Stocks snapped a losing streak last week to provide some relief for investors. The ECB raised rates as expected on Wednesday, whilst the news flow from Thursday onwards very much focused on the death of Queen Elizabeth II. Throughout 2022 there has undoubtedly been a renewed focus on macroeconomics and the economic cycle. Supportive central banks (read loose monetary policy) and excess liquidity (‘excess’ with the benefit of hindsight…), and a series of idiosyncratic events (Brexit, Trump election, COVID) meant that markets arguably did not require such a focus for much of the period since the Financial Crisis.
However, the pendulum has very much swung the other way as releases such as the Federal Reserve’s Beige Book garner attention once again. Released eight times a year it attempts to offer insights across the various sub-regions within the Federal Reserve. To summarise the latest release, the consensus is that the economy did not weaken materially over the summer and the labour market remains tight. This will embolden (as did some releases detailed below) those of the view that the Fed can manage to curtail inflation and yet avoid the recession. This has not happened much in history, but you could argue the causes of the current economic backdrop are unique also. However, currently ultimately no one knows. As multi-asset investors we maintain our discipline and consistent approach; with the ability to be active and flexible a key advantage as we move towards the last quarter of this volatile year.
Finally, we look forward to hosting a webinar tomorrow on Sustainability Regulation, in conjunction with Brokers Ireland. We’ll guide brokers through the practical implications of the recent changes and be on hand to answer any questions. You can register here.
If you have any questions, please do get in touch.
Weekly Investment News
Equities rose last week as investors continue to ponder the next move of the Federal Reserve and the robustness of the US economy. In the US, the services PMI continues to hold up well with a reading of 56.9 for April. In terms of the component parts, business activity and new orders had their strongest readings this year. Whilst the global equivalent was in contraction territory at 43.7, there are solidifying hopes that the US can both simultaneously taper inflation and avoid a recession. Weekly jobless claims did move higher but remain low versus historical averages, for example there are less people collecting unemployment benefits than in early 2020.
In the eurozone, the ECB raised the headline interest rate to 0.75%, its highest level since 2011. Commentators were split on the prospects of a 0.50% or 0.75% hike, with inflation data ultimately pushing the ECB towards the latter. The ECB now expects inflation to average 8.1% for this year, before falling back to 5.5% in 2023. We are likely to see continued rate hikes in the eurozone until early 2023 to bring the rate to approximately 2.0% (versus 0.75% today). Eurozone sovereign bond yields moved higher following the move and the forecasts, continuing the tough start to the month for bond investors. Energy costs remain the key political issue across the continent, with Ukraine’s successful counter offensive in recent days another input into the policy making process.
Finally, across the UK and Commonwealth countries, there is likely to be some disruption to markets and economic releases because of the death of Queen Elizabeth II. Whilst full plans for the mourning period have yet to materialise, the Bank of England have postponed this week’s MPC meeting where the market had forecast a 0.75% rise in interest rates.
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