’s tax policies. If they’re right, the government might have to expand the deficit further, making gilts even less attractive. That’s why the spread between UK and German bonds has reached its highest in 25 years, but this strikes us as too far, considering the economic similarities.  

2025 starts with more unknowns than usual. We have to stay a step ahead, but also accept that outcomes can be highly unpredictable when so many factors are at play. It will be an interesting year and we think diversification will be more important than ever. Here’s hoping for a peaceful, sustainable global backdrop to underpin returns.

Please continue to check our blog content for the latest advice and planning issues from leading investment management firms.

Alex Kitteringham

6^th January 2025

Please see below, an article from Tatton Investment Management analysing the key factors currently affecting global investment markets. Received this morning – 23/12/2024

Fed spoils the Christmas party

Investors weren’t expecting the Federal Reserve’s hawkish forward guidance adjustment (fewer interest rate cuts to be expected in 2025) and sold off sharply on the news. That is a big change from last year’s unstoppable ‘Santa Rally’, but in other respects we end 2024 similarly to how we started: coming off a good year for returns, unsure of whether it can be repeated. UK yields also rose to their highest this century, partly because of the Fed and partly because the Bank of England kept rates on hold.

The Fed surprise isn’t really a surprise, given US economic strength and Donald Trump’s promised pro-growth policies. We didn’t expect such a sudden hawkish shift – but we did say markets were too optimistic about US rates. Interestingly, the US mega-tech stocks suffered the most, despite being cash-rich and (on paper) immune to higher debt costs. That suggests the sell-off was a valuation correction, rather than economic pessimism.

We suspect one reason markets didn’t think the Fed would turn hawkish was that it will inevitably upset Trump. A fight over Fed independence now looks likely, and it’s not the only fight the new administration is gearing up for. Trump adviser Elon Musk sharply criticised a bipartisan budget deal that congressional Republicans just agreed, suggesting that Trump 2.0 might see the kind of government shutdown threats that used to plague Washington.

These policy headwinds are not (yet) disturbing the strong outlook for US profits. It looks like US exceptionalism will continue which, combined with Fed hawkishness, is bullish for the dollar. But, it was notable that US stocks (particularly tech) got the biggest knock-down this week, probably because of investors’ previous American optimism. US dominance creates longer-term problems but, for now, this week’s price correction makes stock valuations look healthier. That sets up the start of 2025 nicely.

How long will the BoE stay still?

The Bank of England (BoE) was in no giving mood before Christmas, holding interest rates steady last week. Markets expected as much, after November’s data showed higher wage and price inflation than the previous month. Worryingly, inflation remains while growth is weak. UK bond yields remain higher than elsewhere because investors doubt the BoE will be able to cut interest rates as sharply as other central banks. The difference between market expectations for UK and Eurozone rates is particularly stark: markets predict Eurozone rates at 1.75% by the end of 2025, while Britain’s rates are predicted to remain above 3.5%.

We are sceptical of this mismatch, though. UK yields are even higher than the US, but judging by relative growth and fiscal policies, it’s hard to make the case that Britain needs tighter monetary policy than the US. The UK has a similar inflation profile to Europe, but markets think the ECB has prices under control and the BoE doesn’t. This suggests the BoE has more scope to cut than currently expected – or that Britain is set for surprisingly high inflation.

The latest inflation numbers, while higher than October, weren’t a surprise. In fact, core (excluding volatile elements) and services inflation were below expectations, and these tend to better indicate the medium-term outlook. This isn’t to say everything is fine (housing costs and wages are a concern) but we suspect the BoE will ‘look through’ these numbers. For example, overall employment declined, despite the wage rises.

The BoE is more wary than most about supposedly ‘transitory’ supply-led inflation, so they will continue to wait and see. But the data they are waiting to see will probably be weak. That could mean more UK rate cuts than bond traders currently predict.

