daniel massheder

Written by Ilaria Massei

Data released last Wednesday show that, in December 2023, the UK faced an unwelcome rebound in the annual inflation rate, reaching 4% and surpassing market predictions. This increase was largely due to alcohol and tobacco prices, which rose by 12.9%. The core inflation rate, which excludes some volatile items like energy and food, stood at 5.1%, slightly above the forecasted 4.9%. However, retail sales declined by a greater than expected 3.2% in December 2023, following a revised 1.4% increase in the previous month. The current picture in the UK suggests that the restrictive monetary policy is affecting consumers, while inflation remains well above the target of 2.0%.  This will undoubtedly present some challenges for policymakers going forward.

Elsewhere, the US witnessed a significant month-over-month increase of 0.6% in retail sales for December 2023, beating forecasts of 0.4%. This upswing, driven by a 1.2% surge in auto sales, follows a 0.3% rise in November. The U.S. economy has broadly held up well and the question for markets will be whether this ongoing strength risks leading to an unwelcome rebound in inflation.

The core consumer price index (CPI) in Japan recorded a year-on-year increase of 2.3% in December, slightly lower than the 2.5% reported in November. Headline wage growth also experienced a significant slowdown in November. This data brought into question the expectations of those investors who believed that the Bank of Japan (BoJ) might raise interest rates multiple times in the coming year. The central bank has consistently communicated its commitment to maintaining an ultra-accommodative monetary policy stance until it observes a sustained inflation uptick driven by wage growth.  The Yen unsurprisingly weakened on this news.

It is notable that, among the ongoing uncertainty and mixed data signals, the market consensus seems to be lacking strong consensus and is as widely spread in terms of short-term views.  Looking further out, we see many attractive investment opportunities, but we believe maintaining a well-diversified portfolio becomes crucial to capturing these asymmetries in a risk-controlled manner going forward.

Any opinions stated are honestly held but are not guaranteed and should not be relied upon. 

The information contained in this document is not to be regarded as an offer to buy or sell, or the solicitation of any offer to buy or sell, any investments or products. 

The content of this document is for information only. It is advisable that you discuss your personal financial circumstances with a financial adviser before undertaking any investments. 

All the data contained in the communication is believed to be reliable but may be inaccurate or incomplete. Unless otherwise specified all information is produced as of 22^nd January 2024.

© 2024 YOU Asset Management. All rights reserved. 

Written by Chris Ayton

Markets were mixed over the week. The UK equity market continued to give back some of its year end gains, with the FTSE All Share Index -0.7% over the week.  Conversely, MSCI Japan was up over 4% in GBP terms, with the index hitting a 30+ year high, as foreign flows into the market continued to be positive, supported by optimism around continued stimulus and corporate governance reforms. Overall, the MSCI All Country World Index of global equities was up +1.3% for the week, while bonds, as measured by the Bloomberg Global Aggregate Index Hedged to GBP, gained +0.5%.

On Friday, it was announced that the UK economy had rebounded 0.3% in November, driven by growth in the services sector with car leasing and strong Black Friday sales supporting the growth.  Although this news was taken positively, December data will determine whether the UK economy has avoided the technical recession in 2023 that many forecasters expected at the beginning of the year. Markets took the news positively, pricing in a slightly higher chance that the Bank of England will begin to cut interest rates in May.

Elsewhere, China’s consumer price index (a key measure of inflation), fell 0.5% in December, in deflationary territory for the third consecutive month, as consumer sentiment remains weak and the property sector remains stuck in the doldrums.  That said, leading economic indicators that we look at internally show a notable pick-up in activity in certain key areas of the economy in China.  Some loosening of fiscal and monetary policy in Q4 2023 and some targeted help for the property sector will take time to come through.  Whether these moves will be strong enough to offset the deflationary pressures remains to be seen. However, with China’s equity market at rock bottom valuations, any rebound in the economy could provide attractive upside for equity markets in China and across associated Emerging Market indices.

Taiwan went to the polls on Saturday, with the incumbent Democratic Progressive Party (DPP) winning a third term in office. Unlike its opposition parties, the DPP continues to refuse to consider Taiwan part of China, resulting in ongoing tensions with its superpower neighbour.  However, it was notable that the DPP won with a much reduced share of the vote and lost its majority in the legislature, perhaps providing some encouragement to China that a peaceful and diplomatic solution can be found to deliver greater cooperation going forward.

Any opinions stated are honestly held but are not guaranteed and should not be relied upon.

The information contained in this document is not to be regarded as an offer to buy or sell, or the solicitation of any offer to buy or sell, any investments or products.

The content of this document is for information only. It is advisable that you discuss your personal financial circumstances with a financial adviser before undertaking any investments.

