10^th October 2023

Stock Take

Decreasing global oil prices

Dramatic events around the world significantly affected investment performance last week.

Oil prices are likely going to face increased pressure as a result of the developing situation in the Middle East. In response to the weekend attacks, Brent crude prices increased by about 5% at the start of Monday.

Last week, despite continuous supply cuts by the world’s two largest producers, Saudi Arabia and Russia, prices last week were hit by a spike in treasury yields, prompting markets to once again consider the possible damage that a longer-term increase in interest rates may do to the world economy. From Monday to Friday, the price of Brent Crude oil decreased 11.3% overall.

US economy remains strong

Even though oil prices were beginning to decline, equity markets still delivered a ‘mixed’ performance. With a 0.5% gain, the S&P 500 in the US was able to break through its four-week losing stint. This was fuelled by a handful of large technology companies that did substantially better than the wider market.

The continued strength of the US economy, which has been supporting the idea that interest rates would stay higher for longer, is one of the challenges facing US equities. For example, US employment figures were announced last week. In September, 336,000 new jobs were generated, which was over twice as many as economists had predicted. The figure from the previous month has also improved.

Mark Dowding, Chief Investment Officer at BlueBay, commented on the positive sentiment:

“For now, economic activity remains relatively upbeat, as suggested by business sentiment surveys and a rebound in the number of job openings, in the wake of weaker data last month.

“Anecdotal discussions in the US this week have also highlighted a shortage of housing inventory (in the Connecticut area) and shortage of new autos for sale (in Minnesota). It is interesting that such discussions remain much more prevalent than worries related to rising credit card bills or fears of economic slowing. However, sentiment can quickly shift, as we saw in March of this year.”

The effects of a turbulent US government

Markets now face an extra obstacle due to US politics. Republican House of Representatives Speaker Kevin McCarthy was fired at the beginning of last week. The Republicans hold a slim majority in the House, and McCarthy had difficulty uniting the many factions within his own party. He had contributed to the passage of a compromise bill the weekend before, which averted a 45-day government shutdown.

His departure, though, raises the possibility that a US government shutdown would happen once more before 2023 is through. Significant short-term uncertainty is being caused by the tumultuous political environment right now.

Markets encouraged by potential inflation slowdown

The US’s September inflation data will be made public next week. Headline inflation may climb as oil prices rise, but analysts will be focusing on the core inflation figures, which exclude more volatile areas like fuel.

Any decrease in the evidence will support the idea that the Federal Reserve will maintain stable interest rates when it meets in November to review the matter. Markets are likely to be encouraged by such thinking.

Disappointing performances in Europe

These difficulties have extended to European markets. Europe had weekly losses as the MSCI Europe ex UK index and the FTSE 100 declined by 1.1% and 1.5%, respectively.

The economic situation has become more difficult for European markets and most of the large markets are growing slowly.

The previous week serves as a useful reminder that markets may be unpredictable in the short term and that investments should be thought of in the long term due to unforeseeable events that can have a significant impact on investment performance.

Wealth Check

Your business’s first customers offer a wealth of knowledge on anything from themselves and other future customers to the market, suppliers, competitors and even your company itself.

Learning from your customers is crucial since it may influence the early success and growth of your business as well as your long-term strategy. You’ll want to form strong relationships with your early customers so you can make swift improvements that speed up your success.

Engaging with these first customers can help you learn more about the wider market, including how much other companies charge for comparable goods or services, how you might be able to boost your offering and how much more they might be willing to spend.

Andrew Shepperd, Co-Founder of Entrepreneurs Hub, says:

“Find out what people want to buy and sell it to them – it’s simple but critical to keep remembering this. Say you make an electronic device that works on two frequencies. By speaking to your customers, you may find that you could add a third frequency and charge more for it. To do this, you need to determine whether they would use that frequency, how often, whether the market is price sensitive and how much extra they would be willing to pay.”

Start by asking your customers this: What is the most valuable thing we do for you? That’s a good place to start, according to Andrew, as it could reveal answers you weren’t expecting. In that case, you might be able to capitalise on that aspect to raise your business’s value. Find out what your customers prefer about you above the competition, and ask them how you can improve and what will keep them coming back.

Once you’ve gathered data from several customers, look for patterns and recurring themes. Aim to put any lessons learned into practise as soon as possible. And if you’re busy with other aspects of the business, it might be worth employing someone to gather this information, study it and help make the changes.

Additionally, by learning more about the customer and their lives, hobbies, challenges and strategies for success in their own businesses, you may strengthen your relationship with them – and can apply these lessons to your own firm too.

In The Picture

Friday’s employment figures revealed that there are still far more job opportunities than there are unemployed persons in the US, according to Hetal Mehta, Head of Economic Research at St. James’s Place. She noted:

“This is clearly inconsistent with what the Fed requires to get inflation down, let alone signal rate cuts.”

Source: US Bureau of Labor Statistics

The Last Word

“Our plan will drive far more growth and opportunity here in the North than a faster train to London ever would.”

– Rishi Sunak confirms HS2 will now go between London and Birmingham, with a number of alternative schemes to be introduced further North.

BlueBay 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.

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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 09/10/2023