What’s happened in markets?

FTSE All Share -1.63 2.00 5.07 1.17 3.79 1.23 5.88
Euro Stoxx 50 -2.07 4.57 4.48 2.65 12.13 5.24 7.89
S&P500 -2.41 2.76 5.62 1.71 31.27 14.14 16.82
Japan Topix -3.32 3.11 6.42 3.35 26.42 4.22 9.99
MSCI Asia Pac. -6.17 1.25 12.60 5.29 42.33 9.56 17.20
MSCI Emerg. Mkts. -6.33 0.77 11.55 3.78 36.45 6.72 15.68
Jo’burg All Shares -1.97 5.87 16.10 11.38 33.32 7.68 9.32
UK Gov’t Bonds -1.44 -5.66 -5.75 -7.26 -4.22 3.20 2.87
US Gov’t Bonds -0.30 -1.81 -2.98 -2.75 -0.13 4.96 2.58
Global Corp. Bonds -0.47 -1.45 -1.74 -2.23 2.86 6.23 5.56
Emerg. Mkt. Local -2.14 -2.56 -0.84 -3.84 3.42 1.78 5.59

Figures in the respective local currencies as at the end of trading on 26/2/2021.

There was positive news on the pandemic front as the number of hospitalisations and deaths continues to improve in line with the inoculation rollouts. These are set to improve still further as the Johnson & Johnson single dose vaccine received approval for emergency use in the US. Not only will its rollout help increase the number of vaccinations that can take place, as it is another vaccine approved for use, but it is also likely to significantly help given only one dose is needed and it can be stored in regular fridges.

The week of 22 February saw a slew of economic data releases as the US Conference Board’s consumer confidence index rose to a stronger-than-expected 91.3 in February, its highest level in three months. US new home sales also came in higher than expected, as did the latest weekly jobless claims data, with the continuing claims number coming in at a post pandemic low. In the UK, the unemployment rate for the previous three months to December ticked up to 5.1%, as expected. And finally, February’s Eurozone flash composite purchasing managers’ indexes came in at 48.1 in February, and while this is in contraction territory, the manufacturing index provides promise, given this number rose to 57.9 as new orders were up sharply with export trade strengthening.

The main interest, however, focused on the central banks as officials sought to soothe volatile markets in anticipation of interest rates rising to head off inflation. As such, Federal Reserve (Fed) chair, Jay Powell, highlighted that although the Fed expects “enthusiastic” spending to increase inflation in the short term, this spending is not likely to be particularly large or persistent, meaning that labour markets rather than inflation risks remain the primary focus. Powell also stated that it could take more than three years before the Fed reached its inflation goal of 2%. We also heard from the European Central Bank’s chief economist, Philip Lane, who said that the central bank would “purchase flexibly according to market conditions and with a view to preventing a tightening of financing conditions” and, as such, may increase its pace of emergency bond purchases to counter the recent sell-off in Eurozone sovereign debt markets.

In markets, Asia ex Japan (-5.64%) and Emerging Markets (-5.81%) lead the declines, while the US (-2.29%), Europe (-1.73%) and the UK (-1.41%) held up slightly better. Sector-wise, value (-1.00%) performed better than growth (-4.48%), with energy (+2.22%) the best and only sector in the black. This would be expected however, given the sector often does well when investors are worried about inflationary pressures. Small capitalisation stocks (-1.67%) retracted less than their large peers (-2.76%).

Latest Consensus Forecast
UK GDP (QoQ) 1
UK PMI 49.8 49.8
UK CPI (YoY) 0.7
EU GDP (QoQ) -036
EU PMI 48.1 48.1
EU CPI (YoY) 0.9 0.9
US GDP (QoQ) 4.1
US PMI 58.7
US CPI (YoY) 1.4

What’s happened in portfolios?

With interest rates rising as markets anticipate a greater risk of inflation, the investment committee considered the potential for these increases to develop into a trend and, ahead of any significant market moves, further shortened our already short duration within fixed income. This was achieved by selling medium-dated US government bonds and investment grade credit, and buying short duration US treasuries.

We also took the opportunity to marginally trim our equity positions, taking some profits, and bringing the asset class back to its target weights after a week that saw our equity strategies outperforming their indices – a result that was also true of February as a whole.

Meanwhile, our alternative investment trusts were a mixed bag, with some getting caught up in the market jitters. Meanwhile, the funds with significant UK earnings, such as Greencoat UK Wind, were impacted by the media reports suggesting the UK chancellor may raise corporation tax on budget day on 3 March. And the Hipgnosis team came in for criticism for its “aggressive” share issuance and acquisition programmes. Property trusts held up well given the market is still digesting the share discount used to support Target Healthcare’s fund raising, and since the BMO Property Trust remains significantly off the true value of its portfolio.

What’s happening this week?

3 Mar • UK Budget | 4 Mar • EU Retail Sales | 5 Mar • US Average Hourly Earnings