What’s happened in markets?

KEY MARKET MOVEMENTS (% change)
1WK 1MO 3MO YTD 1YR 3YR 5YR
FTSE All Share 1.56 1.12 -4.10 -5.60 -3.59 1.76 2.27
Euro Stoxx 50 3.93 8.36 -0.86 -13.30 -11.83 2.77 2.96
S&P 500 3.97 5.02 -3.81 -17.10 -13.82 10.44 10.53
Japan Topix 0.91 3.33 -1.61 -2.41 -2.62 7.32 3.80
MSCI Asia Pac. -2.62 -6.27 -18.63 -32.18 -34.36 -4.41 -2.91
MSCI Emerg. Mkts. -2.23 -3.36 -14.60 -29.44 -31.59 -4.23 -2.67
Jo’burg All Shares 1.33 4.31 -1.09 -5.70 2.79 10.26 6.36
UK Gov’t Bonds 5.15 4.75 -11.54 -22.12 -22.34 -7.48 -2.59
US Gov’t Bonds 1.20 -1.69 -6.89 -14.03 -13.78 -3.15 -0.36
Global Corp. Bonds 1.84 -0.87 -7.57 -16.99 -16.97 -3.38 0.03
Emerg. Mkt. Local 1.59 0.48 -5.42 -17.64 -18.23 -6.93 -2.36
Figures in the respective local currencies as at the end of trading on 28/10/2022.

The US economy saw its first period of positive growth for 2022 in Q3 as gross domestic product (GDP) rose by 2.6%, higher than forecast. Sales of new homes sank by 10.9% in September as the Federal Reserve continued to raise interest rates, although again this was a better result than expected.

In Europe, economic health indicators were disappointing. The flash purchasing managers’ index (PMI) data for October fell from 48.1 to 47.1, the fastest decline since April 2013 barring pandemic lockdowns, fuelling heightened recession fears. Among the most alarming figures was Germany’s unexpected 11.6% jump in consumer prices in October.

After the installation of a new prime minister, Rishi Sunak, the UK government pushed back its fiscal plan announcement by two weeks to 17 November. The calculation is that government borrowing costs may ease further by then, theoretically shrinking the financial shortfall to be addressed.

In other news, the Bank of Canada surprised commentators with a smaller-than-expected interest rate rise of 50 basis points, to 3.75%. The Bank of Japan remained a global outlier in the battle against inflation, sticking to ultra-low interest rates and its policy of bond-buying to control yield curves.

It was a challenging week for the tech giants. Meta announced net income of US$4.4 billion for Q3, 52% lower than the same period last year; losses made by the company’s metaverse division are expected to grow. Amazon also failed to meet revenue estimates – and announced a lower-than-expected forecast for Q4 – while Microsoft posted a 14% year-on-year fall in net income for Q3.

Markets across the developed world rallied, pricing in an anticipated pivot by central banks to a more doveish stance.

While equity returns in developed markets rose by +5.1%, emerging markets saw a -3.5% drop over the last 30 days, influenced by policy concerns after President Xi’s reappointment in China. Value stocks (+7.0%) outpaced growth (+1.3%), while small capitalisation stocks (+6.5%) grew faster than large caps (+3.9%).

Energy (+20.8%) was the best performing sector over the last 30 days, on the back of oil’s resurgence (+15.6%). Commercial services (-2.9%) fared worst.

Long duration government bonds were up (+1.4%) as yields fell. The US dollar lost some of its recent gains, particularly against sterling (-7.2%) after the UK’s new prime minister promised more stability.

ECONOMICS
Latest Consensus Forecast
UK GDP (QoQ)
UK PMI 47.2 47.3
UK CPI (YoY)
EU GDP (QoQ) 0.1 0.1
EU PMI 47.1 47.1
EU CPI (YoY)
US GDP (QoQ)
US PMI 55.1 55.2
US CPI (YoY)

What’s happened in portfolios?

We have benefited from the strong performance in value stocks, through our overweight position on energy companies and banks.

The significant upward shift in yields has made fixed income more attractive. Our exposure to longer duration is now much higher than at the start of the year, and these longer duration credit and government bonds have fared better over the past week or two.

During the volatility in the UK economy, we took advantage of the sell-off in investment trusts to top up our exposure. For example, Balanced Commercial Property Trust (BCPT) saw a significant fall in price, but we remain confident about its fundamental value. Student accommodation specialist Empiric announced record high occupancy of 98%.

In alternative assets, Hipgnosis Songs Fund Limited rebounded strongly after Apple Music’s announcement of a US$1 hike in subscriptions; this is expected to increase its revenues, and therefore music stock royalties, without making a significant dent in demand.

What’s happening this week?

2 November • US Federal Reserve Interest Rate Decision | 3 November • EU Unemployment Rate (Sep) | 3 November • UK Bank of England Interest Rate Decision