True Potential Morning Markets

Matt Henderson, Portfolio Manager, looks back over the last few weeks in which we saw some market volatility and uses the opportunity to highlight the importance of longer term investment amidst short term change. Global equities returned 3.9% last week and a positive finish for global bonds made it a good week for multi-asset investors. As we look ahead to this week the FOMC (Federal Open Market Committee) meeting minutes are released in which markets will be looking for any hints as to the direction of future monetary policy. Later this week we also have the Jackson Hole symposium where global central bank leaders meet to discuss economic data and monetary policy.

With equities making a remarkable recovery this week and with market expectations for major central banks implementing several interest rate cuts by the end of the year, the economic backdrop looks constructive. Kevin Kidney, Head of Asset Allocation and Matt Henderson, Portfolio Manager look at data coming out of the UK and US where we see falling inflation rates for both economies with particular note that US headline inflation is now at a level we haven't seen since March 2021. UK employment surprised to the upside with 97,000 jobs added when markets expected 3,000 but wage inflation has seen its slowest growth since summer 2022. With 90% of corporate earnings reports in, most sectors have delivered positive results with some comments as to slower consumer spending due to higher interest rates. How long before the Federal Reserve take action on interest rates?

The pendulum has swung the other way in markets. Today, Kevin Kidney, Head of Asset Allocation, looks at the recovery in global equity prices since last week and the optimism on corporate earnings ahead as all major equity regions are expected to deliver impressive profits growth over the next 12 months. We also get a look into the market expectations of interest rate cuts in the US given the path of declining inflation pressures and whether the Bank of England is likely to stay in lock step with the FOMC’s (the monetary policy committee of the Federal Reserve) trajectory.

Matt Henderson, Portfolio Manager, looks at the UK inflation data which came through this morning. Markets did widely predict inflation to rise, however, the increase was below expectations in several readings which is a positive note for the UK's Bank of England. Matt walks us through the key elements of the readings and looks to the financial markets forecast for monetary policy from the Bank of England.

The latest data on the UK labour market shows improvements, with the unemployment falling, reversing its year-to-date trend. Wage growth remains elevated but the data this morning suggests a cooling. But what does this mean for the path of future interest rate?

Paul Durrans, Investment Director, looks into the key trends within the data and whether this will play a role in any interest rate decisions in the coming months.

This morning our Chief Investment Officer, Jeff Casson previews the week ahead in the markets, and what that means for your investments. As reporting season is well underway, Jeff looks to UK employment and inflation, inflation data from the USA and how they may influence monetary policy.

This week our experts review recent market fluctuations. Weakness in the US labour market began a fall in global equity markets due to fears that the US economy was slowing. We have also seen the Ministry of Finance in Japan intervene to strengthen the Japanese Yen, and a further increase in Japanese interest rates. Altogether, this caused investors to position away from Japanese equities. The Japanese Stock market was down 20% on Monday, but recovered materially to only -6.5% over the week. So although we have seen some volatility in equity markets, there has been a rebound in global market performance, and we expect the Federal Reserve to cut interest rates in September to help stabilise the US economy.

George Bell, Portfolio Manager, looks at what was a more encouraging day for equity markets outside of the US yesterday. Comments from the Bank of Japan’s Deputy Governor Uchinda noted that they will not raise rates further during current market instability which was welcomed as positive news for markets. In the US, attempts from the Treasury to raise capital through the issuance of bonds was met with weaker demand than expected and the wave of economic data last week points to a slowing of the US economy albeit from a very healthy level. The implied volatility indicated by the VIX index or the Wall Street Fear index has dropped dramatically, which could be an indication of more market stability. Comments later today from the President of the Richmond Fed will be listened to closely as to what to expect in September, the market is currently placing a 71.5% probability of a rate cut but with an expectation of a 0.5% cut rather than 0.25%.

After market volatility at the start of the week, all main equity markets finished positive in what is being named “Turnaround Tuesday”. Chris Leyland, Director of Investment Strategy, looks at Nvidia and Meta which have rebounded up 4% each and cover about some of the weakness seen in Sovereign Bonds and Gold as investors rotate towards equities and demonstrate a willingness to add risk to their portfolios. In other news, the Halifax House Price Index in the UK rose by 2.3% year-on-year, marking the sharpest annual growth since January.

Over the last week there has been a spike in volatility across equity markets, with notable movements in Japan, Small-Cap and Technology. Paul Durrans, Investment Director, looks at the causes behind this volatility, the complex interplay of key events that have impacted markets and provides some perspective as to the upsides in US markets as well as the opportunities that often emerge during these periods.