What’s happened in markets?

FTSE All Share 0.68 6.23 4.13 1.69 5.39 4.17 4.23
Euro Stoxx 50 0.45 10.03 12.64 -4.32 0.11 6.11 5.72
S&P 500 1.19 8.54 4.21 -13.28 -9.62 11.13 10.95
Japan Topix -3.17 0.70 2.33 0.55 4.14 6.98 4.13
MSCI Asia Pac. 4.38 15.35 0.65 -18.83 -19.10 1.21 0.39
MSCI Emerg. Mkts. 3.51 11.76 0.69 -18.58 -18.62 0.52 0.04
Jo’burg All Shares 1.65 10.81 12.13 5.66 9.78 15.12 8.52
UK Gov’t Bonds -1.10 1.62 -1.58 -20.90 -22.95 -6.94 -2.58
US Gov’t Bonds 1.52 3.97 -0.89 -10.95 -11.41 -2.12 0.24
Global Corp. Bonds 1.40 5.43 0.64 -12.47 -12.57 -1.83 0.98
Emerg. Mkt. Local 2.06 7.72 2.32 -11.01 -10.32 -4.01 -1.30
Figures in the respective local currencies as at the end of trading on 5/12/2022.

The week of 28 November was positive in terms of economic data, particularly from the US and eurozone.

The US labour market remains resilient and an area of focus for the Federal Reserve (Fed). US nonfarm payroll data for November showed the economy added 263,000 jobs, exceeding expectations of around 200,000. Unemployment remained unchanged at 3.7%. Average hourly earnings from the report were also higher than expected, rising by 0.6%. Despite this, investors picked up on a statement from Fed chair Jerome Powell, during a speech to the Brookings Institution, that “the time for moderating the pace of rate increases may come as soon as the December meeting”. This prompted a rally in US equity markets on Wednesday 30 November and drove US Treasury yields lower. Although Powell qualified his statement by saying it was likely that restoring price stability would require holding policy at a restrictive level for some time, as history cautions against loosening policy prematurely.

The eurozone saw inflation slow for the first time in 17 months as the consumer price index for the year to November came in at 10.0%, down from 10.6% in October and below the 10.4% expected. This was helped particularly by a slowdown in energy and services prices. Economists now anticipate that the European Central Bank will also move towards less aggressive interest rate rises.

UK inflation remains high at 11.1%, although the Bank of England’s chief economist Huw Pill said on Wednesday that he expected to see price growth in the UK start falling next year, assuming natural gas prices start to stabilise and then start to drop.

In other news, the threat of Russian gas restrictions was avoided. While in China, widespread protests raised further hopes of an easing in pandemic restrictions. Vice-premier Sun Chunlan, China’s top zero-Covid enforcer, said the fight against the virus had reached a “new stage”. Meanwhile, despite an uncertain supply outlook, OPEC+ decided to hold production steady.

The dovish comments from Fed chair Powell ignited a strong, broad-based rally in US risk assets and fixed income markets last week. Emerging markets (+13.0%) remained ahead of developed markets (+7.8%) over the short term, following the signs of an easing of restrictions in China. In terms of style, growth stocks (+9.0%) outperformed value (+7.8%), while large capitalisation stocks (+8.4%) took a lead over small capitalisation stocks (+7.04%) over the last 30 days. Materials (+14.5%) retained its position as the best performing sector, while energy (+2.3%) was the worst performer. Consumer discretionary (+7.9%) and technology stocks (+8.9%) were both up on the previous week.

In the fixed income markets, yields were down over the last month, particularly at the long end.

The US dollar remained weak and closed out its worst monthly performance in a decade.

Latest Consensus Forecast
UK GDP (QoQ) -0.2
UK PMI 48.2 48.3
UK CPI (YoY) 11.1
EU GDP (QoQ) 0.2 0.2
EU PMI 47.8 47.8
EU CPI (YoY) 10.0
US GDP (QoQ) 2.9
US PMI 54.4 53.3
US CPI (YoY) 7.7 7.3

What’s happened in portfolios?

There was no real change in terms of positioning and portfolio themes.

The talk of an easing in China’s Covid-19 policy and the recent weakness of the US dollar has been supportive for emerging markets and beneficial for our active exposure holding, TT Emerging Markets Equity Fund which has performed well.

In terms of fixed income, our longer duration focus within the portfolio, which includes global government bonds and investment grade bonds, has done particularly well over the last 30 days. This is on the back of the recent trend, over the last couple of months, for falling yields, which remain at quite high levels but are starting to pull back. Bond yields and prices move in opposite directions.

Under real assets, JLEN Environmental Assets Group, formerly John Laing Environmental Fund, reported its quarterly net asset value (NAV) last week, which was impressive overall, up by 1.1%, after accounting for the effects of the UK windfall tax. It also incorporated an increase in the discount rate, as we have seen gilts, in particular, rise since the last quarter. The result was supported by higher short-term power prices and a slight increase in inflation assumptions.

In our alternative strategies, Princess Private Equity announced a reduction in its monthly NAV, down 1.3%. The underlying companies have performed well, and valuations have increased but they were offset by the unrealised loss on the foreign exchange translation, following higher currency hedging costs. However, a decent result overall for the holding.

What’s happening this week?

5 December • UK S&P Global Purchasing Managers’ Index (Nov) | 5 December • EU S&P Global Purchasing Managers’ Index (Nov) | 9 December • US Producer Price Inflation (Nov)