Rory McPherson, Chief Investment Officer, 21/11/22
Stock markets were a mixed bag last week after a strong bounce back in October and the early part of November. Global stock markets gave up a bit of ground, whilst the UK equity market pushed higher; helped by the big utilities companies in the FTSE 100 which rallied hard on Chancellor Hunt’s Autumn Statement. The bond markets also continued their bounce-back even despite a large-than-expected inflation number in the UK. This week is likely pretty quiet, with US markets largely closed on Thursday and Friday for Thanksgiving. Most of the data comes out on Wednesday and there are also a fair few FTSE 250 companies reporting earnings.
Last week
- Stock markets were a mixed bag: global shares struggled but the UK market posted gains
- The Autumn Statement didn’t really impact the markets
- UK inflation came in higher than expected at 11.1% – a 41 year high
- Bond markets continued their recovery
This week
It’s a quiet week ahead after a busy run of data.
- Wednesday sees Purchasing Managers’ Index (business survey) data in both the US and the UK
- Wednesday also sees the publication of the minutes from the last Federal Reserve meeting.
- This week sees earnings reports from companies such as Homeserve, Pets at Home, Halfords, Britvic and Dr Martens
Equities & Oil: returns are all in base currency, save for Emerging Equities which are in GBP. Gold is shown in GBP. Bond returns are all shown in GBP. Source Bloomberg.
Last week in more detail.
Stock markets paused for breath last week, with the global index of shares down by 1.1% on the week whilst the UK FTSE All Share rose slightly; up by 0.6%. This follows a very strong period of returns this quarter which has seen the global index rise by 6% since the end of September and the UK FTSE All Share rise by over 8%.
Within the UK stock market, it was the larger companies which did best, with the FTSE 100 up by 1% on the week and the more domestically focused FTSE 250 index down by 1.7%. Jeremy Hunt’s Autumn Statement helped some of the big utilities in the index, with British Gas owner Centrica rising by 13% on the week. This made for Centrica’s best week since June 2020 and a good portion of this boost came on Thursday as the Autumn Statement didn’t include any mention of windfall taxes – which had previously been feared. Other notable performers in the FTSE 100 last week were BAE Systems which rose by 7.9% and Imperial Brands which rose by 6.4%. At the bottom of the pile was Ocado group (falling by 16.5% on the week), Harbour Energy (down by 13.6%) and Hargreaves Lansdown (10.4% lower on the week).
Chancellor Hunt’s Autumn Statement was watched with some trepidation given the panic that ensued after Kwasi Kwarteng’s mini-budget in September. Generally, it was taken positively by the markets with the Pound and the Gilt market little changed on the day. The main gist of the plans involve raising taxes (an increase of £25billion by 2027) and cutting spending (by £30billion by 2027/8). Much of the squeeze in spending comes after the next general election, so there is a calculated element here.
The other big news for the week in the UK was the inflation number and “big” is very much the operative word! CPI came in at a rate of 11.1% which makes for a 41 year high, with RPI coming in at 14.2%. The CPI number was 0.4% more than expected. UK unemployment numbers also came out on the same day, with the rate ticking up to 3.6% (from 3.5%); pretty much the lowest it has been since the mid-1970S. Although the inflation number is clearly not good, the fact that the markets shrugged it off (all within the same 24 hours of dispelled reports of a Russian missile strike on Polish territory) suggests that much of this is baked in and that the market is far more interested in the global picture; notably the US.
To that end, US data continued to be pretty solid last week. US “producer prices” came in lower than expected (not rising for the first time in 2 years) and “Retail Sales” data was quite a bit stronger than expected. This was further boosted by some decent earnings’ numbers out of some of the retailers, notably Wal-Mart, Foot Locker and Ross Stores. The week also saw more lay-offs from big tech in the US (following the lead of Meta and Twitter), with Amazon.com announcing circa 10,000 job cuts.
Bond markets continued their recovery, with Sterling Corporate bonds rising by 1% on the week and UK Gilts rising by 1.1% on the week. Although these 2 assets are still heavily under water this year (down by 17.6% and 20.5% respectively), they have now bounced strongly off their lows in October (Sterling Corporates by 12.5% and Gilts by 14.5%). UK 10 year gilts closed the week yielding 3.23% (they were at 4.5% in late September) and UK investment grade credit closed the week yielding 5.6% (it was at 7.3% in early October).
UK inflation climbed at its highest rate for 41 years last week, with the CPI number coming in at 11.1%…
