What’s happened in markets?

FTSE All Share 3.80 3.44 -1.96 -2.02 -0.54 2.86 2.84
Euro Stoxx 50 2.16 5.96 -1.50 -11.43 -12.05 3.09 3.18
S&P 500 -3.31 -0.41 -8.79 -19.85 -18.18 8.74 9.72
Japan Topix 0.86 0.45 0.27 -1.47 -4.36 7.25 3.73
MSCI Asia Pac. 5.07 -2.24 -14.10 -28.73 -30.50 -3.70 -2.34
MSCI Emerg. Mkts. 4.68 -0.89 -10.39 -26.13 -27.97 -3.42 -2.05
Jo’burg All Shares 4.41 4.80 3.11 -1.54 6.71 11.08 6.95
UK Gov’t Bonds -1.27 3.10 -13.58 -23.11 -23.04 -7.91 -2.99
US Gov’t Bonds -0.91 -2.74 -7.87 -14.81 -14.80 -3.59 -0.64
Global Corp. Bonds -0.53 -2.19 -8.40 -17.43 -17.65 -3.68 -0.17
Emerg. Mkt. Local 0.67 -1.17 -6.01 -17.09 -17.41 -6.83 -2.23
Figures in the respective local currencies as at the end of trading on 4/11/2022.

The week of 31 October 2022 was a busy week for economic data.

Labour data out of the US gave a mixed picture. Nonfarm payrolls beat forecasts as employers added 261,000 jobs in October. While the unemployment rate rose marginally from 3.5% to 3.7%. The resilient labour market suggests the US central bank might achieve its aim of a soft landing and avoid tipping the economy into recession, despite its aggressive policy of interest rate hikes.

The Federal Reserve (Fed) delivered its fourth consecutive rate rise of 0.75%, taking the federal funds rate to 4%. The accompanying statement suggested the monetary policy committee was preparing to ease up on its interest rate hikes. However, this was shortly followed by a surprisingly hawkish press conference where Fed chair Jerome Powell suggested that while the pace of rate hikes might slow, the peak for interest rates would now be higher than market expectations and could last longer. Dashing hopes of a pivot on its interest rate tightening schedule.

The Bank of England also increased its rate by 0.75%, taking interest rates up to their highest level since 2008 at 3%. But, by contrast, the UK central bank took a more dovish view, suggesting its rates will have to go up by less than financial markets have priced in because the impact of higher inflation and a prolonged recession would slow consumer spending.

Annual inflation for October in the euro area came in higher than expected at 10.7%, up from 9.9% in September. This was fuelled mainly be higher energy prices, although the price of food and non-energy industrial goods also rose. Meanwhile, unemployment in the euro area fell to 6.6% in September, down from 6.7% in August.

The US dollar continued to be strong against most currencies on the back of the Fed’s hawkish press conference.

On the corporate news front, 424 companies in the S&P 500 have already released their Q3 results. The challenging environment for tech giants continued as Qualcomm, a US wireless technology company, reported lowered revenue guidance for the upcoming quarter due to a deterioration in demand and macroeconomic headwinds.

Rumours of a relaxation in China’s COVID-19 restrictions led to a highly volatile Asian equity market on Friday 4 November, with the price of oil also reacting positively. However, over the weekend, China denied that any changes or relaxation of its stringent policy were planned.

The week of 31 October 2022 was negative for equity markets, particularly those areas sensitive to rising interest rates. This was due primarily to the hawkish comments coming from the Fed, as the much anticipated pivot in monetary policy failed to materialise.

Developed markets (+0.4%) outperformed emerging markets (-2.6%) over the last 30 days. In terms of style, value (+3.9%) performed significantly better that growth (-3.9%), while small and large capitalisation stocks were +1.5% and -0.1% respectively. Energy (+10.1%) was again the best-performing sector and communication services (-8.3%) was the worst. Technology stocks (-4.8%) fell relatively sharply given their higher sensitivity to interest rates and this was reflected in the tech-heavy NASDAQ.

Government bonds were down (-1.5%) as bond yields rose, with two years (-0.3%) and 10 years (-1.2%) as a result of the Fed’s more hawkish outlook.

  Latest Consensus


UK GDP (QoQ) 0.2 -0.5
UK PMI 48.2
UK CPI (YoY) 10.1
EU GDP (QoQ) 0.2
EU PMI 47.3
EU CPI (YoY) 10.7
US GDP (QoQ) 2.6
US PMI 54.4
US CPI (YoY) 8.2 7.9

What’s happened in portfolios?

There was no real change in terms of positioning or preferences over the last month as, despite a lot of volatility, valuations were not affected significantly.

It remains a challenging environment for equities, and we retain our more defensive approach, favouring quality over more cyclical value. Looking at our underlying holdings, our quality focus funds, Fundsmith Equity and Morgan Stanley Global Brands, have struggled of late because of their bias to technology stocks, which are more sensitive to interest rate movements. But our value manager Dodge and Cox has performed well, benefiting from the higher oil price and its weighting to energy and, more recently, Chinese stocks, which were up over the last month.

Within fixed income, we remain neutral and continue to increase our duration – preparing the portfolio for the next stage where we expect growth to slow. The rise in yields following the hawkish rhetoric from the Fed has hurt our longer duration credit and government bond funds.

We continue to favour real assets and alternative strategies. Real assets obviously provide some inflation protection, but even within this class we’ve become more defensive, favouring infrastructure over more cyclical REITS and commercial property. In particular, Target Healthcare gave us a positive update and its valuations have been supported by inflation-linked rental growth, which offset an upward shift in yields. Expectations are for lower interest rate costs moving forward as they have put an interest rate cap in place, covering £50 million of borrowing that had previously been linked to floating rates.

Alternative strategies continue to provide a credible diversifier within the portfolios, especially in the current environment where the main asset classes are so highly correlated. It is worth mentioning that Gresham House Energy Storage secured £155 million increase in debt facility on existing (attractive) terms, which it plans to use to fund its near term renewables pipeline.

What’s happening this week?

8 November • EU Retail Sales | 10 November • US Consumer Price Index (Oct) | 11 November • UK Gross Domestic Product (Sep)