All the data contained in the communication is believed to be reliable but may be inaccurate or incomplete. Unless otherwise specified all information is produced as of 15^th January 2024.

© 2024 YOU Asset Management. All rights reserved.

Written by Ilaria Massei

A big surprise on Tuesday came from the number of job openings in the U.S. which decreased by 617,000 from the previous month to 8.7 million in October 2023, marking the lowest level since March 2021 and falling below the market consensus of 9.3 million. The data on job openings seemed to drive a continued decrease in long-term interest rates over the week, with the yield on the benchmark 10-year U.S. Treasury note hitting a low of 4.1% on Thursday. However, Yields then rebounded in the wake of the payrolls’ report on Friday, which surprised slightly on the upside with employers adding 199,000 jobs in November versus consensus expectations of around 180,000. The unemployment rate also surprised by falling back to 3.7% from a two-year high of 3.9% in October. As a reminder, this data is important as the Federal Reserve wants to see a weaker US labor market before it will consider cutting interest rates in order to ensure inflation does not re-emerge.

Elsewhere, in Germany, industrial output fell for a fifth consecutive month in October, sliding -0.4%. Factory orders unexpectedly dropped -3.7%.  On a separate note, the European Central Bank (ECB) Executive Board member Isabel Schnabel signalled a shift to a dovish stance in an interview with Reuters, saying, “the most recent inflation number has made a further rate increase rather unlikely.” Activity in the UK’s construction sector fell sharply for a third month in a row in November, due to a continued slump in homebuilding, according to a Purchasing Managers’ Index compiled by the S&P Global and the Chartered Institute of Purchasing and Supply.

Statements from The Bank of Japan (BoJ) officials in the week, led some investors to deduce potential preparations for an earlier-than-expected adjustment in the ultra-accommodative monetary policy. This included speculation that the removal of the negative interest rate policy might follow shortly after any potential lifting of the BoJ’s yield curve control policy.

Last Tuesday, Moody’s revised its outlook for China’s government bonds, shifting from “stable” to “negative,” citing concerns about the economic risks posed by heavily indebted local governments and state firms. This downgrade represents the latest challenge for China’s financial markets, already struggling with a prolonged property market downturn and diminishing confidence among consumers and businesses. In response, Beijing has implemented numerous pro-growth measures this year to stimulate demand, yet analysts argue that these efforts have proven inadequate to revive the economy.

This is the last World In A Week for 2023, this communication will resume on Monday, 8^th January 2024.

Any opinions stated are honestly held but are not guaranteed and should not be relied upon.

The information contained in this document is not to be regarded as an offer to buy or sell, or the solicitation of any offer to buy or sell, any investments or products. 

The content of this document is for information only. It is advisable that you discuss your personal financial circumstances with a financial adviser before undertaking any investments.

All the data contained in the communication is believed to be reliable but may be inaccurate or incomplete. Unless otherwise specified all information is produced as of 11^th December 2023.

© 2023 YOU Asset Management. All rights reserved. 

Written by Dominic Williams

Jeremy Hunt’s ‘Autumn Statement for Growth’ marked a departure from his March Budget, which lacked significant tax cuts, featured numerous spending promises, and produced a projection from the Office of Budget Responsibility (OBR) that foresaw a public spending to GDP ratio of 43.4 per cent, the highest since the 70s.  The Autumn Statement, in contrast, introduced £20bn in tax cuts.  Approximately half of this sum resulted from a surprise announcement, reducing employee National Insurance contributions by 2 percentage points, and simplifying self-employed contributions.  This move is anticipated to put £450 back into the pockets of the average worker annually.

One notable announcement is the introduction of ‘full expensing,’ enabling businesses to immediately and fully offset capital investments against corporation tax.  This is expected to provide a substantial incentive for businesses, fostering increased productivity, economic growth and, subsequently, higher wages.  Notably, this tax cut positions the UK with the lowest headline corporation tax rate in the G7.

However, while a National Insurance cut benefits workers, Rishi Sunak’s decision to freeze personal tax thresholds has pulled millions of workers into higher tax brackets.  Consequently, the overall tax burden is still projected to reach a post-war high by 2027-28.

Figures released last week indicated a sharp rise in UK consumer confidence between October and November.  The GfK Consumer Confidence Index, that measures people’s views on personal finances and broader economic prospects, suggests an optimistic outlook.  This has led to increased expectations that the Bank of England will maintain current rates at 5.25 per cent for a longer period than initially anticipated.  This sentiment aligns with the recent statement from Andrew Bailey, Governor of the Bank of England, emphasising it’s ‘far too early’ for interest rate cuts.  Bailey also cautioned that more efforts are required to bring down inflation to its target rate of 2 per cent, despite the sharp decline in the annual inflation rate.

