UK

An impending trilemma? Politics continued to garner headlines during June during the run-up to the General Election. Ahead of the election, however, the Institute for Fiscal Studies criticised the principal political parties for “ducking” key issues over tax and spending and warned that the winning party will face an immediate “trilemma” of raising taxes, cutting spending, or increasing borrowing. The FTSE 100 Index fell by 1.3% during June but rose by 5.6% over the first six months of the year. Meanwhile, the FTSE 250 Index fell by 2.1% over the month but climbed by 3% during the first half of 2024.

On-target inflation: the UK’s rate of inflation achieved its 2% target for the first time since July 2021 during May. The consumer price index rose at an annualised rate of 2% during the month, compared with April’s rate of 2.3%, although inflation in the services sector remained stubbornly high. The Bank of England held its key base rate at 5.25%, but the prospects of a cut appear to be growing, with several members of the Monetary Policy Committee either voting for a cut or admitting that their vote for no change had proved “finely balanced”.

Growth stagnates in April: the UK economy flatlined during April, dampened by the impact of rainy weather; however, the rate of growth in the first quarter was revised up from 0.6% to 0.7%, boosted by stronger activity in the services sector. The rate of unemployment rose to 4.4% over the three months to April, and the number of job vacancies continued to decline. Nevertheless, growth in average earnings remained relatively strong. Consumer confidence improved for a third consecutive month in June, according to GfK, and retail sales rose by 2.9% during May, lifted by increased footfall, improved weather and discounting.

FTSE reshuffle: cybersecurity company Darktrace, LondonMetric Property, and housebuilder Vistry were promoted to the FTSE 100 Index during June, replacing Ocado, RS Group, and St James’s Place, which moved to the mid-cap FTSE 250 Index.

ISAs drive growth in sales: net retail sales of UK-domiciled funds reached their highest level since August 2021 in April, according to the Investment Association. Sales totalled £2.8 billion during the month, fuelled by ISA subscriptions. The Global sector was the best-selling sector; in contrast, the UK All Companies sector suffered outflows of £997 million.

Global

Snap election for France: in a landmark year – notable for the sheer number of elections around the world – share prices in Europe were knocked during June by French President Emmanuel Macron’s surprise announcement of a snap poll.  Uncertainty drove the CAC 40 Index down by 6.4% over the month, while Germany’s Dax Index fell by 1.4%.

ECB cuts: in a widely expected move, the European Central Bank (ECB) announced a cut of 25 basis points in its key interest rate, reducing it to 3.75%. ECB President Christine Lagarde said the inflation outlook had improved “markedly” but remained cautious, warning that inflation was likely to stay above target “well into next year”. Nevertheless, she commented: “Overall, our confidence in the path ahead … has been increasing”. The eurozone’s rate of inflation rose from 2.4% year on year in April to 2.6% in May

Tech sector surges ahead: in the US, the technology sector experienced a rollercoaster month as chip maker Nvidia first fell sharply on profit taking and then rebounded alongside other mega-cap peers. Over June as a whole, the technology-heavy Nasdaq Index rose by 6%, while the Dow Jones Industrial Average Index climbed by 1.1%.

Just one cut this year? The Federal Reserve (Fed) maintained its key federal funds rate at a range of 5.25% to 5.5% in June and indicated that it is set to cut rates just once this year. Despite acknowledging that inflationary pressures had “eased substantially”, Fed Chair Jerome Powell maintained that inflation remains too high, and warned that policymakers need “more good data to bolster our confidence”. The annualised rate of consumer price inflation eased from 3.4% in April to 3.3% in May but remained well over its 2% target. Nevertheless, the personal consumption expenditures index fell to 2.6% in May, fuelling expectations of a cut this year.

Yen weakness continues: Japan’s headline rate of inflation rose by 2.8% year on year compared with 2.5% in April, while core inflation climbed by 2.5% compared with 2.2%. At their June meeting, Bank of Japan policymakers pondered the possibility of an interest rate increase but opted to maintain the country’s key rate at 0% to 0.1%. Elsewhere, persistent weakness in the yen sparked speculation that the country’s authorities might intervene once again to prop up the currency. The Nikkei 225 Index rose by 2.8% during June.

As ever, if you have any questions regarding your investments, please do not hesitate to contact us by calling +44 (0) 7917 390 344  or emailing me at richardbrazier@culverfinancial.co.uk and we will be happy to talk to you.

UK

General Election on 4 July: the UK was placed on an election footing during May as Prime Minister Rishi Sunak announced a snap General Election. UK voters will head to the polls on 4 July. Although the announcement was unexpected, reaction from financial markets was comparatively muted. At present, polls indicate a clear win for Keir Starmer’s Labour Party. The FTSE 100 Index rose by 1.6% over the month, while the more domestically focused FTSE 250 Index climbed by 3.8%.

A soft landing for the UK? The UK economy is set to experience a soft landing, according to the International Monetary Fund (IMF), which raised its 2024 growth forecast to 0.7%. The IMF suggested that the BoE has scope for up to three rate cuts this year of 50 to 75 basis points each. In comparison, the Organisation for Economic Cooperation & Development (OECD) expects the “sluggish” UK economy to grow by 0.4% this year and 1% next year. The OECD predicted that UK interest rates will start to fall from the third quarter of this year but will ease to 3.75% by the end of 2025.

