Market Commentary 2022

16th June 2022

UK rates hiked to 1%, BoE flags recession risk

The UK central bank (BoE) has raised UK interest rates by 0.25% to 1% at its meeting today, in a continued bid to combat inflation running at 30 year highs. The BoE also signaled it expects a recession to take hold later in Q3 and into Q4, but that it is more important to continue to take steps to limit inflation. The bank expects inflation could peak at 10%, currently 7%, citing energy price inflation as a key driver. UK sovereign debt, which is sensitive to interest rate rises, was being sold following the news, allowing yields to rise. Sterling also fell on the news, likely due to the gloomy economic forecast from the BoE. UK equity was not strongly affected, with recent negative sentiment towards global risk assets still weighing heavily on UK equities. The FTSE All share remained near its March 2022 lows, whilst the internationally focused FTSE 100 remained steadier, boosted by a weak home currency.

15th June 2022

The Feds high-rate hike

The Federal Reserve announced it will raise its benchmark policy rate by 75 basis points, while also suggesting that this potentially won't be the only adjustment of this magnitude. This was done in an attempt to combat the announced inflation rate, sitting at 8.6%, the highest level in 40 years. The Fed is not alone in its endeavours to deal with inflation, which has become a global trend. Central banks throughout advanced and emerging economies have been swiftly raising interest rates in short order, with plans to do more this year. US financial markets rallied after Powell said that he expected a 0.75 percentage point increase to be relatively uncommon.

14th June 2022

UK Sterling hits two-year lows against the US dollar

Gross domestic product fell 0.3 per cent between March and April, and the pound tumbled to a two-year low against the US dollar after the UK economy contracted in April, missing forecasts and confirming the recovery has stalled since January as surging prices hit household spending and business activity. The Sterling has slumped by as much as 1.5 per cent to $1.2140, as the latest gloomy economic news was compounded by a broad rally for the dollar to push the exchange rate to levels last seen in May 2020.

10th June 2022

US inflation continues to rise

On Friday, the monthly rise in the consumer price index, is significantly faster than the 0.3 per cent increase recorded in April and above economists' expectations for a 0.7 per cent uptick. This maintains pressure on the US central bank to hike interest again in an attempt to avoid a recession. At that pace, the year-over-year figure intensified to 8.6 per cent, the highest level since December 1981. Lael Brainard, the vice-chair, recently made clear that the Fed could continue the half-point pace through September and would only consider reverting to more typical quarter-point increments following a 'deceleration' in monthly inflation prints. According to the BLS, the 'broad-based' increase was driven primarily by a 3.9 per cent rise in energy prices and a 4.1 per cent gain in gasoline prices. The latter is up nearly 50 per cent compared with the same time last year.

9th June 2022

ECB signals more hikes to fight inflation

The European Central Bank (ECB) has signaled that it plans to raise interest rates in Europe by 0.5% in September, further to a planned rise of 0.25% in July. This half point hike is only planned should inflation fail to ease off from its current level of 8.1%. These hikes would life Europe out of negative interest rates for the first time since 2014. The ECB also said that it plans to keep its balance sheet of purchased bonds level and won't consider reducing it until after the rate hike cycle begins. There was, however, disagreement between members of the board as to when to start reducing this showing a shift in sentiment. European sovereign debt fell in value following the news, whilst the Euro fell against other major currencies. European equities were also lower following the news as recession fears increased, along with the surprisingly hawkish ECB.

7th June 2022

Boris Johnson scrapes through no-confidence vote

On Monday night, the UK's Prime Minister managed to hold on to his title but was left under no illusion that his authority had been left badly damaged. He won the vote by 211 to 148, meaning 41% of Conservative MPs believe Mr Johnson should no longer serve in Downing St. The result, which the Prime Minister described as ‘convincing' comes after weeks of anger following multiple lockdown-breaking parties. Current rules state that Mr Johnson cannot be challenged for another year but history suggests he may not last that long. Previous Tory prime ministers Margaret Thatcher, John Major and Theresa May all survived the vote, only to lose office shortly afterwards.

3rd June 2022

US payrolls show companies keep hiring

Nonfarm payrolls increased by 390,000 in May. The figure, which kept the unemployment rate at a 50-year-high of 3.6%, beat estimates by over 60,000 and went a small way in quelling fears of an economic slowdown. The gains in jobs were broad-based with leisure and hospitality leading while retail suffered, suggesting consumers were shifting from goods spending to services. Labour force participation did also edge higher, rising to 62.3% though still 1.1% below pre-covid levels.