Chinese stimulus good, not great

China’s economic stimulus continues to underwhelm. Beijing recently announced a fiscal deficit expansion which implies RMB 1.3 trillion ($179.4bn) in extra spending, but Chinese stocks only bounced slightly and later pulled back. Weak growth – as shown by November’s disappointing retail sales – is taking the shine off policy promises, and those promises themselves are doubted. Markets doubt Beijing’s willingness or ability to solve its domestic demand problem. The clearest example of this is that Chinese government bond yields fell despite announcing new issuance.

It’s important to see the wood for the trees, though. Beijing has significantly increased its economic support since the summer and policymakers are taking the domestic demand problem seriously. In the past, stimulus was concentrated on production, which only exacerbated the supply glut, despite maintaining official GDP numbers. Previous spending also came through local governments, which have proven themselves incapable of investing efficiently.

China needs private companies to spend more, but leaders are afraid of that, after the credit and property bubbles they inflated in the 2010s. It does seem like Beijing now recognises the necessity of private sector expansion, judging by its recent cuts to key policy rates (with more expected soon). Money creation numbers suggest this is starting to work. People are moving money into current accounts, which is usually a sign they are set to spend rather than save.

It will soon be crunch time for Beijing. Once Donald Trump enters the White House (January 20) we will find out whether his “day one” tariffs are serious. That will quickly be followed by Chinese new year and the spring festival, during which we will get a better sense of whether demand stimulus is working. There are reasons to be hopeful, but it’s time to deliver.

Please continue to check our blog content for the latest advice and planning issues from leading investment management firms.

Andrew Lloyd

23^rd December 2024

Please see the below article from EPIC Investment Partners detailing their discussions on the invitation of Xi Jinping to Trump’s inauguration. Received this morning 19/12/2024.

On November 29, we published an article titled “The Art of the Deal, 2.0: A Trump Tower Thought Experiment,” envisioning a hypothetical meeting between President-elect Donald Trump and Chinese President Xi Jinping at Trump Tower. At the time, it was merely a bold premise—a thought experiment suggesting that a deal between the United States and China might be closer than it seemed. Days later, it emerged that Trump had, in fact, already invited Xi to attend his inauguration—a surprising and unprecedented move only revealed to the public in early December.

Traditionally, U.S. presidential inaugurations are domestic affairs, with foreign representation limited to ambassadors. State Department records dating back to 1874 show that no foreign head of state has ever attended, making President-elect Trump’s invitation to Xi an unprecedented departure from protocol. As Trump himself said, “And some people said, ‘Wow, that’s a little risky, isn’t it?’ And I said, ‘Maybe it is. We’ll see. We’ll see what happens.'”

Reports suggest President Xi is unlikely to attend, wary of the domestic and international implications. Attending could be seen as favouring one U.S. leader over another, complicating China’s broader diplomatic strategy. The Chinese embassy has not commented, and experts note Xi would want to avoid any perception of endorsing Trump’s leadership.

Trump’s guest list also includes Hungarian Prime Minister Viktor Orbán, Italian Prime Minister Giorgia Meloni, and Argentine President Javier Milei, each reflecting a distinct ideological alignment or potential for collaboration. Orbán, known for his nationalist policies such as strict immigration controls and crackdowns on independent media, and his strained ties with the EU over rule-of-law disputes, shares ideological similarities with Trump. His stance on sovereignty and resistance to globalist policies aligns closely with Trump’s priorities.

Notably, but perhaps unsurprisingly, Russian President Vladimir Putin was not invited, a decision that highlights the ongoing U.S.-Russia tensions and reflects Trump’s intent to avoid controversy at an already highly scrutinised event.

While it remains unclear which leaders will accept, the invitations highlight Trump’s willingness to rewrite protocol and forge unexpected alliances. Even if Xi declines, the outreach underscores a strategy aimed at reshaping global relationships on Trump’s terms, signalling a readiness to break from tradition in pursuit of his diplomatic agenda. As Trump himself said, “We like to take little chances.”

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

Alex Clare

19/12/2024