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Author: hardy

Market Update Monday 30th January 2023

Moderating US rate expectations and an improving outlook for China helps to drive equities higher

Equity markets headed higher this week, supported by expectations that the Federal Reserve (Fed) will continue to temper future rate rises, whilst business survey data released in the Eurozone raised hopes that the region might be able to avoid a protracted downturn. Company results released this week for the fourth quarter of last year were mixed, with companies such as Microsoft guiding down earnings expectations for the current quarter after sales started to weaken in December.

As of 12pm on Friday, London time, US equities rose 2.2% over the week, with the US technology sector climbing by 3.3%. European stocks were up by 0.5%, with markets still pricing in a further 1.4% increase in rates for the Eurozone. UK equities increased by 0.2%, however, more domestically focused mid cap stocks increased by 1.0%. The Japanese market rose by 2.9%, whilst Australian equities increased by 0.6%. Emerging markets continued to benefit from a fall in the strength of the US dollar and hopes of an economic boost from the relaxation of Chinese covid restrictions, rising by 1.6% in aggregate, with Latin American markets increasing by 3.6%. Whilst Indian stocks, which are trading at a valuation premium, fell by 2.1%.

However, bond markets continue to signal an impending recession in the West

Yields on government bonds rose a little (prices move inversely to yields), with the 10-year US Treasury increasing to 3.56% and German bunds to 2.28%. 10-year UK gilt yields were broadly flat at 3.36%. The yield premium between longer dated 10-year government bonds and shorter dated 3-month bonds remains in negative territory for the US, Eurozone and the UK. This is considered by many as a reliable indicator as to a future recession, although time lags can vary tremendously.

Gold ticked up over the week, now trading at $1,947 an ounce, whilst copper was flat at $9,307 a tonne and Brent crude oil rose by 1.5% to $88.9 a barrel.

Fourth quarter US GDP exceeds expectations despite the sharp rise in rates

US GDP data for the final quarter came in at 2.9%, higher than the forecast increase of 2.6%, a more moderate decline versus the previous quarter’s increase of 3.2%. However, whilst monetary policy is known to act with a lag, weakening consumer expenditure data helped to lower expectations for the next Fed rate rise to 0.25%. However, Tesla, the electric car manufacturer whose share price has more than halved since their peak, rose by 11% after its fourth quarter earnings beat expectations, rising by 37% to $24.3bbn.

European natural gas prices continue to fall sharply

Preliminary figures from January’s Eurozone composite purchasing managers survey indices, which seek to measure the economic conditions faced by businesses, were released this week, rising above fifty, which represents the dividing line between expansion and contraction. This helped to provide some hope that the Eurozone may be able to avoid a more protracted downturn as natural gas prices continue to fall sharply. The one-month forward contract on Dutch natural gas futures fell a further 21% this week, taking prices down to €53 per Mega Watt hour from a peak in excess of €300 in August of last year.

The Fed’s preferred measure of inflation due for release this afternoon

The Fed’s preferred measure of US inflation is due for release today, with expectations that core inflation, i.e., excluding food and energy, will have increased by 0.3% in December, although expectations are still for a fall in inflationary pressures versus one year ago. Economists are looking for an increase of 4.4% for the year, down from 4.7% for the year to November.

Market Update Monday 23rd January 2023

Weaker economic data weighs on Wall Street

It was a mixed picture for global equities this week, as markets in the West digested poor economic data and hawkish remarks from central bank figures. Whilst in Asia, markets continued to rise off the back of China’s reopening from strict lockdown conditions. Markets in the US slipped this week after worse than expected US retail sales and manufacturing output in December. US retail sales for December declined by 1.1% more than the 0.8% forecast, whilst manufacturing production has fallen by 1.3% instead of the forecasted 0.3% fall.

Sentiment in US and European equity markets were also constrained by hawkish comments from Federal Reserve (Fed) and European Central Bank (ECB) figures. Despite signs of inflation peaking recently, Lael Brainard, vice-chair of the Fed, remarked that “We are determined to stay the course,” with regards to getting inflation down to target. As if to confirm their thinking, initial claims for US unemployment benefits in fact fell to 190,000 in the week ending January 14th from 205,000 in the previous week, indicating the labour market is perhaps more robust than the Fed would ideally like. Meanwhile ECB president Christine Lagarde at the World Economic Forum also echoed similar sentiments saying that “We shall stay the course until… we can return inflation to 2% in a timely manner.”
As of 9am London time, the main US index fell 2.51% over the week, whilst the US technology sector fell 2.05%. Europe also lagged, down 0.85%, whilst the UK market finished lower by down 0.89%.