18th May 2022

UK inflation and unemployment show economy running hot

Data this morning shows UK inflation is now the highest among any advanced economy in the world at 9%, marking a forty-year high. Around three quarters of the April jump was driven by a sharp climb in utility bills. This is particularly troubling as this will hit the UK's poorest families even harder as they spend a vaster proportion of their income on gas and electricity. This comes in a week where the UK also set another record – the lowest unemployment in nearly half a century. The jobless rate stands at 3.7% in the three months to March however, the UK's workforce remains smaller than it was pre-pandemic due to lower willingness and ability to work and less job seeking.

18th May 2022

UK inflation and unemployment show economy running hot

Data this morning shows UK inflation is now the highest among any advanced economy in the world at 9%, marking a forty-year high. Around three quarters of the April jump was driven by a sharp climb in utility bills. This is particularly troubling as this will hit the UK's poorest families even harder as they spend a vaster proportion of their income on gas and electricity. This comes in a week where the UK also set another record – the lowest unemployment in nearly half a century. The jobless rate stands at 3.7% in the three months to March however, the UK's workforce remains smaller than it was pre-pandemic due to lower willingness and ability to work and less job seeking.

12th May 2022

UK GDP contracts 0.1% in March

Following a flat GDP reading in February, the UK economy has shrunk by 0.1% in March after a lackluster period for retail in particular. Year on Year, the UK economy has grown 8.7%, a strong rebound from the pandemic, though inflationary pressure is topping the list of headwinds as we progress through 2022. This is exacerbated by the war in Ukraine, though inflation has been mounting since economies reopened following several lockdowns since 2020. UK sovereign debt saw a notable lift at market open as safer assets were being sought due to growing risk of recession, and following recent declines for gilt prices. UK equities declined, though were caught up in global risk off sentiment following US inflation data yesterday showing a stubbornly high level persists for the world`s largest economy, with implications for the global picture.

11th May 2022

Inflation remains high in the US, growth assets fall

US CPI was measured at 8.3% year on year in the month of April, which despite being a small decline from the previous month reaching 8.5%, did not do much to allay fears about the current inflationary environment leading to recession. US inflation has increased each month since August 2021, making this the first reading in 10 months to come in lower, though only marginally, so all eyes will be on the next few readings to see whether the trend continues. Equities reacted to the print, which was taken as adding to risk of more interest rate hikes than currently priced into equity markets. Growth assets tend to suffer in a rate hiking environment, which yesterday was observed mostly in the US tech index (Nasdaq) and extremely speculative assets such as cryptocurrency. US sovereign debt has since rallied following initial volatility, as recession fears increased.

6th May 2022

US job market remains tight despite headwinds

428,000 new US jobs were posted for the month of April, slightly ahead of forecasts, underscoring a robust US job market despite mounting economic headwinds. This is on par with job creation the previous month so the data does little to add clarity to growing uncertainty over recessionary risk amidst central bank interest rate hikes and a persistently inflationary environment. Unemployment also stayed level at 3.6% in April, keeping concerns about a material shift in the labor market at bay for now. Markets continue to see increased volatility following central bank rate hikes, with global equities seeing losses again on Friday, whilst the US dollar holds onto recent strength.

6th May 2022

BoE hikes rates 0.25%, now 1%

The UK central Bank, the Bank of England (BoE), has moved to raise interest rates by another 0.25%, bringing the key rate to 1% today, a move largely anticipated by markets. Details of the BoE`s meeting revealed that 3 members of the board of 9 would have preferred to raise rates by 0.5%, which was more hawkish than expected. The BoE`s inflation expectations have also risen to 10% by the end of the year for the UK and additionally they now expect the economy to contract going into 2023 due, in part, to high commodity prices. In reaction to the BoE`s rate decision, sterling has fallen, underscoring the worsening of the central bank`s outlook as currency usually strengthens when rates are lifted. UK sovereign debt was also being bought as recessionary fears increased and risk off assets looked more attractive.

5th May 2022

US FED raise interest rates by 0.5% in May

The US Federal Reserve (The FED) last night raised interest rates in the US by a full half a percentage point which hasn’t happened for over 20 years. The FED announced they would look to raise rates by another half a percentage point at the next two meetings in June and July to combat rising inflation. The market rallied into this news as the FED also said they were, at this moment in time, not considering a 0.75% hike which the market had begun to price in over the last month. All eyes remain on the probability of aggressive rate rises causing a recession in the coming year which very much remain on the cards.