Inflation moves closer to target: the rate of consumer price inflation fell from 3.2% year on year in March to 2.3% in April. Although it remained above the BoE’s 2% target – and did not dip as low as expected – it reached its lowest rate since July 2021. BoE Governor Andrew Bailey said that policymakers need to see more evidence of slowing inflation before they are prepared to start reducing rates. The British Retail Consortium (BRC) reported that food price inflation fell for a thirteenth consecutive month in May to 3.2% year on year, and that shop price inflation had returned to “normal levels”.

UK exits brief recession: the UK economy moved out of its brief recession during the first three months of 2024, posting quarterly growth of 0.6%. Elsewhere, the rate of unemployment rose to 4.3% during the first three months of the year, and the number of job vacancies continued to fall, while earnings growth remained strong at 6%. Consumer confidence in the UK rose in May, according to GfK’s Consumer Confidence Index. Although overall confidence remained in negative territory, GfK commented: “All in all, consumers are clearly sensing that conditions are improving”.

Global

US markets hit fresh highs: despite the prospect of ‘higher-for-longer’ interest rates, US equity markets rebounded in May, boosted by a strong performance from the technology sector. The Federal Reserve (Fed) maintained its key federal funds rate at a range of 5.25% to 5.5%, citing a “lack of further progress” on reducing inflation; Fed Chair Jerome Powell reiterated that “it really will depend on the data”. Reports that consumer price inflation had eased from 3.5% year on year in March to 3.4% in April renewed hopes of a rate cut this year, propelling US equity markets to fresh highs mid-month. The rate of unemployment ticked up from 3.8% to 3.9% and the number of new jobs added in April was relatively muted at 175,000 compared with 315,000 in March.  The Dow Jones Industrial Average Index rose by 2.3% over May.

Conditions improving in the eurozone: in its Financial Stability Review, the European Central Bank (ECB) confirmed that conditions have improved, supported by moderating inflation and improved investor confidence, but warned that the outlook is still fragile, and markets remain vulnerable to the risk of macro-financial and geopolitical shocks. European Commissioner for Economy Paolo Gentiloni commented: “We believe we have turned a corner”. The Dax Index rose by 3.2% over the month.

ECB to cut rates? Despite higher-than-expected inflation in the eurozone for May, the ECB is still widely expected to cut its key interest rate in June. The annualised rate of consumer price inflation rose by 2.6% in May, following April’s rate of 2.4%, while core inflation rose from 2.7% to 2.9%.

Yen weakness dampens sentiment: Japan’s economy shrank during the first three months of the year, contracting at an annualised rate of 2%. Against a backdrop of weakness in the yen, confidence amongst Japanese consumers deteriorated during May, and the Nikkei 225 Index edged up by 0.2%.

US dividends hit quarterly record: global dividend payments rose to a first-quarter record of US$339.2 billion, rising at a headline rate of 2.4% and an underlying rate of 6.8%. Janus Henderson’s Global Dividend Index reported that 93% of companies maintained or increased their dividend payouts. The US achieved an all-time quarterly record, and Sweden and Canada broke first-quarter records. At sector level, banks accounted for a quarter of underlying annualised global dividend growth during the period.

As ever, if you have any questions regarding your investments, please do not hesitate to contact us by calling +44 (0) 7917 390 344  or emailing me at richardbrazier@culverfinancial.co.uk and we will be happy to talk to you.

UK

UK equity markets buck the global trend: although many developed markets fell over the month following disappointing US inflation data, the FTSE 100 Index reached a new all-time high, driven up by sterling’s weakness against the US dollar, signs of a shift away from the technology sector, and encouraging corporate earnings data.

A flurry of bid activity: the FTSE also received a boost from takeover activity in the mining sector as BHP launched a bid – subsequently rejected – for Anglo American. Takeover activity also featured in the FTSE 250 Index as US private equity company Thoma Bravo agreed a bid with UK cybersecurity firm Darktrace. Over April as a whole, the FTSE 100 Index rose by 2.4%; in comparison, the more domestically sensitive FTSE 250 Index rose by 0.4%.

Inflation continues to fall: the UK economy expanded by 0.1% during February, and the Office for National Statistics (ONS) revised up its January growth figure from 0.2% to 0.3%, raising hopes that the country has moved out of recession. The annualised rate of consumer price inflation reached its lowest level since September 2021, falling from 3.4% to 3.2% in March. Elsewhere, the UK labour market showed signs of weakening: the rate of unemployment rose to 4.2% over the three months to February, and the proportion of economically inactive people climbed to 22.2%. Average growth in real wages rose by 1.6% over the period, reaching its highest level since the July-September quarter of 2021.

“Healthy, but unexciting”: dividend payouts from listed UK companies rose at a headline 4.9% to £15.6 billion during the first three months of 2024, according to Computershare’s Dividend Monitor. However, underlying growth was a “healthy, but unexciting” 2%. Looking ahead, Computershare raised its forecast for headline growth over 2024 from 3.7% to 4.3%, based on expectations of an increase in special dividends, whereas underlying full-year growth is set to be more muted at 1.5%.

Profit warnings on the rise: over the 12 months to the end of March, 18.7% of UK listed companies warned on profits, according to a study published by EY Parthenon, representing a new post-pandemic high. EY Parthenon also reported an increase in companies highlighting accounting and operational issues as a trigger for a profit warning, alongside a rise in financial services companies citing regulatory action.

