23rd March 2023
Feds Fund rate reaches 5%
As anticipated by investors, the Fed continues its fight against inflation raising rates 0.25%, not long after running up their balance sheet in an attempt to restore stability within the banking sector and shore up confidence amongst depositors. The Collapse of SVB, and now Credit Suisse have rattled markets showing us that cracks in regional banking may be enough to slow the economy further as financial conditions tighten. Yet, Powell affirmed markets that the Fed plans to maintain a foothold on bringing down inflation. Unfortunately for markets, the path to recovering has become more murky with all eyes now on the Fed, as investors watch how they balance between its inflation campaign and providing support to US regional banks. Though their actions have been more tempered compared to the ECB who raised the benchmark rate by 0.5%, with price stability on Christine Laggard’s main agenda.
22nd March 2023
UK inflation remains resilient in February.
UK inflation has surprisingly jumped higher in February against expectations of a steady decline which will pose further problems for the Bank of England when they meet on Thursday to decide on the next round of interest rate hikes. The annual rate of inflation rose to 10.4% in February against economist expectations of a 9.9% rise. Looking at core inflation which looks at price rises excluding fuel and food saw a rise of 6.2% against an expectation of 5.7%. UK government debt has recently been rallying on the perception that the UK Bank of England would be one of the first to stop raising interest rates, whilst this may be the case, UK inflation results like this do not help the Bank of England in being able to stop raising interest rates.
16th March 2023
ECB raise rates by 0.5%
The European Central Bank (ECB) followed through with its promise to raise interest rates by 50 basis points on Thursday, despite the recent market turmoil caused by the collapse of Silicon Valley Bank in the United States. The central bank has been rapidly increasing rates to control inflation, with the deposit rate now standing at 3%, the highest level since late 2008. The ECB did not make any commitments for future rate hikes but emphasised the importance of a data-dependent approach. Markets have lowered their bets on the peak in the rate-hike cycle to 3.2% from 4.2% a week ago. Although the ECB is concerned about the financial stability of the banking system, it is primarily focused on curbing inflation, which is projected to be above its 2% target through 2025. Markets had a rather muted response to the rate change, with the focus still being on the stability of the banking sector.
15th March 2023
Chancellor Hunt delivers first budget
The Chancellor, who has been in his post since Kwasi Kwarteng's disastrous tenure last year, has endeavoured to build on increased stability with a budget aimed at stimulating growth, reducing runaway inflation and increasing employment. In terms of growth, we saw tax breaks for business research and development somewhat offset by a 6% increase in corporation tax to 25%. Labour policies surrounded increasing ability to work with a £5bn expansion of free childcare at the centre as well as efforts to persuade the sick, disabled and over 50s to join or increase participation in the job market. Lastly, the inflation outlook was softened by an extension of the £2,500 energy price guarantee. This contributed to the Office of Budget Responsibility's view that inflation would fall to 2.9% by the final quarter of 2023. The pound did not move drastically on the announcement with the FTSE 100 dropping over 3%, amid global concerns in the banking sector.
10th March 2023
U.S. adds 311,000 jobs in February
There was a mixed picture in the latest US jobs report as US payrolls increased by 311,000 in February exceeding expectations, whilst monthly wage growth slowed. The jobs added in February was in stark contrast to the whopping 504,000 jobs added in January but still underscores a resilient US labour market, in which this is the 11 month where jobs added have been above forecasts. On the other hand, overall wage growth was more tempered, climbing only 0.2% from a month earlier and 4.6% year-on-year. This was a shallower increase from the previous print. Yet, despite a mixed jobs report, the headline jobs figure paves a path for the Fed to revert back to a 0.5% rate hike at their next meeting as key indicators in the labour market appear more inflationary.
10th March 2023
SVB firesale sends ripples through stock markets
A US based bank, who had issued a $2.25bn stock sale to shore up its balance sheet triggered a broader sale in large bank stocks around fears the issues would be sector wide. Essentially, the news was caused by interest rate rises and how they affect bank profitability. For most large financial institutions the benefits of interest rate rises on asset growth outweigh the larger pay-outs on customer deposits. But in the case of SVB, where their cash was heavily invested in low yielding bonds, which could not finance the bank rates needed to keep tech-startups as customers, led to increasing liabilities coupled with stagnant asset growth – a growing shortfall they intended to fill with a stock sale. The rather directionless state of current markets means it is particularly sensitive to idiosyncratic signals such as this. However, the differences between large banks and specialist institutions, we believe, has not been accounted for with TAM seeing any further weakness in large banks as a buy opportunity.
