WeeklyWatch – Good economic data helps markets rebound in UK and beyond

17 January 2023

Stock Take

Growth for UK economy

Stocks surged around the globe last week due to positive economic data that brought good news to the UK, US and China.

The UK economy grew by 0.1% in November, as shown in data from the Office for National Statistics (ONS). This came as a surprise, with general expectations that it would shrink by 0.2% in the month. The ONS noted that in November, ‘a month where the FIFA World Cup started’, food and beverage service activities grew 2.2%, meaning football fans played a part in this growth.

Fortunately for now, this news means the UK has a high likelihood of avoiding a recession, but it doesn’t mean the UK is out of the economic woods just yet, as commentators have pointed out. Inflation is still high, economic activity remains weak and the Bank of England will likely continue to raise interest rates for at least the next few months. Put simply, the UK could still enter a recession in 2023.

GDP data was shared on Friday, having little impact on the stock market due to the lateness of its release. However, it didn’t seem to affect the strong start for UK equities in 2023, which continued last week with the FTSE 100 ending the week up 1.9%. This means that over the last three months, it’s risen almost 15%.

Falling inflation in US

Last week in the US, inflation data showed another drop, which helped some significant increases for stock. The S&P 500 grew 2.7%, while the tech-heavy NASDAQ spiked by 4.8%. Despite a difficult 2022, some of the larger members of the NASDAQ, like Amazon and Microsoft, have managed to rebound this year.

Investor hopes are high that the Federal Reserve may start cutting rates with inflation falling. On Monday last week, Raphael Bostic, President of the Federal Reserve Bank of Atlanta, said it was ‘fair to say that the Fed is willing to overshoot,’ suggesting a readiness to drive interest rates further. If talks with business leaders were in harmony with slowing inflation, Bostic also said he could be comfortable with a 0.25% rise at the next Reserve meeting.

What’s to come for UK inflation?

The topics of inflation and interest rates have dominated discussions of the markets thus far. As the UK is set to report its December inflation data, which is anticipated to show another small decline to an undeniably high 10.5%, this conversation will probably continue into the upcoming week.

But looking into the future further, Chief Global Market Strategist at Invesco, Kristina Hooper, says:

“Looking ahead, I suspect markets will become increasingly less focused on inflation as it continues to show signs of moderating and being well under control. In turn, that would mean greater certainty around central bank behaviour.”

“I think markets’ attention will shift to economic growth. In particular, determining how much damage has been done by tightening in Western developed countries and when economies will begin to rebound.”

China’s post-COVID reopening

Another economic topic that appears to be continuing to grow in importance is China’s reopening following its COVID-19 lockdowns.

For example, Julian Evans-Pritchard, Senior China Economist at Capital Economics, comments:

“We had expected disruption from China’s reopening wave of COVID infections to weigh heavily on activity well into Q1. But there is mounting evidence that much of China’s population has already been infected and that disruption is already fading rapidly. Coupled with a wider shift toward more pro-growth policies, this points to a reopening rebound starting this quarter and a stronger 2023 as a whole. We now expect China to grow by 5.5% this year.”

Wealth Check

Passing on the wealth you’ve accumulated over a lifetime to children or grandchildren is an important long-term financial goal for many people. Another aim may be to make a positive impact through charitable donations.

What can I give?

At Wellesley, we meet people from all walks of life who are passionate about philanthropy and support a range of charities. And as giving back is one of our main principles, we understand the desire to make a difference.

That’s why we can help you execute your philanthropic vision while considering the important tax benefits of any charitable impact you make, whether that’s now or in the future.

Who can I give to?

When thinking about which charities you may want to donate or leave money to, it can be a private, personal decision or one that can be shared and discussed with your adviser. You may already have an important cause in mind, maybe having been touched by a particular issue or illness. On the other hand, it might take some time to find the cause you’d like to support.

How can I give?

Philanthropy can work in two main ways. One is building assets during your lifetime, so you can give on a continual basis and leave a legacy. In this way, it is often easier to have control over how and when your money is donated by following a structure.

Another way is to give through a charitable foundation, where you could give a charitable endowment or an invested pot of money that provides the charity a dependable flow of yearly income. You could even provide monthly payments through the donation of a property that generates rental fees.

When should I give?

Tony Clark, Senior Propositions Manager at St. James’s Place, suggests that philanthropic endeavours and charitable giving should be built into your wider financial plan, not treated as an afterthought. He says:

“IHT planning is making sure that you’ve got all your plans in place so that you’re passing on a legacy, but actually that planning starts years ahead. An adviser will help you think about how best to use your money to support any worthy causes or charities, but it doesn’t all have to be at the point of death.”

For advice about how to meet your philanthropic financial goals, speak to a Wellesley adviser.

The value of an investment with St. James’s Place will be directly linked to the performance of the funds selected and may fall as well as rise. You may get back less than the amount invested.

The levels and bases of taxation, and reliefs from taxation, can change at any time. The value of any tax relief depends on individual circumstances.

Trusts are not regulated by the Financial Conduct Authority.

In The Picture

The market saw significant volatility in 2022 as a result of rising interest rates and inflation. However, history teaches us that our ability to get through these trying times is indeed the foundation of long-term financial success.

Source: MSCI. Data from 1 January 1990 to 1 January 2023. All figures are calculated on a total return basis, which includes the reinvestment of income. Equities are represented by the MSCI World Index in GBP terms.

Past performance is not a guide to the future and may not be repeated. 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.

The Last Word

“We’re aiming to rotate from the 247 stores we have today to 180 higher quality, higher productivity, full-line stores that sell our full clothing, home and food offer, whilst also opening over 100 bigger, better food sites.”

– Chief Executive of M&S, Stuart Machin, announces a five-year restructuring plan with intentions to open new stores in the next financial year – a positive sign for the British High Street.

Invesco is a fund manager for St. James’s Place.

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

Source: London Stock Exchange Group plc and its group undertakings (collectively, the “LSE Group”). ©LSE Group 2023. FTSE Russell is a trading name of certain of the LSE Group companies.

“FTSE Russell®” is a trademark of the relevant LSE Group companies and is used by any other LSE Group company under license. All rights in the FTSE Russell indexes or data vest in the relevant LSE Group company which owns the index or the data. Neither LSE Group nor its licensors accept any liability for any errors or omissions in the indexes or data and no party may rely on any indexes or data contained in this communication. No further distribution of data from the LSE Group is permitted without the relevant LSE Group company’s express written consent. The LSE Group does not promote, sponsor or endorse the content of this communication.

© S&P Dow Jones LLC 2023; all rights reserved.

Source: MSCI. MSCI makes no express or implied warranties or representations and shall have no liability whatsoever with respect to any MSCI data contained herein. The MSCI data may not be further redistributed or used as a basis for other indices or any securities or financial products. This report is not approved, endorsed, reviewed or produced by MSCI. None of the MSCI data is intended to constitute investment advice or a recommendation to make (or refrain from making) any kind of investment decision and may not be relied on as such.

SJP Approved 17/01/2023