Global

‘Higher for longer’: investor sentiment around the world was dampened during April as higher-than-expected inflation and employment data from the US stifled hopes of an imminent reduction in interest rates. Bond yields rose amid expectations of ‘higher-for-longer’ rates: the yield on the ten-year US Treasury bond ended April at 4.68%, compared with 4.21% at the end of March, while the thirty-year Treasury bond yield rose from 4.35% to 4.78%. Over the month, the Dow Jones Industrial Average Index fell by 5%.

US growth disappoints: having expanded at an annualised rate of 3.4% in the final three months of 2023, the US economy grew by a relatively lacklustre 1.6% during the first quarter of 2024. In a speech, Federal Reserve (Fed) Chair Jerome Powell highlighted: “solid growth, a strong but rebalancing labour market, and inflation moving down to 2% on a sometimes-bumpy path”. The Fed’s first cut in interest rates is now widely expected to take place in September, with a second cut possible towards the end of the year.

Cut on the cards for Europe? Despite the news from America, the European Central Bank (ECB) is still expected to implement a rate cut in June. The ECB left its key interest rate unchanged for another month at 4.5% but indicated that policymakers were continuing to move towards a more dovish stance, fuelling speculation that a cut was on the cards for June. In a statement, the ECB said that, if inflation continues to move sustainably towards its 2% target, “it would be appropriate to reduce the current level of monetary policy restriction”. The rate of inflation in the eurozone fell to 2.4% year on year during March, and the bloc’s economy grew by 0.3% over the first quarter. Over April, the Dax Index fell by 3%.

BoJ to tighten? Business confidence deteriorated amongst large Japanese manufacturing companies during the first three months of 2024, according to the Bank of Japan’s (BoJ’) quarterly Tankan survey. Although the BoJ maintained its monetary policy stance during April, speculation is growing over the possibility of another rate increase later in the year. Meanwhile, the yen weakened against the US dollar amid rising expectations of ‘higher-for-longer’ US rates, but subsequently rebounded, triggering conjecture that Japanese authorities had intervened. The Nikkei 225 Index fell by 4.9% over the month.

As ever, if you have any questions regarding your investments, please do not hesitate to contact us by calling +44 (0) 7917 390 344  or emailing me at richardbrazier@culverfinancial.co.uk and we will be happy to talk to you.

UK

UK economy rebounds: having slipped into recession in the final three months of 2023, the UK economy posted month-on-month growth of 0.2% in January, raising hopes that the economy may be picking up. Activity was boosted by growth of 0.2% in the services sector. The FTSE 100 Index rose by 4.2% over March and by 2.8% during the first three months of the year. Meanwhile, the FTSE 250 Index posted a monthly gain of 4.4% and a quarterly increase of 1%.

No sign of a rate cut yet: as expected, the Bank of England (BoE) maintained its key base rate at 5.25%; nevertheless, expectations of a cut later this year continue to grow. The BoE expects inflationary pressures to continue to moderate, but also warned that supply chain disruptions, caused by ongoing conflict in the Middle East, could drive up prices.

Inflation eases: the annualised rate of consumer price inflation dropped from 4% in January to 3.4% in February, slowing to its lowest rate since September 2021. Although housing and energy costs rose, they were offset by lower prices for items including food and non-alcoholic drinks, alcohol and tobacco, and clothing and footwear. Elsewhere, UK consumer confidence stagnated during March, according to GfK’s consumer confidence index; on a brighter note, UK consumers’ expectations for their personal finances moved into positive territory for the first time since December 2021.

Flight to safety: UK funds experienced an unprecedented second consecutive year of outflows last year, as withdrawals of £26.9 billion in 2022 were followed by a slightly lower total of £24.3 billion in 2023. Investor sentiment was affected by economic uncertainty, the cost-of-living crisis, and high interest rates. According to the Investment Association (IA), net inflows to money market, fixed income, and tracker funds were more than offset by outflows from equity funds; in particular, UK equity funds suffered record annual outflows of £14 billion, representing an eighth straight year of outflows. Responsible funds also fell from favour, experiencing outflows totalling £3 billion over the year.

Banks underpinned dividend growth in 2023: dividend payouts from UK companies posted underlying growth of 5.4% during 2023, and over 80% of companies maintained or increased their payment, according to Janus Henderson’s latest Global Dividend Index. Overall growth in dividends was underpinned by a strong contribution from the banking sector.

Global

Fed remains cautious: as expected, the Federal Reserve (Fed) maintained its key federal funds rate at a range of 5.25% to 5.5% in March. Against a backdrop of increasingly heightened speculation over the timing of possible cuts, the Fed emphasised that it intends to remain cautious and focus on data, although a first cut is still widely expected in the summer. 

Dow hits fresh highs: inflationary pressures picked up slightly in the US during February, and the rate of CPI inflation edged up from 3.1% year on year in January to 3.2% in February. The rate of unemployment in the US rose from 3.7% to 3.9% in February, representing its highest level for two years. The Dow Jones Industrial Average Index climbed by 5.1% in March, registering three fresh closing highs during the month. Over the first quarter, the Dow rose by 5.6%.

ECB focuses on data: although the European Central Bank (ECB) left its key interest rate unchanged, speculation over the possible timing of a rate cut continued to preoccupy investors. Nevertheless, ECB President Christine Lagarde insisted she would “not commit to any kind of pace, rhythm, magnitude, because we will continue to be data dependent”. The eurozone’s rate of inflation fell from 2.8% to 2.6% year on year, and Switzerland caused a flurry by cutting its key rate from 1.75% to 1.5%. The Dax Index increased by 4.6% during the month and by 10.4% over the year to date.

