WeeklyWatch – Blooming growth for markets

14th May 2024

Stock Take

May celebrations have been taking place since the Roman era, where there was a strong emphasis on honouring Flora, the goddess of flowers. Michael Foot is the man responsible for securing the Early May bank holiday back in 1978 during his time as Labour Employment Secretary.

A spring in the step of Chinese markets

Japan also celebrated a public holiday, leaving China and Europe with the responsibility of getting markets off to a good start. This came in light of the previous week’s news that the softer US jobs report would be an ongoing contention.

The most recent figures reveal that Chinese manufacturing and services are headed in a good trajectory, plus the solid rise of business sentiment is increasing hopes that there will be an economic recovery. In one of the most recent meetings in the Politburo (China’s highest political body), there was a pledge to provide additional support for the economy. Although this result was expected, analysts reinforced the notion that the Politburo is showing more urgency in their initiative to tackle structural headwinds.

Parts of Europe financially flourishing

In more good news, the business activity in the eurozone grew in April at its most rapid pace in nearly a year which was determined by the area’s dominant services industry. Germany’s service sector in particular saw a noticeable pace increase and expanded the fastest it had done in the last ten months. The same couldn’t be said for factory activity across the bloc which underwent another downturn and created a bigger divergence between the two sectors.

The prediction to see a 0.25% interest rate cut in June by the European Central Bank gained momentum. The Swedish central bank showed that they were one of the leading forces by cutting their interest rate by the same amount as in the previous week and becoming the second leading economy to ease policy after Switzerland did similarly back in March this year.

Interest in UK interest rate cuts

The Bank of England (BoE) had a rate-setting meeting last Thursday. Ahead of it, figures revealed that in April, UK construction growth hit a 14-month high, contributing to more signs of recovery from the brief shallow economic recession. But on the flip side, housebuilding saw a further drop, and the issues in the sector were further highlighted by Halifax who said that house prices have been mostly flat this year. There’s been a rise in mortgage rates in recent weeks which has predominantly been down to the expectation that the bank will now make less interest rate cuts this year.

After the BoE gave their clearest indication that the first interest rate cut of the year is coming up, the FTSE 100 reached a record closing high on Thursday. Rates will be kept at a 16-year high of 5.25%, but BoE boss Andrew Bailey was optimistic that inflation is moving in the right direction but a rate cut in June wasn’t certain. In light of the bank’s comments, financial markets are predicting that rates will be cut to 5% by August and then taken down further to 4.75% in November or December.

Head of Economic Research at St. James’s Place, Hetal Mehta, said:

“Any expectations of a rate cut in June would be premature as base effects will only temporarily get inflation down to target.”

BlueBay Asset Management’s Mark Dowding was in agreement:

“UK investors have been wrong-footed countless times on inflation over the past two years, and so after a summer dip, we think data will then push higher again, limiting any material easing cycle.”

There was final confirmation of the UK’s emergence from recession at the end of the week. The economy grew by 0.6% in the first quarter of the year, which is the most it’s grown in nearly three years and is exceeding all expectations, including the BoE’s.

All eyes on US figures

‘Bad news is good news’ seemed to be the mantra once more for the US this week. Unemployment figures rose to their highest level in eight months, far beyond predictions. This news comes on the back of last week’s revelation that the economy had added the fewest jobs in six months during the month of April. Signs of an easing labour market injected some hope into an upcoming rate cut.

However, it’s US inflation numbers that have really got people’s attention, as they will be crucial in setting the tone for markets.

BlueBay Asset Management’s Mark Dowding stated:

“A benign reading would put rate cuts back in play and would be a positive catalyst for bonds and stocks. However, another disappointing release could easily produce the opposite result.”

The upward momentum in global stocks remained consistent until the week’s end. The STOXX Europe 600 index revealed its biggest weekly gain since the end of January and came close to a record closing high. The index received a boost from strong corporate earnings and increased hope that interest rate cuts are coming soon. The FTSE 100 reached a new high, and leading US indices also made good weekly gains as a result of investors taking comfort in an earnings season where corporate results surpassed aggregate predictions.

BlueBay Asset Management is a fund manager for St. James’s Place.

Wealth Check

Weeding out the money myths

Everybody has an opinion when it comes to managing finances. Retirement planning, reducing your tax liability or choosing investments – there are so many conflicting opinions on how best to manage them. And it can get very confusing!

So, it’s time to lay down the facts and bust the myths and common misconceptions about financial advice.

  1. ‘I’m too young to start planning for retirement.’

Fact: In this day and age, people can retire at different ages. Retirement no longer happens automatically at 60! By seeking out the right advice, you can procure the right financial plan for you and put the steps in place to allow you to retire earlier and achieve your financial goals.

  1. ‘My property is my retirement plan.’

Fact: Whereas your home or buy-to-let property can be part of your retirement plan, it’s ill-advised to solely rely on this as your source of retirement income.

  1. ‘I can do my own financial planning.’

Fact: There’s a big difference between financial planning and budgeting. There are many people who manage their personal or family budgets very effectively. However, when it comes to impactful long-term financial planning, an extra level of professional expertise and knowledge is best.

  1. ‘Financial advice is only for wealthy people.’

Fact: Six-figure sums are not imperative to start investing. The truth of the matter is that regular small investments allows you to take advantage of times when market prices are low, therefore your money can buy more shares as well as when prices increase.

  1. ‘Financial planning just means investing.’

Fact: Financial planning involves knowing where to invest, how much risk you’re willing to take and therefore how much you want to invest.

  1. ‘I don’t need to have a plan until something happens.’

Fact: If there’s a big change in your financial circumstances – losing your job or winning the lottery – there’s never a bad time to seek out good and thorough financial advice.

  1. ‘I need to keep my money in a savings account.’

Fact: If all or most of your money is kept in a savings account, you need to ensure that the interest rate on it is higher than the current inflation rate. If it isn’t then your money will be losing value.

The value of an investment with St. James’s Place will be directly linked to the performance of the funds selected and the value may therefore fall as well as rise. 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, as the value and income may fall as well as rise.

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.

In The Picture

Mental Health Awareness Week is this week. If someone is suffering from financial anxiety, these are some of the signs that you can look out for.

The Last Word

“I want to say thank you so much. I hope this contest can live up to its promise and continue to stand for peace, and thank you to every person in this world.”

Nemo, the Swiss winner of Eurovision 2024, celebrating their victory over the weekend.

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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SJP approved: 13/05/2024