Markets were broadly weaker across the globe as a raft of positive economic data suggested the inflation beast is far from tamed – meaning that interest rates will continue to increase – with some commentators suggesting higher terminal rates along with a diminished expectation of any looser policy towards the back end of the year.
Turning to specifics: in the UK, markets slipped by 2.2% in sterling terms whilst the FTSE All Share faired a touch better, although still fell by 1.4%. Bond markets were also weak, with falls in UK Corporates, gilts and Treasuries.
Business confidence in the US, UK and Eurozone all saw an unexpectedly large increase in January. Sentiment is now no longer in recessionary territory in any of the regions. Further doubt is emerging as to whether Western economies are heading into recession as had been widely presumed. The rebound was led by the services sector with sentiment remaining rather more depressed in manufacturing.
On the inflation front, the upward surprises seen in last week’s January US consumer and producer price numbers were reinforced on Friday by the release of the Fed’s favoured measure of core inflation. Rather than increasing by 0.4% as expected, core prices rose a large 0.6% in January, leading to the annual gain picking up to 4.7% from 4.3%. The latest numbers mean the downward trend in underlying inflation which had seemed to be underway appears to have been a mirage, with no clear moderation now evident.
With the fourth quarter reporting season drawing to a close in the US, for the first time since the pandemic, earnings will both be down on a year earlier and come in a bit weaker than forecast, albeit not by as much as had been feared. Earnings of the S&P 500 should be down around 3%, or a somewhat larger 7% if the energy sector is excluded.
In the UK, the latest public sector borrowing numbers provided a pleasant surprise for the Chancellor with borrowing now looking likely to come in a hefty £30bn lower than expected this financial year. This windfall means the Government now has rather more scope to try and bring an end to the debilitating wave of public sector strikes by improving its pay offers.
Within geopolitics US-China relations were strained as the US planned to deploy further troops to train Taiwanese forces. President Joe Biden also visited Ukraine, which will have undoubtedly irked Putin, as will the $500 million in military aid. This is a rare piece of good news against the bad news that the conflict passed its one-year anniversary last week.
This communication is designed for professional financial advisers only and is not approved for direct marketing with individual clients. These investments are not suitable for everyone, and you should obtain expert advice from a professional financial adviser. Investments are intended to be held over a medium to long term timescale, taking into account the minimum period of time designated by the risk rating of the particular fund or portfolio, although this does not provide any guarantee that your objectives will be met. Please note that the content is based on the author’s opinion and is not intended as investment advice. It remains the responsibility of the financial adviser to verify the accuracy of the information and assess whether the OEIC fund or discretionary fund management model portfolio is suitable and appropriate for their customer.
Past performance is not a reliable indicator of future performance. The value of investments and the income derived from them can fall as well as rise, and investors may get back less than they invested.
IBOSS Asset Management is authorised and regulated by the Financial Conduct Authority. Financial Services Register Number 697866.
Registered Office: 2 Sceptre House, Hornbeam Square North, Harrogate, HG2 8PB. Registered in England No: 6427223.
IAM 94.3.23