BoJ makes its move: the Bank of Japan (BoJ) raised rates for the first time in 17 years during March, increasing its key rate from -0.1% to a range of 0% to 0.1%. The central bank also ended its yield curve control policy. The BoJ’s generally accommodative tone drove the Nikkei 225 Index to fresh highs; meanwhile, the yen fell to its lowest level against the US dollar for over thirty years. Elsewhere, having contracted during the third calendar quarter of 2023, Japan’s economy sidestepped recession by posting growth of 0.4% during the final three months of the year.

Nikkei breaches 40,000: having finally surpassed its previous high set in 1989 during February, Japan’s benchmark Nikkei 225 Index breached 40,000 points for the first time ever during March. The Nikkei 225 Index rose by 3.1% during March and by 20.6% over the quarter.

As ever, if you have any questions regarding your investments, please do not hesitate to contact us by calling +44 (0) 7917 390 344  or emailing me at richardbrazier@culverfinancial.co.uk and we will be happy to talk to you.

UK

A “weak” recession: the UK economy slipped into recession during the final quarter of 2023: having contracted by 0.1% in the third quarter, it shrank by 0.3% during the final three months of the year, dampened in part by weakness in manufacturing and in consumer-facing services. Over 2023 as a whole, the UK economy grew by only 0.1%. Nevertheless, Bank of England (BoE) Governor Andrew Bailey highlighted “distinct signs of an upturn”, suggesting that “this is the weakest (recession) by a long way” in comparison to previous recessions. The FTSE 100 Index ended February unchanged, while the FTSE 250 Index fell by 1.6% over the month.

Edging closer towards a rate cut? The Bank of England (BoE) maintained its key interest rate at 5.25% for another month. Policymakers appear to be shifting towards a looser monetary stance, although Governor Andrew Bailey insisted that they needed to “be confident that inflation is set to fall all the way back to the 2% target – and stay there” before cutting rates. In any case, a cut in the near future is not a foregone conclusion: the BoE expects inflation to tick up slightly during the third quarter.

Wage growth slowing: the rate of consumer price inflation remained unchanged at 4% year on year in January as higher prices for electricity and gas were offset by lower prices for food, furniture and household goods. Growth in average earnings (excluding bonuses) slowed during the final quarter of 2023 from 6.6% to 6.2%.

Consumer confidence on the up? After a poor December for retail sales, in which volumes fell by a record 3.3%, consumers returned to the shops in January, generating a 3.4% increase. The British Retail Consortium reported that annualised shop price inflation had fallen to its lowest rate since May 2022. Elsewhere, although confidence amongst UK consumers edged lower in February, according to GfK’s monthly survey, overall optimism over their personal financial situation over the next 12 months remained stable, suggesting an improvement in the nation’s financial mood.

FTSE UK reshuffle: in its quarterly review of UK equity index constituents, FTSE Russell announced that budget airline easyJet would join the FTSE 100 Index in March, replacing Endeavour Mining, which will move to the mid-cap FTSE 250 Index. Other companies set to join the FTSE 250 Index include Kier Group and Wincanton.

Global

A record month: US stock markets continued to forge ahead during February: the Dow Jones Industrial Average Index reached a new closing high, while the S&P 500 Index breached 5,000 points for the first time. Over February as a whole, the Dow rose by 2.2%, the S&P 500 Index increased by 5.2%, and the Nasdaq Index climbed by 6.1%. The ‘Magnificent Seven’ continued to make a splash: in particular, Nvidia rose by 28.6% over the month.

FOMC remains circumspect: the annualised rate of consumer price inflation in the US eased from 3.4% in December to 3.1% in January; however, the rate of core inflation remained unchanged at 3.9%. Minutes from the January meeting of the Federal Open Market Committee suggested that policymakers remained cautious about the risks of “moving too quickly” to cut rates, preferring to wait until they have “greater confidence that inflation is moving sustainably toward 2%”. The US labour market remained strong in January: the economy added 353,000 new jobs during the month, compared with a monthly average of 255,000 during 2023. The rate of unemployment remained at 3.7%; meanwhile, average hourly earnings rose at an annualised rate of 4.5% during January, stoking some concerns about lingering inflationary pressures.

Germany set to “tread water”: the rate of inflation in the eurozone crept lower during January, falling from 2.9% year on year in December to 2.8%. Elsewhere, Germany’s central bank, the Bundesbank, warned that the country’s economic recovery is likely to begin slightly later than previously expected. Economic output could once again decline during the first quarter, which would push Germany into a technical recession. Over 2024 as a whole, the Bundesbank expects the German economy to “tread water”. Nevertheless, according to the Ifo Institute, business sentiment amongst German companies picked up during February, and the Dax Index rose by 4.6% over the month.

Nikkei reaches highest level for 34 years: Japan’s economy entered recession following the news that it had contracted for two consecutive quarters. The economy shrank by 0.4% between October and December, undermined by a decline in private demand. Nevertheless, the Nikkei 225 Index rose by 7.9% during February, and also reached a new closing high during the month, finally surpassing its previous peak set on 29 December 1989.

As ever, if you have any questions regarding your investments, please do not hesitate to contact us by calling +44 (0) 7917 390 344  or emailing me at richardbrazier@culverfinancial.co.uk and we will be happy to talk to you.

UK

UK equities fall in January: share prices fell during January as an unexpected uptick in the rate of UK consumer price inflation dampened optimism over the likelihood of interest rate cuts. The FTSE 100 Index fell by 1.3% over the month, while the FTSE 250 Index declined by 1.7%.

