What’s happened in markets?

FTSE All Share -1.88 -1.52 -2.98 -2.34 0.04 3.46 3.25
Euro Stoxx 50 -1.62 -3.72 -6.34 -15.06 -13.32 4.00 3.79
S&P 500 -3.23 -3.89 -5.66 -16.78 -12.21 12.05 11.58
Japan Topix -2.47 0.27 0.38 -1.74 -0.33 11.23 5.99
MSCI Asia Pac. -3.23 -1.49 -6.69 -19.35 -23.94 3.22 1.19
MSCI Emerg. Mkts. -3.41 -0.85 -7.04 -19.13 -23.45 2.31 0.41
Jo’burg All Shares -3.79 -0.27 -4.29 -5.76 5.58 11.34 7.38
UK Gov’t Bonds -3.45 -9.95 -8.12 -19.62 -21.11 -7.52 -2.44
US Gov’t Bonds -0.79 -2.23 -1.69 -10.15 -11.07 -2.30 0.31
Global Corp. Bonds -1.35 -3.01 -2.60 -13.02 -13.94 -2.15 1.02
Emerg. Mkt. Local -1.07 -1.20 -4.33 -13.03 -17.23 -4.16 -1.91
Figures in the respective local currencies as at the end of trading on 2/09/2022.

US interest rate hikes have yet to make a dent in the tightness of the labour market, according to data showing job openings rose to a near-record 11.2 million in July. The Federal Reserve remains committed to continuing base rate hikes in the coming months in its attempts to master inflation.

The same concern applies in the eurozone, where a flash consumer price index (CPI) figure puts August inflation at 9.1%, up from 8.9% in July. Russia’s decision to keep the Nord Stream 1 pipeline closed indefinitely following routine maintenance will pile further pressure on European gas supplies and prices. This will bolster the European Central Bank’s determination to raise rates at its meeting on Thursday 8 August: a 75 basis points increase is widely expected.

In the UK, Monday 5 September sees the announcement of a new UK prime minister, heralding major policy changes and an emergency budget after a summer of campaigning.

Corporate results saw consumer electronics retailer Best Buy announce earnings per share (EPS) 30% higher than expected, at $1.54, despite a dip in sales. Hewlett Packard’s EPS was $1.04, broadly in line with expectations.

In the markets, value stocks (-2.4%) outperformed growth (-5.0%) over the short term. Small and large capitalisation stocks both showed -3.7% declines over the last 30 days. Developed markets recorded a similar drop (-4.1%), while emerging markets (-0.5%) were static.

Energy was the best performing sector (+2.0%), but oil (-6.8%) continued to struggle. Information technology was the poorest performer (-6.1%) while global property also dipped (-5.1%).

Bonds of all types face capital losses on the back of rising yields as a result of rate hike expectations. Government bonds dipped by -3.2%, investment grade by -3.6% and high yield -2.5% over the last 30 days.

The US dollar index touched a 20-year high as the currency leapt by 5.4% against sterling and 5.3% against the yen.

Latest Consensus Forecast
UK GDP (QoQ) -0.1
UK PMI 49.6 50.9
UK CPI (YoY) 10.1
EU GDP (QoQ) 0.6 0.6
EU PMI 48.9 49.2
EU CPI (YoY) 9.1
US GDP (QoQ) -0.6
US PMI 56.7 55.4
US CPI (YoY) 8.5

What’s happened in portfolios?

The environment remains challenging for equities. We believe our current bias towards quality is the best move, though expectations of yet higher interest rates have weighed on these stocks. Our recent tilt towards US equities has been helpful as these continue to outperform UK and European stocks.

Fixed income has become more attractive with the significant rise in yields. Short duration investment grade and government bonds have been the relative winners recently and our portfolio still leans in this direction relative to the market.

Real assets continue to outperform, offering protection in a recessionary environment. Renewables in particular have soared on the back of high energy prices. If reversal of the proposed UK corporation tax hike is carried through by the new prime minister, it will have a further positive effect on net asset values.

In our alternative strategies, SDCL Energy Efficiency Income Trust plans a new share issue with the aim of raising £100 million. This comes ahead of a deal to purchase United Utilities Renewable Energy for £100 million, which the firm anticipates will complete shortly. While stock weakened slightly after the announcement, the company’s fundamentals remain strong. Alternative strategies in general are still favoured as valid alternatives to traditional assets and an opportunity to benefit from market volatility.

What’s happening this week?

6 September • UK BRC Retail Sales | 7 September • EU ECB Interest Rate Decision | 8 September • US Initial Jobless Claims