What’s happened in markets?

FTSE All Share -0.29 -0.18 -0.67 5.22 9.44 12.32 3.50
Euro Stoxx 50 -0.04 1.18 4.84 16.35 23.96 18.15 7.33
S&P 500 -0.24 0.91 1.27 8.05 6.73 14.63 10.51
Japan Topix 1.01 4.46 6.82 12.21 17.73 15.12 5.68
MSCI Asia Pac. -1.36 -2.72 -5.17 1.37 2.03 3.70 -0.48
MSCI Emerg. Mkts. -0.86 -1.86 -3.35 2.50 1.86 5.13 -0.79
Jo’burg All Shares 0.28 1.00 0.71 8.98 21.61 20.53 10.12
UK Gov’t Bonds -0.10 -2.18 -1.99 -0.25 -17.08 -10.59 -3.22
US Gov’t Bonds -0.16 -0.14 2.43 3.45 -1.16 -4.15 1.01
Global Corp. Bonds -0.05 -0.05 1.18 3.59 -0.19 -1.34 1.67
Emerg. Mkt. Local -0.44 0.53 2.18 5.57 8.37 0.05 -0.22
Figures in the respective local currencies as at the end of trading on 12/05/2023.

In the US, the headline consumer price index (CPI) rose less than expected at 4.9% year on year, marking the first time in two years it had fallen below 5%. However, core inflation, which excludes the more volatile food and energy indices, remained stubbornly persistent at 5.5% year on year. Overall though the news was well received by the markets. There were signs of slowing demand too, as the US producer price index (PPI) came in below expectations up only 2.3% for the 12 months ended in April, the smallest annual increase in wholesale inflation in more than two years.  The labour market also showed potential signs of softening as US weekly jobless claims came in above expectations, up 22,000 to 264,000, marking its highest level since October 2021.

In the UK, the Bank of England announced another quarter point hike that took the UK base rate up to 4.5%, its highest level since 2008. This was as expected after annual inflation remained above 10% for March. The central bank also warned it would not reach its inflation target until 2025.

In the eurozone, the European Central Bank (ECB) slowed the pace of its interest rate increases but raised rates from Wednesday 10 May by a quarter point to 3.75%. However, the move was accompanied by hawkish comments from members, with ECB President Christine Lagarde reiterating that the ECB’s fight against inflation “is not over”.

As the corporate reporting season comes to a close, Disney posted its quarterly revenue and profit in line with expectations, but disappointing subscriber numbers to its flagship Disney+ service caused its shares to fall nearly 9%.

In other news, Italy plans to hold talks with China about a potential exit from Beijing’s flagship infrastructure investment programme, the Belt and Road Initiative. Italy was the only G7 country to join the programme in 2019. Meanwhile uncertainty remained in the US as there was no real progress in talks to raise the US government’s US$31.4 trillion debt ceiling.

In the markets, US equities and bonds advanced as investors grew more confident the Federal Reserve would finally pause its rate hikes following the better than expected CPI release. However, renewed fears of a slow down due to weaker data releases, the US debt ceiling, and the ongoing situation with regional banks led to a risk-off sentiment with growth (+2.5%) outperforming value (-1.5%), and large capitalisation stocks (+0.7%) leading small caps (-0.9%). Consumer discretionary (+2.5%) was the best performing sector over the last 30 days, closely followed by communication services (+2.4%) and information technology (+2.2%). Energy (-6.1%) was the worst performer over the short term, while materials (-3.6%), real estate (-1.1%) and financials (-0.6%) were also down.

In fixed income, falling yields meant longer dated government bonds continued to outperform shorter dated ones.

Gold continued to rally but oil prices dropped after weak economic data from China outweighed the impact of OPEC+ supply cuts.

Latest Consensus


UK GDP (QoQ) 0.1
UK PMI 54.9
UK CPI (YoY) 10.1
EU GDP (QoQ) 0.1 0.1
EU PMI 54.1
EU CPI (YoY) 7.0 7.0
US GDP (QoQ) 1.1 1.1
US PMI 51.9
US CPI (YoY) 4.9

What’s happened in portfolios?

Within equities, fears of a slowdown and jobless claims on an upward trend meant our quality, defensive large cap managers, Fundsmith Equity and Morgan Stanley Global Brands, both outperformed helped by their overweight to information technology. At the other end of the spectrum, Dodge & Cox lagged due to its value bias and its overweight to energy and financials, while TT Emerging Market Equity suffered due to its China exposure.

Within fixed Income, the better-than-expected CPI and PPI data encouraged the idea that inflation may be heading lower and may lead to a pivot towards rate cuts later in the year. This triggered a fall in yields which has helped our longer duration funds outperform shorter duration funds, and the risk-off environment has been supportive to safe haven government bonds.

In terms of real assets, investment trusts have been bouncing back well. Target Healthcare was helped by inflation linked rent reviews, while rent collection ticked up to 97% and the loan to value fell slightly after a few homes were sold at a premium to book value. The renewables side was lower due to falls in power prices and low wind speeds, but 3i Infrastructure reported an impressive 10.8% increase in net asset value (NAV) over the year to March, with many of the portfolio companies continuing to see strong growth in their underlying businesses.

In our alternative strategies, Round Hill Music released impressive final results to 31 December 2022, with strong 32% revenue growth year on year driven by a 33% increase in synchronisation income. This helped cushion interest rate concerns and led to the dividend being almost covered. Net leverage is also relatively low, around 16% of NAV.

What’s happening this week?

16 May • UK Unemployment Rate (Mar) | 16 May • US Retail Sales (April) | 17 May • EU Consumer Price Index (April)