Inflationary pressures bite once again: having fallen every month since February 2023, the annualised rate of inflation rose in December from 3.9% to 4%, driven up by higher costs for alcohol and tobacco. The news curbed expectations of an imminent cut in interest rates and pushed up gilt yields. Core inflation – which strips out volatile factors such as alcohol, tobacco, food, and energy – remained unchanged at 5.1%. Although food price inflation has eased, the British Retail Consortium retained a cautious outlook, highlighting the risks posed by cost pressures, including higher business rates and disruption to shipments going through the Red Sea.

UK economy rebounds in November: the UK economy expanded by 0.3% during November, following a 0.3% contraction in October. The International Monetary Fund maintained its forecast for UK economic growth this year at 0.6% but cut its 2025 forecast from 2% to 1.6%. Business confidence shows signs of improving, according to the British Chambers of Commerce, which reported that 56% of UK companies anticipate an increase in revenues over the next 12 months.

Bank dividends bounce back: underlying growth in dividends paid by UK listed companies during 2023 rose by 5.4% to £88.5 billion, led by payouts from banks, oil, and utilities companies. According to Computershare’s quarterly Dividend Monitor, the banking sector was the highest-paying sector for the first time since 2007. Looking ahead, Computershare expects underlying dividend growth to moderate to 2% in 2024, representing a total payout of £89.8 billion.

2023 profits warnings outstrip 2008: although the number of profits warnings issued by UK listed companies in 2023 was lower than 2022 – falling from 305 to 294 – the proportion of companies publishing profits warnings in 2023 exceeded that of 2008, during the Global Financial Crisis. According to EY-Parthenon, 18.2% of listed companies published profits warnings last year as higher borrowing costs, supply chain disruptions and fragile consumer confidence took their toll. The sectors issuing the most warnings were industrial support (25 warnings), retailers (24) and software & computer services (21).

Global

Cautious optimism from the IMF: the International Monetary Fund (IMF) believes “the clouds are beginning to part” and expects the global economy to achieve a soft landing, underpinned by lower inflation and steady growth, although it remained cautious over the impact of shipping disruptions in the Red Sea and the ongoing war in Ukraine. The IMF upgraded its forecasts for global economic growth from 2.9% to 3.1% this year and called on central banks to prioritise price stability.

Fed remains hawkish: US share prices rose during January, stoked by a strong performance from the technology sector and by mounting hopes that interest rates might start to decline. However, investors’ optimism was checked at the end of the month by a hawkish tone from the US Federal Reserve (Fed). As expected, Fed policymakers left the key interest rate unchanged at 5.25% to 5.5%; nevertheless, officials played down any prospect of a rate cut in March, with Fed Chair Jerome Powell commenting: “We’re wanting to see more data”. The rate of consumer price inflation in the US rose from 3.1% to 3.4% year on year in December, and a rate cut now appears to be more likely in the second quarter. The Dow Jones Industrial Average Index rose by 1.2% over January as a whole.

Germany on the edge? The eurozone’s economy flatlined during the final three months of 2023, narrowly avoiding recession after a third-quarter contraction of 0.1%. Germany’s economy contracted by 0.3% during the fourth quarter, intensifying concerns over the prospect of recession in Europe’s largest economy. The annualised rate of eurozone inflation rose by 2.4% to 2.9% during December, fuelled by higher energy costs. However, core inflation eased from 3.6% to 3.4% year on year.

Caution in Europe: the European Central Bank (ECB) sounded a cautionary note over the region’s growth prospects, warning of a possible recession in the second half of 2023 and “weak prospects for the near term”. ECB policymakers left interest rates unchanged at their January meeting. The Dax Index rose by 0.9% during January.

Strong yen supports Japanese exporters: Japan’s benchmark Nikkei 225 Index reached its highest level since February 1990 during January, pushed up by a weak yen and strong performance from US technology stocks. During January, the Nikkei 225 Index rose by 8.4%.

As ever, if you have any questions regarding your investments, please do not hesitate to contact us by calling +44 (0) 7917 390 344  or emailing me at richardbrazier@culverfinancial.co.uk and we will be happy to talk to you.

UK

A subdued end to the year: although UK equity markets ended December – and 2023 – in positive territory, their performance compared to most major overseas markets was relatively muted overall. The FTSE 100 Index rose by 3.7% during December and by 3.8% over the year; meanwhile, the FTSE 250 Index climbed by 8% over December and by 4.4% over 2023. Having risen as high as 4.75% during 2023, the yield on the benchmark UK gilt ended 2023 at 3.54%, dampened by expectations of lower interest rates. The pound strengthened during 2023 against the US dollar, rising from 1.21 to 1.27.

Interest rates unchanged: the Bank of England (BoE) held its key interest rate at 5.25% and policymakers gave no indication that rate cuts are in the offing. Nobody voted for a cut; six members of the Monetary Policy Committee voted to hold rates, and three voted for an increase of 25 basis points. Nevertheless, although BoE Governor Andrew Bailey emphasised that interest rates are not set to fall until inflation has returned to its 2% target, speculation over the possibility of rate cuts during 2024 appears to have risen, intensified by lacklustre economic data and signs of a slowdown in wage growth.

Recession fears on the rise: although initial estimates suggested that the UK economy had stagnated between July and September, updated calculations released during December showed that the economy had shrunk by 0.1% during the third quarter. The news raised concerns over the possibility of recession that were exacerbated by a month-on-month economic contraction of 0.3% in October.

