WeeklyWatch – Markets confirm volatile but positive first quarter
4th April 2023
Stock Take
UK grocery prices soar
If you’re taking part in an Easter egg hunt this year, best move fast – those tasty treats will soon be an even greater indulgence. Kantar’s recent findings revealed a record 17.5% increase in UK grocery prices, attributed to the rising cost of sweets and fizzy drinks. The surge in demand has caused a 7% hike in cocoa prices since February.1
On the healthier side, fruit and vegetable prices have also risen due to issues with availability. In January 2023, the UK imported the smallest amount of vegetables since 2010 (when the population was around 7% smaller), reflecting a challenge for central banks as they grapple with punchy growth and inflation rates while managing banking sector issues.
UK dodges recession in the short term
Although the term ‘punchy’ may not be attributable to the UK’s economic performance, the Office for National Statistics revised their figures to show that GDP actually increased by 0.1% in the last quarter of 2022, having previously said the economy registered no growth. The figures showed that high inflation took a smaller toll on the economy than previously thought, and the revision meant the UK has avoided recession for now.
‘For now’ is the key phrase, as Ruth Gregory of Capital Economics points out:
“With around two-thirds of the drag on real activity from higher rates yet to be felt, we still think the economy will slip into a recession this year.”
Investors reassured by bank stability
With five consecutive days of gains, equity markets enjoyed a relief rally last week. Investors were reassured by the news that concerns over bank stability had abated and there was a growing sense that central banks were nearing the end of their tightening cycle. The rally received a further boost when First Citizens BancShares agreed to purchase the assets and loans of the collapsed US lender, Silicon Valley Bank (SVB).
During his appearance before the Treasury Committee, Bank of England (BoE) Governor Andrew Bailey reassured MPs that recent events had not caused stress to the UK banking system. However, he acknowledged that the BoE remained on “heightened” alert for any potential future disruptions. It was revealed the UK arm of SVB saw a third of its deposits – about £3bn – withdrawn in one day.
UK and Asia confidence on the up
Midweek data from the US showed that consumer confidence unexpectedly rose in March, despite the recent banking crisis. The availability of jobs and low unemployment offset concerns about elevated inflation expectations. The survey suggested that consumption would continue to grow moderately, helping to support the overall economy.
In Asia, Alibaba, the e-commerce giant, revealed plans to divide its $255 billion business into six distinct units, prompting Asian investors to rejoice. As a result, the company’s shares jumped by 17% over the week. The restructuring announcement was made shortly after Jack Ma, the co-founder of Alibaba, returned to mainland China after spending time abroad and keeping a low profile since the Chinese government initiated a rigorous crackdown on the technology sector in late 2020.
Martin Hennecke, Head of Asia Investment Advisory at St. James’s Place, suggested:
“Jack Ma’s reappearance and Alibaba’s overhaul, as well as Premier Li Qiang’s speech on Thursday about being committed to opening up and reforms, could all be indications of central government efforts to achieve healing and get back to business, with a view to achieving a strong economic rebound.”
China’s slower expansion in manufacturing activity in March and the deepening of the slump in industrial firms’ profits during the first two months of 2023 undermined optimism. Nevertheless, the services sector saw the fastest expansion in nearly 12 years following the conclusion of China’s zero-Covid policy in December.
Inflation ups and downs
In March, the eurozone experienced its largest drop in inflation on record, decreasing to 6.9% from February’s 8.5%. However, core inflation, which excludes food and energy prices, increased to a historic high of 7.5%, bolstering the argument for further interest rate hikes by the European Central Bank.
Consumer spending declines in France and German retail sales, the two largest economies in the eurozone, indicated a slowdown in consumers’ spending ability, which is the primary driver of price growth.
Similarly, the United States’ preferred inflation gauge, the Personal Consumption Expenditures (PCE) price index, decreased to 5.0% in March from 5.3% the previous month, easing the pressure on the Federal Reserve to continue with its rate-hiking campaign. As a result, money markets are now pricing a higher-than-even chance that the Fed will not raise rates at its 2–3 May policy meeting.
As the first quarter came to a close, global equities consolidated a 6% year-to-date gain, and government bonds rose 3–5%, registering their best month since 2008, bringing some end-of-quarter optimism. The bank turmoil served as a catalyst for tech and other growth sectors to reassume market leadership, highlighting the importance of a diversified portfolio approach.
Source:
1 Battle for shoppers heats up as grocery price inflation hits new high, Kantar, 28/03/2023.
Wealth Check
When you’re looking to bolster your team, you might be considering the pros and cons of hiring contractors vs employees.
Start-ups often choose the former, as it gives them more flexibility and they are easier to manage. Indeed, freelance and contract workers are a lower-risk approach to filling skills gaps, with fewer commitments and liabilities; plus, you can be agile in setting the time they work for you.
You don’t have to pay contractors sick pay, benefits or pensions, and they cover their own support costs, such as IT, transport and other equipment. This can make them a more cost-effective option for a temporary project or role.
Contractors can be hired for their specialised expertise without the need for full-time employment, filling costly skill gaps that are essential for successful business growth. However, due to these highly sought-after skills, they often charge a higher hourly rate than employees.
If you’re unhappy with a contractor’s work, it’s easier to end their contract. They don’t have the same rights as employees, though you must still provide a safe working environment and not discriminate against them.
On the other hand, in the longer term, you can mould employees to the role and help them become advocates for the company’s vision and culture. That said, hiring employees requires more administration, such as creating employment contracts and complying with tax and HR laws. While employees offer a more controlled work environment and may have lower hourly rates, employers must provide benefits like sick pay, pensions and training, resulting in extra costs.
The point at which it becomes beneficial to hire employees rather than contractors is specific to each business. But you can always mix the two, or use contractors until you’re sure you need a full-time employee in that role.
Get in touch today to talk through your business objectives and ambitions – we can help you look at your finances and carry out forecasts to help you work out the affordability of making changes to your workforce.
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Where the opinions of third parties are offered, these may not necessarily reflect those of St. James’s Place.
The Last Word
“I think Finnish people want change. They want change and now I will start negotiations, open negotiations with all parties.”
– Petteri Orpo, leader of the conservative National Coalition Party in Finland, celebrates winning Sunday’s general election.
The information contained is correct as af 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.
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SJP Approved 03/04/2023