WeeklyWatch – Macron win brightens markets

26 April 2022

Stock Take

Historic win

France produced the major headline news of last week, with President Emmanuel Macron winning his re-election campaign on Sunday against right-wing candidate Marie Le Pen.

Current estimates put the election results at a 58%-42% split – with the official tally set to be announced later this week. This is a narrower victory than the 66%-34% result from the previous French Presidential election, where the same two candidates were up against one another.

Melania Debono, Senior Europe Economist at Pantheon Economics, commented:

“Financial markets will breathe a sigh of relief at the result, given the uncertainty that would have ensued if Marie Le Pen had won – her party, Rassemblement National, is highly critical of NATO and the EU, and Ms Le Pen is known to have links to Russia’s Mr Putin. All else equal, we look for the euro to rise, French equities to trend higher and government bond yields to creep lower on Monday.”

Macron’s triumph means he’s the first French President to win a second term in two decades. However, the tighter result and an abstention rate in voting of 28% (the highest since 1969) indicate that the Parliamentary elections later this year will be no honeymoon for him.

Market meanders

Last week witnessed the MSCI Europe ex UK index drop by -1.0%. This followed members of the European Central Bank’s (ECB) governing council, Joachim Nagel (Bundesbank Governor) and Martins Kazaks (Latvia central bank), declaring a desire to end the monetary stimulus ahead of schedule and have an accelerated path for rate hikes.

In the UK, meanwhile, the FTSE 100 declined by -1.2%, as markets responded to poor retail sales data against a backdrop of diminishing consumer sentiment.

Bethany Beckett, UK Economist at Capital Economics, noted:

“The hefty fall in retail sales in March marks the second consecutive month of decline and adds to signs that the real wage squeeze is hitting consumer spending. With CPI inflation already at a 30-year high and set to keep rising, there’s a real risk of outright falls in consumer spending in the coming quarters.”

In Asian territory, Chinese markets came unstuck when faced with a renewed wave of COVID-19 that has seen Shanghai revert to a full lockdown. This could serve as a warning to European investors that coronavirus could make a future reappearance, and that we’re not yet in the clear.

Netflix chill

US equities were hit hard last week, with the S&P 500 dropping by -2.8% due to communication and technology sectors experiencing difficulties once more. Netflix, in particular, felt some heavy selling pressure with shares falling by more than -35.0% following some discouraging results.

Studying these results, Mark Dowding, Chief Investment Officer at Bluebay, observed:

“With real incomes being squeezed as prices move higher, it is interesting to keep a close eye on economic data that may suggest that the economy is starting to be impacted. From this standpoint, the loss of 200,000 subscribers from Netflix over the past quarter can be viewed in the context of consumers rolling back discretionary spending as bills increase elsewhere.

“That said, perhaps it is not too surprising that consumers want to spend less on content as the pandemic ends and life normalises. It is also true that Netflix is seeing rising competition from other streaming platforms. However, it will be interesting to observe whether the ‘Netflix chill’ will show up in other areas of consumption.”

Further US data

With echoes of the ECB, members of the US’s Federal Reserve have been preparing the country for interest rate hikes. Speaking at an event hosted by the International Monetary Fund, Federal Reserve Chairman Jerome Powell flagged that a 50 basis point (bp) rate increase could be apt at next month’s policy meeting.

Thursday will see a big data release this week, in the form of Q1 GDP from the US. The economy is anticipated to have swelled by +1.0% during the quarter – a marked slowdown from the +6.9% recorded back in the final quarter of 2021.

Wealth Check

What are the chances of needing long-term care before the end of your life?

Recent UK government guidance claims that “around three out of four adults over the age of 65 will face care costs in their lifetime.”1

This is just one estimate – another is that in 2018 more than one in three people aged over 65 needed help with one or more daily-living tasks.2

The financial consequences of paying for care

Tony Müdd, Divisional Director at St. James’s Place, says that not enough of us are adequately prepared for what’s to come.

“There’s still a significant percentage of people who believe, wrongly, that long-term care is covered by the NHS, and so the state will pay no matter what – despite the additional awareness created by the government’s recent health and social-care policy announcement.”

Müdd believes that there are many reasons behind this:

“It’s human nature to stick your head in the sand. If it wasn’t, people would buy life insurance, critical-illness cover and income protection in much greater volumes than they currently do. Unfortunately, a lot of people suffer from an ‘it won’t happen to me’ state of mind.”

Be prepared and work with a professional

The danger is that if people don’t have a grasp of the fact that they might need long-term care, they won’t consider the consequences of having to pay for that care.

Müdd notes:

“There’s a small group of people who actually have enough money to pay for whatever care they need, and they’ll be able to afford it without any problems. And there’s a minority whose assets are such that they will qualify for assistance from the state. However, there is a huge section in the middle for whom the state won’t provide, and they will have to pay – and, sadly, a lot of them won’t have enough money.”

He stresses that the most important action to take is to seek professional financial advice at the earliest possible life-stage. This doesn’t mean that it’s specifically to fund any long-term care that you might need, but it’s to ensure that you’re prepared for a range of circumstances – both good and bad.

He concludes:

“There are lots of life events and instances that we’re used to preparing for – the obvious one being retirement. And a possible need for care is another one of those that we should always add to the list. I would say, don’t make it a huge issue. Just discuss it with your financial adviser. It’s not going to happen to everyone – but it might well happen to you. So, make it part of your thinking and your adviser can build that into your plan.”

Sources:

1 T.RowePrice, 25/04/2022

2 Spring Meetings, 25/04/2022

In The Picture

Data for the fund comparisons is taken from Investment Association sector data for all funds with a history over the relevant period up to 31/12/2021. It assumes a £10,000 investment is made into an ISA with projections net of all charges. The Managed Fund comparison is taken from the Investment Association Mixed Asset 40-85% sector, while the Global Equity Fund data is taken from the Investment Association Global Equity Sector. Savings Account projections are based on a 90-day notice account.

The value of an investment with St. James’s Place will be directly linked to the performance of the funds you select and the value can therefore go down as well as up. you may get back less than you invested.

An investment in equities does not provide the security of capital associated with a deposit account with a bank or building society.

 

The Last Word

“The main driver of inflation and what brings it down is the very big, real income shock, which is coming from outside forces and, particularly, energy prices and global goods prices. That will have an impact on domestic demand, and it will dampen activity, and I’m afraid it looks like it will increase unemployment.”

– UK Bank of England Governor Andrew Bailey warns MPs things could become tougher before they get better.

The information contained is correct as at the date of the article.

Artemis and Artisan are fund managers for St. James’s Place.

The information contained does not constitute investment advice and is not intended to state, indicate or imply that current or past results are indicative of future results or expectations. Where the opinions of third parties are offered, these may not necessarily reflect those of St. James’s Place.

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