Inflationary pressures continue to ease lower prices for transport, recreation, and food curbed consumer price inflation, which fell from 4.6% year on year in October to 3.9% in November, fuelling hopes that central bank officials could decide to bring down interest rates earlier than expected. UK job vacancies continued to fall during the three months to October, and growth in average earnings (excluding bonuses) slowed to a rate of 7.3%.

Consumer confidence ticks up: confidence amongst UK consumers showed signs of a “modest improvement” in December, according to GfK’s Consumer Confidence Index, although sentiment remained negative overall. In comparison, Lloyds Bank reported that business confidence in the UK fell to a five-month low during December, posting its biggest one-month decline since August 2022 and reflecting caution towards wider economic prospects.

Global

A strong end to the year: many – but not all – leading equity markets ended 2023 strongly, posting double-digit gains over the calendar year. In the US, the S&P 500 Index rose by 24.2% over 2023, but it is worth noting that the ‘Magnificent Seven’ (Alphabet, Amazon, Apple, Meta, Microsoft, NVIDIA and Tesla) accounted for more than 60% of that return. The Dow Jones Industrial Average Index rose by 13.7% over 2023 and by 4.8% in December, hitting a new closing high during the month. Elsewhere, having ended 2022 at 3.88%, the yield on the ten-year Treasury Bond also ended 2023 at 3.88%, but rose as high as 4.98% during the year.

Inflationary pressures on the wane: the rate of US consumer price inflation eased from 3.2% to 3.1% year on year during November, dampened by lower fuel prices. The US Federal Reserve (Fed) maintained its key federal funds rate at a range of 5.25% to 5.5% during the month. Updated forecasts suggest that Fed officials expect rates to fall below 5% in 2024. Nevertheless, Fed Chair Jerome Powell warned: “It is far too early to declare victory.”

Risks tilted to the downside: the European Central Bank (ECB) held its key interest rate at 4% and advised that inflationary pressures – which have eased over recent months – are likely to increase in the short term before the rate of inflation finally returns to its 2% target in 2025. The ECB still believes economic risks for the region are tilted to the downside. Against a weak economic backdrop, business sentiment deteriorated in Germany during December. The Dax Index rose by 3.3% during December and by 20.3% over the year.

China under pressure: credit ratings agency Moody’s downgraded its outlook for China’s credit rating from “stable” to “negative”, citing the deteriorating economic outlook, a slowing property market, and the likelihood that financially stressed local governments and state enterprises will require government support. The Shanghai Composite Index fell by 1.8% in December and declined by 3.7% over 2023.

Politics and geopolitics: more than 40 countries will head to the polls in 2024 according to Bloomberg, including the US, India, Russia, Taiwan, Indonesia, and probably also the UK. Meanwhile, the International Monetary Fund warned that the global economy faces a turning point as deepening geoeconomic fragmentation risks pushing the world towards “Cold War Two”.

As ever, if you have any concerns regarding your investments, please do not hesitate to contact us by calling +44 (0) 7917 390 344  or emailing me at richardbrazier@culverfinancial.co.uk and we will be happy to talk to you.

UK

Mid-caps outperform: although UK equity indices ended November in positive territory, their overall performance was muted compared with many other leading equity markets. The FTSE 250 Index – representing medium-sized companies – performed better than the FTSE 100 Index, boosted by speculation that interest rates might have peaked; returns from blue-chip stocks were curbed by a stronger pound. The FTSE 250 Index rose by 6.7% during the month, while the FTSE 100 Index climbed by only 1.8%.

Autumn Statement: the Chancellor of the Exchequer’s Autumn Statement included cuts to National Insurance contributions, increases to the State Pension and the National Minimum Wage, as well as simplifications to the ISA system and potential changes to pensions. The Office for Budget Responsibility (OBR) predicted that Government spending on debt interest will reach its second-highest level since WW2; at the same time, the UK’s tax burden will rise to a post-WW2 high of 37.7%.

Rates unchanged: the Bank of England (BoE) held its key interest rate at 5.25% in November but emphasised that it remained ready to raise rates again if necessary. Later in the month, BoE Governor Andrew Bailey stated: “Let me be very clear: it is far too early to be thinking about rate cuts”. The rate of consumer price inflation fell from 6.7% year on year in September to 4.6% in October, dampened by the impact of lower fuel prices.

Lacklustre outlook: the OBR expects the UK economy to expand by 0.6% this year, 0.7% in 2024, and 1.4% in 2025. In comparison, the Organisation for Economic Cooperation & Development (OECD) predicts growth of 0.5% in 2023, 0.7% in 2024, and 1.2% in 2025. Activity is anticipated to be hampered by lingering inflationary pressures, high interest rates, and fiscal pressures on businesses and households.

Sentiment brightens: UK consumer confidence picked up in November as households appeared more inclined to spend. Nevertheless, the November survey undertaken by GfK found that consumers remained preoccupied by “acute cost-of-living pressures”. Elsewhere, sentiment amongst UK businesses improved during the month, according to a survey conducted by Lloyds Bank, boosted by hopes that interest rates have peaked.

FTSE reshuffle: in the quarterly review of FTSE’s UK index constituents, alternative asset manager Intermediate Capital Group replaced investment platform Hargreaves Lansdown in the FTSE 100 Index. Companies joining Hargreaves Lansdown in the FTSE 250 Index include AO World, Tullow Oil and Trustpilot Group.