28th April 2022

US economy contracts 1.4% in Q1 2022

The US economy in Q1 2022 contracted 1.4%. The contraction came as a surprise to the market given the last quarter of 2021 saw the US economy grow 6.9% annualised. Despite consumer spending increasing 2.7% these missed expectations of 3.5% indicating a slowing consumption story in the US which is associated with an economy heading towards a recession. US equity markets rallied on the news under the assumption that this deteriorating number was reason for the FED to hold off raising rates to aggressively.

13th April 2022

UK inflation in March 10 times that of a year ago

UK Inflation surged to 7% in March which was an increase from 6.2% in February. This 7% figure is in stark comparison to the same time a year ago when March’s inflation came in at just 0.7%. The inflation surprise will likely strengthen the case for the Bank of England to continue to raise interest rates to further control this runaway inflation.

12th April 2022

US inflation rises to 8.5%, meets estimates

US inflation has come in near economists' estimates at 8.5% year on year (YoY) in March, bringing inflation to the highest level in the US since the early 1980s. The Consumer Price Index (CPI) which measures a broad basket of goods, saw an increase from 7.9% YoY, showing that prices continue to rise as conflict in Europe also pushes many prices further, most notably energy. The core measure of CPI which excludes energy and food prices, was up 6.5% YoY, showing the stronger impact energy and food prices have had on the March figure. The US central bank has, ahead of this month's data, increased signaling that it stands ready to help counter inflation, and has said it will hike interest rates and reduce the bank's balance sheet at a faster pace if required. Following the news, most developed market assets are seeing positivity, including precious metals and bonds, whilst the US dollar fades in absence of any surprise to the downside.

11th April 2022

UK economy grows at 0.1% in March

The UK economy in March 2022 grew at a monthly pace of just 0.1% compared with 0.8% the previous month. This was against analysts forecasts of 0.3% for March. The slowdown was attributed to the healthcare sector, supply chain disruption and abnormally strong weather events which impacted the tourism industry. Regardless of the reasons this highlights how close the UK economy is to stalling and with the cost of living increasing in April there remains more challenges to UK GDP increasing over the year with more probability that GDP in the UK will slow into reverse at some point.

1st April 2022

US Economy Gains 431,000 Job in March

The US recorded strong jobs growth in March as higher wages lured more workers back to the labour force, giving the Federal Reserve another data point to support an aggressive tightening policy to help ease inflation. The report, which showed the world's largest employer adding 431,000 jobs in March, was slightly below Bloomberg's forecast, however it still indicated a substantial increase in what many deemed to be a tight labour market. Further to this news, the unemployment rate dropped 0.2% from February to 3.6%, making it the lowest level since before the pandemic. January and February farm payrolls were also revised higher, further cementing the view that the US economy is headed towards a full recovery. Economists believe this solidifies the case for a 50 basis point rate rise by the Fed at their next meeting.

23rd March 2022

Rishi Sunak responds to inflation spike

The UK Consumer Price Index (CPI), the most common measure of year-on-year inflation, hit a new 30-year high of 6.2% for February. This 0.8% increase was the largest monthly jump between January and February since 2009. The UK Chancellor responded today, in his spring statement, revealing income tax would be cut and the National Insurance threshold will be increased by £3000 to £12,570 in a bid to help households weather the storm. The National Insurance changes will come into effect for July, saving £30mn people £330 per year but the income tax basic rate reduction from 20% to 19% will not come into effect until 2024. Energy and environment groups hit back suggesting the majority of households need more relief to shoulder unprecedented rises in energy bills so far this year.

17th March 2022

Bank of England follow Federal Reserve's lead

The BoE's monetary policy committee today voted 8-1 to raise interest rates 0.25% for the third successive policy meeting. The UK, now back to their pre-pandemic interest rate of 0.75%, finds itself with a lower inflation figure than the U.S. but still at a 30-year high of 5.5%, well above the Bank's 2% target. The Bank forecasts the annual inflation rate will rise to 8% next quarter and potentially even higher in the second half of the year after factoring in the Russian invasion as well as other 'very large shocks'. The quarter percentage point increase was seen as a lower rise than expected, sending the British pound down 0.3% and the FTSE 100 up 0.4%.

