daniel massheder

Written by Millan Chauhan

US markets are currently weighing up whether the Federal Reserve will implement a further interest rate hike at their next scheduled meeting at the end of October. At the Federal Reserve’s last meeting, rates were held steady at a target range of between 5.25% – 5.50%. Over the last few weeks, we have seen yields on longer-dated US Treasury Bonds move higher following the Federal Reserve’s narrative that interest rates could be higher for longer. Over the course of last week, we saw yields on 30-year US Treasury Bonds reach 4.9% which we haven’t seen happen since 2007.

However, at the end of last week, we saw the Bureau of Labor Statistics release the latest US jobs report which surprised markets as we saw an additional 336,000 roles added to the workforce which was well above the consensus of 170,000 and above August’s revised figure of 227,000. With the labour market remaining stronger than expected, there could be one further interest rate hike implemented by the Federal Reserve. Ahead of the Federal Reserve’s next meeting, we are expecting to see the latest US inflation data be revealed this Thursday with consensus leaning towards 3.6%.

Elsewhere, in the UK, house prices fell for a sixth consecutive month as prices fell -0.4% month-over-month in September. House prices began to come under pressure from April onwards as rising borrowing costs have reduced the affordability of new mortgages.

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 9^th October 2023

© 2023 YOU Asset Management. All rights reserved.

Written by Shane Balkham

The US government avoided a shutdown late last night, as a dramatic vote at the weekend saw House Speaker Kevin McCarthy navigating around Republican rebels that have been hounding him for weeks.  With less than an hour to go, the White House released a statement at 11:15pm advising that President Biden had signed the measure on a short-term funding deal.

No good deed goes unpunished in US politics.  While Kevin McCarthy may be congratulated by some for buying Congress a few more weeks to negotiate spending priorities and averting a government shutdown, it seems his actions may cost him his job.

Rather than try to placate the far-right rebels, whose demands were too outlandish to pass the spending bill, McCarthy instead pushed ahead with Democratic support and only half of that of the Republicans.  This triggered a response from the rebels who threatened to topple McCarthy if he opted to push legislation forward that needed Democratic support to pass.  The challenge opens up an unpredictable political skirmish this week, as the band of Republican rebels have now made good on the threat of toppling McCarthy.

It is no wonder that the rating agencies look upon the US with tired eyes.  It was only in August that Fitch downgraded the credit worthiness of the US, on the back of weaker governance and heightened political tensions.  Last week also saw Moody’s, another rating agency, warn that a government shutdown would be ‘credit negative’ for the US rating and underscores the continued weakness of US governance.

It was better news for the UK.  The Office for National Statistics (ONS) revised the growth for the UK economy in the first quarter of 2023 up to 0.3% from the earlier estimate of 0.1%.  The ONS estimate for second quarter growth remained unchanged at 0.2%.  Growth was also faster than expected last year, up to 4.3% for 2022 revised from an estimate of 4.1%.

However, it is always worth remembering that the US economy is still arguably the most influential economy in the world and how the US government conducts itself still matters to global investors.  Downgrades in ratings could increase the cost of debt for the US government, at the same time they are trying to ratify future spending plans.  With the Federal Reserve currently navigating the potential end of its hiking cycle, these are unwanted distractions at a time of important decision making. It is also worth remembering that any significant disruptions or increased costs in the US, resulting from downgrades and fiscal challenges, could have knock-on effects on the global economy, including the UK.

Political pressure is building and taking centre stage once again, even before we have entered the political circus that will be 2024’s Presidential Election campaign.  Media noise and volatility will likely increase, making it critical that investors have robust long-term multi-asset portfolios, with appropriate levels of diversification.

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 [02/10/23]. 

© 2023 YOU Asset Management. All rights reserved. 

Written by Millan Chauhan

The UK Consumer Price Index (CPI) slowed to 6.7% in the twelve-months to August 2023, with this inflation print below market expectations of 7.0%. The encouraging signs of slowing inflation did come as a surprise to markets and led to an initial sell off in Sterling and a dampening of forecasts for an interest rate hike by the Bank of England (BoE). Subsequently, the BoE Monetary Policy Committee narrowly voted 5-4 to keep interest rates at 5.25%, with four of those members voting to increase rates by 0.25%. The BoE also stated that it expects CPI inflation to fall significantly in the near term following lower annual energy price inflation and further declines in food price inflation.