Global

Equities bounce back: share prices generally rebounded during November amid mounting optimism that interest rates might have peaked, underpinned by encouraging inflation data from the US and the eurozone. Global economic growth is expected to slow to 2.7% in 2024 and then pick up to 3% in 2025, according to updated forecasts from the Organisation for Economic Cooperation & Development (OECD).

US inflation continues to moderate: the Federal Reserve (Fed) held its federal funds rate at a range of 5.25% to 5.5%. The annualised rate of inflation in the US eased from 3.7% in September to 3.2% in October as lower fuel prices took effect, strengthening hopes that the Fed might not feel the need to implement another rise in borrowing costs.

Stronger-than-expected growth: the US economy expanded even more robustly than first thought during the third quarter, as initial estimates of 4.9% of annualised growth were revised upward to 5.2%. Growth was boosted by strong business investment and government spending. The Dow Jones Industrial Average Index rose by 8.8% over November.

ECB holds rates: the eurozone’s rate of inflation fell from 2.9% year on year in October to 2.4% in November, compared with the European Central Bank’s (ECB’s) target rate of 2%, fuelling hopes that policymakers might start to shift to a more dovish stance in 2024. The ECB left its key interest rate unchanged at 4% during November.

Clouded outlook for Europe: the European Commission downgraded its forecast for economic growth in the eurozone from 0.8% to 0.6% in 2023 and from 1.3% to 1.2% in 2024, warning: “Heightened geopolitical tensions have further increased the uncertainty and risks clouding the outlook”. Having grown by 0.2% during the second quarter of 2023, the eurozone’s economy shrank by 0.1% over the third quarter. During the third quarter, Germany’s economy contracted by 0.1% while Italy flatlined and France expanded by 0.1%. Over November, the Dax Index rose by 9.5%.

The end of deflation? In Japan, speculation continued that the central bank might be approaching the end of its protracted period of ultra-loose monetary policy. The country’s economy contracted by 2.1% during the third quarter, dampened by slower export growth and inflationary pressures that curbed domestic demand. The OECD expects Japan’s economy to expand by 1% in 2024 and 1.2% in 2025. The Nikkei 225 Index rose by 8.5% over November.

As ever, if you have any concerns regarding your investments, please do not hesitate to contact us by calling +44 (0) 7917 390 344  or emailing me at richardbrazier@culverfinancial.co.uk and we will be happy to talk to you.

UK

Geopolitics back in focus: UK share prices fell during October as concerns over the economic outlook were compounded by geopolitical uncertainties following the outbreak of the Israel-Gaza war. The FTSE 100 Index  dropped by 3.8% over the month, while the FTSE 250 Index  declined by 6.5%. Meanwhile, bond prices continued to fall: the yield on the benchmark ten-year gilt  rose as high as 4.7% in October, reaching levels last seen  during the Global Financial Crisis, and the 30-year gilt yield  breached 5% during the month, climbing to its highest level since 1998.

Consumer pessimism: UK consumer confidence fell deeper into negative territory during October, according to GfK , reaching its lowest level since July. The deterioration reflects consumers’ pessimism over their finances in the run-up to Christmas amid growing expectations that interest rates are likely to stay “higher for longer”.

Lacklustre outlook: the International Monetary Fund (IMF)  expects the UK economy to grow more slowly than other advanced economies in 2024, citing the impact of persistent inflation that will require tighter monetary policy for some time. The UK economy  expanded by 0.2% during August, having contracted by 0.6% in July. The IMF downgraded its forecast for UK economic growth next year from 1% to 0.6%. In comparison, the US and the eurozone are predicted to grow by 1.5% and 1.2% respectively.

Inflation holds steady: having fallen for three consecutive months, the UK’s rate of inflation  remained unchanged at 6.7% year on year in September. Food price inflation declined from an annualised rate of 13.6% to 12.2%. The IMF expects average consumer price inflation of 7.7% this year in the UK, falling to 3.7% next year.

Dividends declined in Q3: UK dividend payouts fell at a headline rate of 8.3% during the third quarter, according to Computershare’s Dividend Monitor , undermined by lower payments from the mining sector and smaller special dividends. On an underlying basis, dividends rose by 2.4%. Dividends from the utilities, banking, energy, and media sectors grew strongly.

Credit conditions take a toll: EY-Parthenon  reported a total of 76 profit warnings from UK-listed companies during the third quarter. Although this represented an annualised fall of 12%, it was still 18% above the third-quarter average. As pressures on costs and supply chains eased, companies cited the impact of deteriorating credit conditions as the primary cause of warnings.

Global

“Uncharted waters”: equity and bond prices fell during October as investors’ appetite for risk was blunted by geopolitical tensions and economic uncertainties. The World Bank  warned that the Israel-Gaza war could “push global commodity markets into uncharted waters”, flagging the possibility that oil prices could rise above US$150 per barrel if the conflict continues to escalate. The price of Brent Crude oil  rose above US$93 per barrel in October in response to the crisis. Meanwhile, the price of gold , which tends to rise during periods of instability, breached US$2,000 per ounce. Elsewhere, the VIX Index  – which tracks expectations of future volatility – reached its highest level since March during October.

Default risk on the rise: the International Monetary Fund (IMF)  warned that the risk of defaults from corporate and household borrowers has intensified, exacerbated by higher borrowing costs. The IMF forecast global economic growth of 3% this year and 2.9% next year, commenting  : “Growth remains slow and uneven ... The global economy is limping along, not sprinting”.