Looking beyond the UK, the latest Federal Reserve meeting minutes reveal no indication of potential rate cuts on the horizon.  Jerome Powell, the Chair, emphasised that the Banks primary focus remains on assessing whether further rate hikes are necessary.

Any opinions stated are honestly held but are not guaranteed and should not be relied upon. 

The information contained in this document is not to be regarded as an offer to buy or sell, or the solicitation of any offer to buy or sell, any investments or products. 

The content of this document is for information only. It is advisable that you discuss your personal financial circumstances with a financial adviser before undertaking any investments. 

All the data contained in the communication is believed to be reliable but may be inaccurate or incomplete. Unless otherwise specified all information is produced as of 27^th November 2023.

© 2023 YOU Asset Management. All rights reserved. 

Written by Millan Chauhan

The Office for National Statistics released the latest monthly GDP data for the UK, which saw the economy grow at +0.2% in September 2023, which equated to a third quarter GDP figure of 0.0%. September’s GDP reading was largely driven by services and construction growth, however, consumer-facing services fell.

Elsewhere in Europe, economic conditions continued to deteriorate as retail sales in the eurozone fell -0.3% in September, which marked the third consecutive month of negative sales growth. The figure was worse than expected, as consumer demand continues to be challenged by the effects of higher borrowing costs and input costs.

The global ratings agency, Moody’s, changed the outlook on US government debt from stable to negative since fiscal deficits remain large and borrowing costs on its debt have risen significantly. Meanwhile, the US stock market continued to perform well, as the NASDAQ 100 Index returned +4.4% last week in GBP terms, an index which is largely dominated by technology companies such as Google, Microsoft, and Amazon. Microsoft is also now trading at all-time highs.

Looking ahead this week, there are numerous important economic data releases including the announcement of the US Inflation rate on Tuesday, with expectations leaning towards 3.3%, and the UK inflation rate on Wednesday, with expectations at 4.8%. On Friday, the eurozone area inflation rate will also be released, with expectations at 2.9%.

Any opinions stated are honestly held but are not guaranteed and should not be relied upon. 

The information contained in this document is not to be regarded as an offer to buy or sell, or the solicitation of any offer to buy or sell, any investments or products. 

The content of this document is for information only. It is advisable that you discuss your personal financial circumstances with a financial adviser before undertaking any investments. 

All the data contained in the communication is believed to be reliable but may be inaccurate or incomplete. Unless otherwise specified all information is produced as of 13^th November 2023. 

© 2023 YOU Asset Management. All rights reserved. 

Written by Chris Ayton

The impact of higher UK interest rates is increasingly evident in many sectors of the economy. For example, last week The Insolvency Service released data showing the highest corporate insolvency numbers in the UK since 2009. These are companies that can no longer pay their debts, with construction, hotels and food retail particularly affected in the latest numbers.

Data from the Royal Institute of Chartered Surveyors last week also showed the largest drop in construction activity since the pandemic, when the industry largely came to a halt. This current sharp slowdown is undoubtedly being driven by higher costs of borrowing.

However, according to Nationwide, UK house prices unexpectedly rose +0.9% last month, supported by wage growth and a lack of supply of properties for sale. This was the largest rise since March 2022. However, Nationwide also noted the number of transactions remains depressed and prices are still 3.3% lower than where they were a year ago.  In real terms, i.e., after inflation, the declines are obviously even greater.  Perhaps with one eye on a slowing economic backdrop, the Bank of England kept interest rates on hold last week.

Economic data coming out of Europe last week did not make happy reading either.  Firstly, Germany announced it had unexpectedly fallen back into negative GDP growth in the third quarter.  Eurostat, the EU statistics office, then announced the Eurozone economy had also shrunk in the third quarter with contractions in Germany, Ireland and Austria offsetting growth in Spain, Portugal and France.  Eurozone manufacturing activity also contracted for the eighteenth month in a row, and at a faster pace than seen previously. The one bright note was that this weaker activity, combined with lower energy prices, helped Eurozone inflation fall more than expected to 2.9% year-on-year.  This perhaps supported the European Central Bank’s recent decision to keep its benchmark interest rate on hold at 4%.

With an interest rate driven economic slowdown seemingly taking effect, it remains to be seen if and when the attention of policymakers will turn to supporting growth, rather than attacking inflation. Although Central Banks are supposed to be “independent”, political pressure for a change of course will likely be particularly prevalent in countries where a general election is on the horizon. Clearly, any sense that rate hikes may be behind us will be supportive of the strong total return opportunity we see in high quality bonds.

Any opinions stated are honestly held but are not guaranteed and should not be relied upon. 