The Federal Reserve kept interest rates at the target range of between 5.25%-5.5% following its meeting last week, having raised interest rates by 0.25% in July 2023. The Federal Reserve also signalled its outlook for its target funds rate, which is expected to peak at between 5.5%-5.75%.  This equates to one further 0.25% interest rate hike this year with rate cuts expected from 2024 onwards. US Inflation accelerated to 3.7% in the twelve-months to August 2023, up from 3.2% in the twelve-months to July 2023. The largest contributions to this print were rising energy prices and housing related costs.  The perception that rates could stay higher for longer led equity markets to decline over the week.

Elsewhere, the Governor of the Bank of Japan, Kazuo Ueda stated that Japan is yet to see inflation settling at its 2% target range and decided to keep its short-term interest rate at -0.1%. Japan’s Core CPI rose by 3.1% in the twelve-months to August 2023. Following this announcement, the Japanese Yen sharply fell towards ¥148 per dollar and there are expectations that the Japanese authorities may step in if the Japanese Yen continues to weaken.

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 25^th September 2023. 

© 2023 YOU Asset Management. All rights reserved.

Written by Cormac Nevin

While August has been a moderately negative month for markets, we saw a widespread rally last week. This was led by Japanese Equities, as well as growth-biased and small cap equities globally.

The stand-out event of last week was the release of employment data in the US on Friday. This data illustrated how the labour market has been weakening, despite previously appearing to be impervious to the interest rate hiking cycle that the Federal Reserve has been enacting for the last year and a half to cool inflation.

Non-farm payroll data, which is an indication of hiring activity for the month of August, came in slightly higher than expected, however, the data releases for prior months were revised down significantly. It seems to be the case that the initial data releases this year have been too optimistic and are then revised downwards as time passes. In an unexpected move, the unemployment rate for the US also rose from 3.5% to 3.8%, as more people began seeking work who had not been doing so previously. This potentially indicates that the store of cash which households built up over the pandemic, and which has provided a significant economic boost in the reopening, has now begun to run dry.

While the burst of inflationary pressure we witnessed coming out of the Covid-19 pandemic was largely the result of supply chain disruption and shifts in consumer preferences, the Federal Reserve and most other global central banks have responded with a significant tightening in monetary policy to ensure any inflationary impulses are wrought out of the system. In their view, this entails an increase in unemployment to control inflation. The degree of indebtedness globally, along with long-established demographic changes, raises questions about the ability of major economies to sustain higher interest rates without encountering problems. This should likely make central bankers pause for thought.

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 04/09/2023.

© 2023 YOU Asset Management. All rights reserved. 

Written by Shane Balkham

Last week was naturally focused on the opening speeches at the Jackson Hole symposium, an annual gathering of policymakers from around the world, to discuss topical financial events and trends.  The Federal Reserve Bank of Kansas City was hosting as normal, with the theme for this year’s event being “Structural Shifts in the Global Economy.”

As many suspected, there were no surprises coming from this year’s conference.  Dusting down much of 2022’s speech, Jerome Powell, the Chair of the US Federal Reserve, reiterated the fight against inflation, with an emphasis on risk-management in restoring price stability across the globe.  This could mean we are close to peak rates in many developed economies, but it could also mean leaving rates on pause for longer to ensure the battle has been won.

Winning the battle for dominance of supplying the burgeoning demand for AI systems was Nvidia, which became the first semiconductor company to pass $1 trillion market cap.  The chip manufacturer gave another strong quarterly revenue forecast as orders for its AI processors, adept at handling the heavy workloads required by AI, surged allowing it to create a market leading position.

Forecasts do get revised, and the US gave a downward revision to the March jobs’ forecast that was originally reported.  It was initially estimated that around 300,000 fewer jobs were created, which could be good news for central banks, as they would like to see a slightly weaker labour market.  The balance between fighting inflation and supporting economic growth is becoming increasingly difficult.  This is starting to show in the US retail sector, where excess consumer savings built up during the pandemic are perceived to be running out as the interest rate hikes are starting to pinch.  Department stores are seeing a fall in sales and a worsening in their credit card delinquencies.