2nd March 2023
Eurozone inflation falls but not convincingly
Annual price growth for the Euro area, calculated by consumer price inflation, fell 0.1% from the previous month to 8.5% for February. The 8.2% consensus forecast was overshot due to 15% price growth in food, alcohol and tobacco coupled by energy prices, which despite easing slightly, were still 13.7% higher than twelve months prior. Global stocks declined and government bonds sold off on the news as investor concerns of higher interest rates for longer were stoked. We await the European Central Bank's interest rate policy response in two weeks time.
15th February 2023
UK Inflation falls to 10.1%
The annual rate of consumer price inflation fell to a five-month low today, 0.2% below consensus estimates. This made three consecutive months of decreases with the previous month seeing 10.5% headline rates. Despite the positive trend, the UK still remains close to 40-year inflation highs driven largely by soaring housing, bills and food which all hit low income households particularly hard. The 0.4% monthly drop was due to a continued fall in fuel prices as well as in some of the service focused sectors such as restaurants and takeaways. Compared to global peers, the UK is still seeing particularly elevated levels of inflation with the US reporting a 6.4% figure on the same day. The UK's FTSE 100 Share Index responded to the better than forecast data by reaching an all-time high, briefly passing 8000 points, buoyed by hopes there are no further interest rate hikes to be priced into markets.
15th February 2023
US inflation remains sticky
US Inflation in January was a surprise to the upside notching 0.5% higher month-on-month, whilst annual inflation came in at 6.4%, higher than expected. Housing costs proved to be the biggest contributor to the latest CPI print. Furthermore, last month’s strong gain in the US job market shows how inflation risks becoming more entrenched, which has dashed any hopes from investors expecting a policy pivot in the near-term. Instead, the data suggests that the Federal Reserve will need to keep hiking interest rates into deeper territory and for longer to cool the economy down. The expectation of tighter monetary conditions led the S&P 500 to close relatively flat, whilst US Treasury yields climbed.
3rd February 2023
January job growth in the US beats all expectations
The US economy added a massive 517,000 jobs in January. This was ahead of even the most ambitious predictions which were in the range of 200,000. This poses an issue for central banks around tackling the issue of inflation in an economy which continues to have a tighter and tighter employment market. Fundamentally inflation is going to have a very hard time getting back to the 2% target without unemployment rising which is completely contra to this type of massive job growth. The market sold off on this news as this means the potential for higher rates for longer.
2nd February 2023
U.S. Federal Reserve raises rates by 0.25%
As largely anticipated, the Federal Reserve has delivered another rate hike, but at 0.25% marking a further downshift in their monetary tightening regime. The Feds fund rate now sits at 4.75%. Jerome Powell’s speech, following the latest rate decision was digested favourably by investors as markets received further clarity on the direction of future rate decisions. Markets took comfort in data which suggests the environment is becoming disinflationary, and that higher rates are having the desired effect in cooling prices. However, Powell warned markets that there are still at least two more quarter point hikes to go without any cuts to interest rates in 2023, but still expects to see positive U.S. growth this year. The Fed will be paying attention to inflation within the services sector and the labour market which still remains tight.
2nd February 2023
UK raises interest rates by half a percentage point
The Bank of England has followed on the heels of the US Federal Reserve in raising core interest rates. Unlike the US who raised by 0.25% the UK raised by a larger 0.5% which represents the more entrenched inflation problem existing in the UK. Markets have broadly been rallying on these rate hikes as central bankers have accompanied these hikes with talks of being nearly at the end of these sequential raises before they will be in a positon to step back and wait for inflation to begin to come down. The terminal level of rate hikes is something which interests the markets and any talk of this terminal date is something which causes positivity in asset prices.
12th January 2023
US inflation cools further
The latest US inflation print shows signs that cost pressures are continuing to ease with headline inflation at 6.5%, whilst core inflation (which excludes food and energy) was up 5.7%, year-on-year. Despite the fact that figures matched median forecasts, they were only modestly welcomed by investors who were expecting a more aggressive downshift in inflation which would allow the Federal reserve to reduce the pace of rate hikes, sooner. Following today’s inflation report, both the S&P 500 and Nasdaq remained flat, whilst two-year treasury yields notched higher.
6th January 2023
US beats jobs forecast again but with cooling wages
US job creation beats expectation in December coming in at 223,000 Vs expectations of 203,000. This showed a stronger economy with more people employed but what investors were really looking into was the average hourly earnings figure which declined more than expected into the end of the year. This framed an economy in which employment remains strong with wages coming down which could slow inflation without tipping the US into a recession. This was the scenario that investors took from the announcement and is what made the global stock market rally on the news.