The information contained in this document is not to be regarded as an offer to buy or sell, or the solicitation of any offer to buy or sell, any investments or products. 

The content of this document is for information only. It is advisable that you discuss your personal financial circumstances with a financial adviser before undertaking any investments. 

All the data contained in the communication is believed to be reliable but may be inaccurate or incomplete. Unless otherwise specified all information is produced as of 6^th November 2023. 

© 2023 YOU Asset Management. All rights reserved. 

Written by Ilaria Massei

The Office for National Statistics published a new set of data elaborating on a new methodology, which signalled that the UK’s unemployment rate increased to 4.2% during the three months ending in August, compared to 4.0% in the period from March to May. On a separate note, a survey conducted among purchasing managers indicated that business activity within the private sector continued to be in a contractionary phase for the third consecutive month in October. Net approvals for house purchases, which act as a gauge for future borrowing trends, declined to 45,400 in August 2023. This represented a drop from the revised July figure of 49,500, but slightly surpassed the market’s projected 45,000. This decrease marked the lowest point since February, reflecting softened housing activity in response to the Bank of England’s assertive tightening measures.

Following ten consecutive interest rate hikes, the European Central Bank (ECB) opted to keep its key deposit rate steady at 4.0%. The ECB reaffirmed that maintaining this rate for an extended period would assist in bringing back inflation to its medium-term goal of 2.0%. The ECB President Christine Lagarde expressed that the eurozone’s economic condition was fragile and expected to persist in this state for the remainder of the year.

In the US, the focus was on earnings announcements. Although the majority of the mega-cap tech firms displayed robust growth and surpassed consensus forecasts, investors appeared to react strongly to signs of increasing costs, putting downward pressure on stock prices. Most of the equity indexes finished lower last week, moving to correction territory, defined as a decrease by more than 10% of an equity index from a recent high.

Elsewhere, equities in China rose as an improvement in industrial profits suggested that the economy may be stabilising. Additionally, last Tuesday, China’s government authorised the issuance of RMB 1 trillion in additional sovereign debt and approved a plan to raise the fiscal deficit for 2023 to about 3.8% of gross domestic product, up from the 3% limit it set in March.

Any opinions stated are honestly held but are not guaranteed and should not be relied upon.

The information contained in this document is not to be regarded as an offer to buy or sell, or the solicitation of any offer to buy or sell, any investments or products. 

The content of this document is for information only. It is advisable that you discuss your personal financial circumstances with a financial adviser before undertaking any investments. 

All the data contained in the communication is believed to be reliable but may be inaccurate or incomplete. Unless otherwise specified all information is produced as of  30^th October 2023. 

© 2023 YOU Asset Management. All rights reserved. 

Written by Cormac Nevin

Last week was a challenging one for markets, with the MSCI All Country World Index of global equities down -2.6% in both GBP and local currency terms. It was a broad-based selloff across various global equity markets, while global treasury bonds, credit and high yield bonds were also down modestly.

While geopolitics currently dominate the headlines, with certain markets wary of an escalation of tensions in the Middle East, it is likely that the challenge faced by markets is found closer to home. Over the last six months the “real” rate of interest, which is the rate of interest in excess of the expected inflation rate, has reverted to highs not seen since 2008. For example, the five-year real interest rate in the U.S. reached 2.4% over the month of October.

As inflation is increasingly looking like a risk that is now in the rear-view mirror, markets and economies more broadly are having to contend with a sharp increase in the cost of financing instituted by central banks. The impact is being seen globally as consumers and companies alike re-adjust to the new economic reality. House price sales in the U.S. are now at a 27-year low, as homeowners are reticent to move from mortgages fixed at multi-decade lows in years prior to the current mortgage rate of approximately 8%. In the UK, the number of property transactions has also slowed to the lowest rate in years. Other components of the economy are also facing pockets of challenge, as corporate bankruptcy filings increase and the Private Equity complex resorts to alternative financing sources to meet commitments as they fall due.

While pockets of the economy appear challenged as outlined above, we should be mindful that it is likely that an excellent total return opportunity has presented itself as yields on liquid, high-quality government bonds are at multi-decade highs and could realise appetising gains should central banks be forced to cut rates in the face of economic weakness.

Any opinions stated are honestly held but are not guaranteed and should not be relied upon. 

The information contained in this document is not to be regarded as an offer to buy or sell, or the solicitation of any offer to buy or sell, any investments or products. 

The content of this document is for information only. It is advisable that you discuss your personal financial circumstances with a financial adviser before undertaking any investments. 

All the data contained in the communication is believed to be reliable but may be inaccurate or incomplete. Unless otherwise specified all information is produced as of 23^rd October 2023. 

© 2023 YOU Asset Management. All rights reserved.