Something that cannot be ignored for too long is Russia.  Last week saw the Wagner mercenary group founder Yevgeny Prigozhin killed, as the plane he was on exploded killing all that were aboard.  Putin’s comment on the crash saw him describe Prigozhin as “a man with a complicated fate.”

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 29th August .2023. 

© 2023 YOU Asset Management. All rights reserved.

Written by Chris Ayton

It was a tough week for global equity markets with the MSCI All Country World Index -2.7% in Sterling terms. Bonds also declined with the Bloomberg Global Aggregate Index -0.3% in GBP hedged terms. Credit and high yield indices were down even more.

Expectations of a huge post COVID bounce in China’s economy have proved fruitless with it instead showing increasing signs of strain and, within China’s property market in particular, clear signs of distress.  On the back of large property developer, Country Garden, recently missing coupon payments on two US Dollar denominated bonds, last week saw further news of some retail wealth management products that are exposed to the Chinese property market failing to make scheduled payouts. Youth unemployment (16-24 year olds) also reached such a worryingly high level (over 20%) that authorities concluded the data “needed improving” and the National Bureau of Statistics decided to stop reporting it.  Clearly nothing to see here! This challenging backdrop led to the People’s Bank of China unexpectedly cutting a benchmark interest rate by the biggest margin since the start of the COVID pandemic and further stimulus is expected to be needed to get China back on track to hit its GDP growth targets.

In the UK, inflation came down from an annual rate of 7.9% in June to 6.8% in July aided by lower gas and electricity prices. However, inflation stripping out food and energy was unchanged and combined with the news that UK wage growth hit approximately 8% is maintaining pressure on the Bank of England to continue on its path of increasing interest rates to cool the economy.  This is despite retail sales in the UK declining by a higher than expected 1.2% in July, suggesting the past rate rises are already starting to take effect.

The UK housing market was also a hot topic of discussion last week.  Pressured by a lack of rental supply and landlords facing higher mortgage repayments, UK residential rents rose by an annual rate of 5.3% in the year to July, the highest rise on record.  House prices, however, have been faring less well as the Nationwide Building Society reported that UK house prices fell at an annual rate of 3.8 per cent in July, the largest decline since 2009.  However, in a small piece of brighter news it was reported that for the fourth week in a row, UK banks and building societies were set to reduce interest rates for fixed rate mortgages, potentially signalling that the slowdown in mortgage applications is starting to lead to some competition for the business that remains.

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 21^st August 2023.

© 2023 YOU Asset Management. All rights reserved.

Written by Millan Chauhan.

In the UK, headline inflation for June was lower than expected at 7.9% year-on-year, the lowest level since March 2022, and ended a five-month run where inflation came in higher than consensus expectations.  As a result, UK assets performed strongly, with the FTSE All Share Index up +3.1% for the week.

The 7.9% Consumer Price Index (CPI) reading for June was down from 8.7% in May and its peak of 11.1% in October 2022.  The significant drop from last month was thanks to a negative contribution from petrol and other liquid fuels.  Food prices continue to remain stubbornly high, with a year-on-year increase of 17.3% in June.

Services’ prices also remained sticky, up 7.2% year-on-year.  This is partly explained by labour making up a considerable amount of the overall cost within services and the high wage growth in the UK being a major activity behind this persistent element within core inflation.  Labour markets are strong in many developed economies around the world, but the UK also faces a labour supply issue which has not recovered to its pre-pandemic peak, unlike in the US and the Eurozone.

While inflation remains high, the direction of travel saw a positive reaction in markets, as expectations for the Bank of England to hike rates by 0.5% in August dropped.  Longer-term, market expectations still assume further rate hikes from the Bank of England but hopes are for a less aggressive approach as we near the end of the rate hiking cycle.

Japan also reported inflation numbers last week.  CPI for June was 3.3% year-on-year, slightly ahead of expectations, however, the Bank of Japan appears to be more than happy to allow inflation to run ahead of target after several decades of deflation.

This policy appears to be aimed at allowing inflation to become part of Japanese consumers’ and companies’ mindsets, so that spending is not continually deferred in expectation of lower prices.  This is almost the exact opposite of adjusting the UK consumers’ mindsets to reduce immediate spending in the expectation of higher prices.

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 24^th July 2023.

© 2023 YOU Asset Management. All rights reserved.