16th March 2022

The long-awaited rate hike is here

The U.S. Federal Reserve confirmed an interest rate hike in a bid to combat surging inflation which most recently topped 40-year highs of 7.9%. The quarter percentage point rise, which is the first in more than three years, was widely expected by investors and had largely been priced into equity markets. What was less expected was the central bank's forecast of six additional hikes this year, three more than forecasted, as increased oil prices begin to bleed into inflation data. Stocks initially gave back previous intraday gains on the news but rebounded back again to finish strongly up for the day.

10th March 2022

US Inflation nears eight per cent

US consumer price growth hit 7.9% ahead of a surge in energy prices following Russia's invasion of Ukraine, further raising pressure on the Federal Reserve to more substantively tighten monetary policy. It is now being marked as the fastest annual increase in CPI since 1982. Furthermore, the latest report was done prior to Russia's full-scale attack on Ukraine and the US and its allies' unveiling of the most punitive financial penalties ever levied on a country in retaliation. In addition to enforcing sanctions on Russia's central bank and ringfencing the country from the global financial system, the Biden administration this week banned imports of Russian oil and gas into the US. The actions have rocked global energy markets, sending gas and oil prices rocketing, with wheat, nickel and other commodities also soaring. Resultantly, headline inflation is expected to rise and the peak in the pace of consumer price growth that was broadly expected later this year is likely to be delayed.

24th February 2022

Putin launches full-scale invasion of Ukraine

Vladimir Putin has begun a full-scale military invasion of Ukraine and demanded Kyiv's army lay down its weapons, starting what could be the largest conflict in Europe since the second world war. With bombardments of artillery, heavy equipment and small arms, Russian troops launched attacks from Ukraine's northern border with Belarus, across its eastern frontier with Russia, and in the south from Crimea, the Ukrainian peninsula Russia invaded and annexed in 2014. Major global powers have further condemned the actions of Russia, vowing to take ‘decisive action'. Markets have reacted to the most serious threat of a World War since WW2, with equity indexes such as the FTSE and CAC 40 falling as much as 2.5%. The Russian MOEX index fell as much as 50% and safe haven assets such as Gold and Silver have risen sharply, with Brent crude surging past one hundred dollars a barrel.

22nd February 2022

Russia escalates Ukrainian tensions

Following weeks of increasing tensions between Russia and the West over the amassing of troops near the Ukraine borders in Russia, Crimea and Belarus, Russia has announced it recognizes the disputed regions of Donetsk and Luhansk as independent and begun moving in troops. The situation has hurt risk sentiment for weeks, with global equity indices moving to the downside, whilst safe havens such as gold and government bonds have seen gains. As Russia made its announcement, after a fiery speech from President Vladimir Putin, equity markets opened sharply to the downside, though recovered much of the losses throughout the day, showing that, for the time being, markets have priced in much of the negativity. The West also hit back today with a round of sanctions, though more are planned. The situation remains uncertain and fluid, dependent on if the situation escalates or deescalates from here.

16th February 2022

UK Inflation at highest rate since 1992

The Bank of England is under pressure to raise interest rates yet again after UK inflation accelerated to its highest rate in thirty years. Consumer prices rose at an annual rate of 5.5 per cent last month, up from 5.4 per cent in December and well above the 0.7 per cent in January 2021, data published by the Office for National Statistics showed on Wednesday. This data highlights that UK inflation was more than double the 2% target set by the central bank. Looking forward, inflation is expected to peak at about 7% in April when Ofgem, the energy regulator, will increase its default energy price charge cap. Analysts have argued however that even with the fiscal support announced by the government earlier this month, higher inflation is coming and the income squeeze will become more prevalent. All of this fuels more expectation that the Bank of England will raise interest rates again this year.

11th February 2022

UK GDP rises faster than any time since World War 2

UK GDP rose 7.5% in 2021 compared with the previous year which was the strongest single years GDP growth going back to the second world war. However, this growth number was off the back of a 2020 number which was severely depressed because of the pandemic measures put in place. The bank of England said it expected the impact from Omicron to be erased by March this year, but that inflation was posing an ever-greater risk to household finances which has pulled forward expectations of another quarter point hike in March for the BofE

4th February 2022

US Jobs Numbers defies Omicron gloom

The US economy added 467,000 jobs last month, which was far better than expected performance for the labour market amid the surge in coronavirus cases due to the Omicron variant. The surprise jump in the payrolls defied predictions by economists surveyed by Bloomberg, who projected gains of 150,000 jobs. In addition to the jump in payrolls in January, there were also large upward revisions to data from previous months, while wage growth also rose more than expected. The unemployment rate ticked up to 4 per cent despite the strong gains, from 3.9 per cent previously. US government bonds sold off after Friday's jobs report, amid fears that inflation could continue to accelerate. The two-year Treasury note yield, which is sensitive to monetary policy expectations, jumped 0.09 percentage points to 1.28 per cent, the highest level since early 2020. It will fuel expectations that the Federal Reserve will move more aggressively than planned to tighten monetary policy to stamp out inflation.