Higher for longer: Strong economic data  from the US fuelled expectations that interest rates are set to remain “higher for longer”, exacerbating the sell-off in bonds. The yield on the ten-year US Treasury bond  breached 5% for the first time since 2007, while the 30-year US Treasury bond  yield ended October at 5.08%. Having grown by 2.1% in the second quarter of 2023, the US economy  expanded by 4.9% during the third quarter. Meanwhile, inflation  remained unchanged at 3.7% year on year during September, confounding widespread expectations of a decline, although core inflation – which strips out volatile factors like energy and food – eased from 4.3%  to 4.1%. The Dow Jones Industrial Average Index  fell by 1.4% in October.

ECB holds rates: inflationary pressures in the eurozone appear to be easing as the eurozone’s annualised rate of consumer price inflation  dropped from 4.3% in September to 2.9% in October. The European Central Bank  left its key interest rate unchanged at 4% following a series of tightening measures. The eurozone’s economy  contracted by 0.1% in the third quarter, stoking speculation over the possibility of recession. Nevertheless, optimism about the outlook for German businesses improved slightly during October, according to the Ifo Institute , although companies remained pessimistic about their current situation.

As ever, if you have any concerns regarding your investments, please do not hesitate to contact us by calling +44 (0) 7917 390 344  or emailing me at richardbrazier@culverfinancial.co.uk and we will be happy to talk to you.

Blue chips outperform in September: the FTSE 100 Index bucked the global trend during September, posting an increase of 2.3% over the month as sterling’s weakness and higher oil prices provided a boost for blue chips. In comparison, mid-caps – represented by the FTSE 250 Index – fell by 1.8% over the month. 

Sterling weakens: the pound fell to its lowest level against the US dollar since March during September, dropping as low as US$1.21 amid mounting concerns over economic growth prospects and expectations that the Bank of England (BoE) is reaching the end of its tightening cycle. After 14 consecutive rate increases, BoE policymakers voted by five to four in favour of holding the key base rate steady at 5.25%. During evidence given to the Treasury Select Committee, BoE Governor Andrew Bailey indicated that rates were close to or at their peak.

Inflation eases: the rate of consumer price inflation eased unexpectedly in August, falling for a third consecutive month from 6.8% to 6.7%, and the BoE expects inflation to “fall significantly further” in the near term. The Organisation for Economic Cooperation & Development (OECD) forecast UK inflation to average 7.2% this year – a higher level than any other G7 member country – falling to an average of 2.9% in 2024.

Housing market under pressure: UK house prices fell at an annualised rate of 5.3% in the year to August, according to mortgage lender Nationwide, representing their weakest rate since 2009. The price of an average house in the UK fell to £259,153. According to HMRC, residential property transactions fell by 9% between June and July, posting a 22% drop year on year. Mortgage approvals in the UK reached their lowest level since February during August.

Unemployment on the up: the value of retail sales rose by 4.1% during August year on year, reflecting to some extent an uptick in consumer confidence, according to the British Retail Consortium. Nevertheless, persistent inflationary pressures are likely to have masked a drop-in sales volume. Elsewhere, the UK’s labour market appears to be weakening: the rate of unemployment rose from 3.8% to 4.3% in the three months to July, while job vacancies fell below one million. Meanwhile, average earnings (excluding bonuses) rose at an annualised rate of 7.8% over the same period.

Losing momentum: global equity markets generally weakened during September, dampened by uncertainties over US monetary policy, higher oil prices, and broader concerns about the global economic outlook. The Organisation for Economic Cooperation & Development (OECD) warned that global growth is set to moderate, dampened by the impact of higher interest rates, persistently high core inflation rates, lacklustre business and consumer confidence, and a slowdown in China. Elsewhere, the Financial Stability Board (FSB) warned G20 leaders that economic growth is losing momentum against a backdrop of higher interest rates and warned of “further challenges and shocks facing the global financial system”.

Fed pauses: the rate of consumer price inflation in the US picked up from 3.2% in July to 3.7% in August, boosted by higher fuel prices. Although the US Federal Reserve (Fed) maintained its key federal funds rate at a range of 5.25% to 5.5% at its September meeting, Fed officials are expected to tighten rates again before the end of the year. At the very end of the month, US lawmakers agreed a temporary deal that will avert a federal shutdown until 17 November. The Dow Jones Industrial Average Index fell by 3.5% over September, while the technology-rich Nasdaq Index declined by 7.6%. Apple’s share price dropped sharply during the month following reports that China’s government had widened a ban on government employees from using iPhones.

ECB tightens again: the European Central Bank (ECB) raised its key interest rate to a record high of 4% during September. This was the ECB’s tenth rate increase in 14 months, but the central bank looks set to pause its tightening cycle for now. The rate of inflation in the eurozone fell from 5.2% to 4.3% year on year during September.

A weaker outlook for Europe: the European Commission revised down its forecast for economic growth in the eurozone to 0.8 % in 2023 and 1.3% in 2024, citing “multiple headwinds” including weak domestic demand, higher interest rates, and geopolitical tensions including the ongoing war in Ukraine.

Germany in the doldrums: Germany is the only economy in the euro area predicted to shrink over 2023, according to the European Commission. The Ifo Institute reported “bleak” sentiment towards Germany’s economic prospects during September; meanwhile, export activity continued to weaken and retail sales volumes declined. The Dax Index fell by 3.5% over the month.

As ever, if you have any concerns regarding your investments, please do not hesitate to contact us by calling +44 (0) 7917 390 344  or emailing me at richardbrazier@culverfinancial.co.uk and we will be happy to talk to you.