Written by Nathan Sweeney – CleverMPS Portfolio Manager & Marlborough’s Deputy CIO – Multi Asset, the Market Review is packed with the most interesting and impactful events of the past week from the global financial markets.
Market Recap.
Despite concerns about the banking system’s fragility, markets performed well last week, as investors anticipate an end to the rising interest rate cycle. UK stocks rose by more than 1%, while US and Chinese stocks returned just over 1.4% and 1.7% respectively. Govt bonds also performed well, as they priced in the possibility of interest rate cuts later this year.
News.
The EU and the Bank of England have declared that they will not follow Switzerland in permitting AT1 bonds to absorb losses ahead of common equity instruments, in adherence with the traditional creditor hierarchy that prioritises bondholders over shareholders. The decision was made in response to Credit Suisse’s AT1 bonds being eliminated in a $17 billion loss, while shareholders received $3.3 billion.
Geopolitics.
During a three-day meeting with Russian President, Vladimir Putin, Chinese President, Xi Jinping, expressed support for Russia’s invasion of Ukraine. However, Xi Jinping did not agree with Putin’s proposal to divert the Power of Siberia-2 gas pipeline from Europe to Mongolia, despite Putin’s suggestion that the deal was finalised.
Inflation.
The UK’s annual inflation rate rose to 10.4%, surpassing expectations of 9.9% and marking its first increase in four months. The upsurge was driven by escalating price pressures in food, non-alcoholic beverages, and electricity. Additionally, core annual inflation – which excludes energy, food, alcohol, and tobacco – increased to 6.2%.
Central Banks.
The Bank of England raised interest rates by 0.25% last Thursday, resulting in a borrowing cost of 4.25% – the highest level since 2008. Last Wednesday, the US Central Bank raised interest rates by 0.25%, bringing interest rates to 5% – the highest level since 2007. Fed Chair, Jerome Powell, suggested that the end of the hiking cycle might be near.
Commodities.
Oil prices fell over 3% to under $68 per barrel. The US Energy Secretary said it would be hard to refill strategic oil reserves this year, raising concerns that the US government may only purchase at even lower prices. Gold prices rose to near $2,000 per ounce last week, indicating a fourth straight week of gains and supported by a fresh flight to safety due to worries over the banking crisis.
ESG.
According to recent news, the Financial Conduct Authority (FCA), responsible for regulating financial markets and services firms, has discovered possible extensive shortcomings in ESG benchmark administrators. These inadequacies include insufficient ESG-related disclosure quality, as well as reliance on outdated ratings or data. In a letter addressed to the benchmark administrators’ CEOs, the FCA has cautioned that if these concerns are not addressed, there could be possible enforcement action taken.
Week Ahead.
The UK’s ONS will release Q4 GDP figures, while Europe will see reports on inflation and unemployment in the Eurozone. In Europe, March’s inflation rate is predicted to drop to 7.3% (a 13-month low) down from 8.5% in February. In the US, investors will focus on PCE and core PCE figures – which are the Federal Reserve’s preferred inflation measures – to gauge the economy’s pricing or inflation pressures.
Sources: Nathan Sweeney – CleverMPS Portfolio Manager & Marlborough’s Deputy CIO – Multi Asset, Marlborough’s Multi-Asset Investment team, The Financial Times, The Wall Street Journal, John Hancock, Morningstar, Trading Economics, ESG Today.
Risk Warning: These are Nathan’s views at the time of writing and should not be construed as investment advice. The opinions expressed are correct at time of writing and may be subject to change. Capital is at risk. The value and income from investments can go down as well as up and are not guaranteed. An investor may get back significantly less than they invest. Past performance is not a reliable indicator of current or future performance and should not be the sole factor considered when selecting funds.
Regulatory Information: This is a general communication provided for informational purposes only. It is educational in nature and not designed to be taken as advice or a recommendation for any specific investment product, strategy, plan feature or other purpose in any jurisdiction, nor is it a commitment from Marlborough or any of its subsidiaries to participate in any of the transactions mentioned herein. Any examples used are generic, hypothetical and for illustration purposes only. This material does not contain sufficient information to support an investment decision and it should not be relied upon by you in evaluating the merits of investing in any securities or products. In addition, users should make an independent assessment of the legal, regulatory, tax, credit, and accounting implications and determine – together with their own professional advisers if appropriate – if any investment mentioned herein is believed to be suitable. Investors should ensure that they obtain all available relevant information before making any investment. Any forecasts, figures, opinions or investment techniques and strategies set out are for information purposes only, based on certain assumptions and current market conditions and are subject to change without prior notice.
All information presented herein is considered to be accurate at the time of production, but no warranty of accuracy is given and no liability in respect of any error or omission is accepted. Issued by Marlborough Investment Management Limited, authorised and regulated by the Financial Conduct Authority (reference number 115231). Registered office: PO BOX 1852 Lichfield, Staffordshire, England, WS13 8XU. Registered in England No. 01947598. The Clever Marlborough Model Portfolio Service (‘CleverMPS’) is a collaboration between Marlborough Investment Management Limited as the Discretionary Fund Manager and Clever Adviser Technology Limited, a company registered in England and Wales (company number 2910523) with registered office at Watergate House, 85 Watergate Street, Chester, Cheshire CH1 2LF (“Clever”). Clever is a technology and software provision company which developed a methodology and proprietary suite of algorithms for the monitoring, analysis, collation, and transmission of data on the performance of Investment Funds and related portfolios within the UK market which Marlborough utilises for investment purposes.
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