3rd February 2022

Bank of England raises interest rates again

The Bank of England has raised interest rates from 0.25% to 0.5% as it attempts to tame inflation. This is the first back-to-back interest rate rise since 2004 and thus intensifies the squeeze on household finances, with inflation forecast to increase to 7.25% in April. This all comes amid the perpetual concerns about inflation, which is threatening to fuel a cost-of-living crisis for British households. The Bank's Monetary Policy Committee voted on the rate decision today and the majority was slim, by five to four. The minority wanted an even larger increase to 0.75 per cent to get a further grip on surging inflationary pressure. The markets have responded to this emphatically with 3-year yields at long-term highs and 10-year and 30-year yields also hitting long-term highs. The pound strength to the euro (1.2049) is also the highest it has been since 2016. This all represents traders' worries about inflationary pressures, which seem more prevalent than what was already priced in.

2nd February 2022

Eurozone inflation rises to a record 5.1%

Consumer prices in the eurozone rose a record 5.1 per cent in January from a year earlier. This was a result of steeper increases in energy and food prices, only partially offset by slower growth in prices of manufactured goods, meaning inflation rose from its previous eurozone record of 5 per cent in December. This was contrary to the widespread expectations for eurozone inflation to fall at the start of this year. Economists polled by Reuters had on average forecast eurozone inflation of 4.4 per cent in January. Markets this week therefore pulled forward expectations of tighter eurozone monetary policy, with a rise in the ECB's deposit rate to minus 0.25 per cent — from minus 0.5 per cent — now priced in by December. This surprise headline inflation print is only heightening the pressure on the European Central Bank to respond with tighter monetary policy, especially as other central banks around the world gear investors towards a world of higher interest rates.

19th January 2022

UK inflation jumps to highest level in 30 years

The inflation rate for the UK jumped to 5.4 per cent in December, its highest rate in 30 years. The result of this is heightening a cost of living crisis and squeezing household incomes. The large annual rise in the consumer price index reflected widespread increases in the cost of most goods and services and again exceeded economists' forecasts of a small rise in December to 5.2 per cent from 5.1 per cent in November. Analyst's expectations for spring levels of inflation is to push even higher, in excess of 6 per cent, with gas and electricity prices being a large contributor to this. All of this is putting ever more pressure on the Bank of England to raise interest rates, who, having failed to anticipate the surge in inflation, now have a problem. They face pressure to raise interest rates to cool spending and bring inflation down towards its 2 per cent target, but does not want to squeeze household budgets too far and undermine the recovery.

14th January 2022

UK GDP returns to pre pandemic levels

GDP in the UK has come in above economists` expectations at 0.9% in November 2021, well ahead of the consensus 0.4% figure. This leaves the UK economy larger than before the Pandemic in the month just before the Omicron variant begun to sweep through the nation. Factors at play were early spending in the lead up to Christmas and increased spending on restaurant bookings. Production, Services and Construction all saw growth in the period, and notably Construction had recovered from a long string of lacklustre months dating back to April 2021. It is expected that due to restrictions surrounding the Omicron variant that were introduced, December's figure will be more muted. Markets remain stable in wake of the release, despite this milestone being reached.

12th January 2022

US inflation at levels not seen since the 80’s

US consumer price inflation for the month of December has reached a level not seen in over 40 years with year on year inflation reaching 7% and month on month inflation hitting 0.5%. Despite these large increases the December increase of 0.5% was down from 0.8% the previous month and the yearly figure of 7% was in line with market expectations which caused little to no ripple through global stock markets. The Nasdaq actually found some strength amid the growth sell off which has griped this market. This number firmly puts the chances of a US hike in March on the cards with markets having largely priced in this hike already.

7th January 2022

US employment approaches pre pandemic levels

Markets continued their decent today with tech taking the brunt of the losses as US job data for December showed unemployment rate in the US at 3.9% which is just below the 3.5% pre pandemic unemployment level. Rises in hourly earnings also painted a positive picture of the labour market in the US. The market has seen this as evidence the FED now have all the reasons they need to raise rates sooner than the market expects with investors starting to price in a rise as soon as March. This move has prompted weakness in both US growth stocks and treasuries.