Asian markets fare better

Despite the news that China’s GDP growth fell short of last years 5.5% target, investors there instead focused on the final months of Beijing’s abrupt U-turn on Covid lockdowns. This week as of 9am London time, the Shanghai index rose 2.18% whilst the Hong Kong index also rose 1.41%. Japan also fared better this week after their central bank decided against tweaking their yield curve control measures further. Their decision to maintain ultra-low rates sent the Yen almost 2% lower on the day, whilst Japanese stocks reacted positively, finishing the week higher by 1.25%. The Australian market also managed to finish in positive territory up 1.69% after employment figures came in softer than expected, reducing pressure for the Reserve Bank of Australia to raise interest rates.

Safe-haven bonds rally

In response to investors’ jitters over the health of the US economy, investors fled to the safety of core government bonds. As of 9am London time 10-year US treasury yields, which move inversely to their bond price, fell 8 basis points to trade at 3.42% whilst equivalent 10-year German bunds and Gilts also rallied. Their yields also falling by 5 and 4 basis points to trade at 2.11% and 3.32% respectively.

Oil continues its rise driven by China reopening.

Oil prices edged higher as investors expressed optimism that Chinese demand would recover. The International Energy Agency also said that with China moving away from its strict Covid-19 restrictions, crude demand is expected to hit a new record this year, while price-capping sanctions on Russia could reduce supply. Brent crude rose by 1.74% to $86.76 per barrel. Meanwhile Dutch wholesale gas prices continued their decline on expectations of strong supplies of liquefied natural gas and healthy stock levels in Europe. The Dutch Natural Gas Forward 1 month contract fell 5% over the week.

Market Update Monday 16th January 2023

US inflationary pressures ease, setting equity and bond markets up for a rally

Year-on-year US inflation data weakened in the month of December, falling to 6.5%, down from 7.1% recorded the month before. This, combined with softer average hourly earnings data released last Friday, which came in at 4.6% for the year to December versus 4.8% in the previous month, set markets up for a rally. Expectations rose for a smaller, quarter of a point rate rise at the Federal Reserve’s January meeting, with the expected peak in rates falling beneath 5%. European industrial production for the month of November exceeded forecasts, rising by 1.0%, easing fears over the severity of any impending recession. Whilst UK GDP growth for November eked out an increase of 0.1%, beating estimates of a fall of 0.2%. A sharp fall in European energy costs, helped by a mild winter, has no doubt been a significant contributing factor.

Hong Kong stocks close to a 50% rise since their 2022 low

As of 12pm on Friday, London time, the US market rose by 2.3% over the week, whilst the US technology sector recorded an increase of 4.1%. European and UK stocks rose by 1.6% and 1.8% respectively, whilst Japanese equities rose by 1.5%. The Australian market increased by 3.1%, supported by rising metal prices, a result of the relaxation of Covid restrictions in China. Emerging markets were up 3.0%, with the Latin American component increasing by 4.8%, also benefitting from the rebound in commodity prices. Hong Kong and Chinese stocks continued their recent recovery, rising 3.6% and 1.2% respectively, with the former having risen by 48% since their 2022 low point hit at the end of October.

On the back of the decline in inflation, government bond markets also rallied, with 10-year US Treasury yields, which move inversely to price, falling to 3.47%. German bund and UK gilts also rallied, with 10-yields falling to 2.13% and 3.33% respectively.

Easing Covid restrictions in China supports rising commodity prices

Gold continued its steady ascent, rising 2.0%, now trading at $1,907 an ounce, having risen over 15% since its low in November. Whilst copper prices leapt up to $9,169 a tonne, an increase of 7.0%. Iron ore increased by 5.7%, and crude oil rose by 7.8%, with Brent crude now trading above $80 a barrel at $84.7. All beneficiaries of the relaxation of Covid rules in China and a weakening in the US dollar as US interest rate expectations are dialled down.

US dollar weakens as rate expectations abate, boosting liquidity in financial markets

The US dollar index, which is a measure of the US dollar against a basket of internationally traded currencies, fell by 1.4% over the week, with the Euro worth $1.08, and Sterling close to $1.22. However, the biggest move amongst the more actively traded currencies was reserved for the Japanese Yen, which strengthened by 2.6% versus the Dollar, 1.9% versus Sterling and 1.0% versus the Euro as markets applied pressure to the Bank of Japan to further relax their yield control measures on the 10-year JGB (Japanese Government Bond). Japanese inflationary pressures have gradually increased in recent months, with core inflation, that is, excluding food and energy, hitting 3.7% in November, a high number by Japan’s standards!

Market Update Monday 9th January 2023

The new year starts where it left off – inflation, inflation, inflation

Markets have picked up in the new year from where they left off last year, looking for evidence of a slowdown in economic activity, and therefore inflationary pressures. Investors are trying to judge when the tightening monetary policy cycle will come to an end, and the likelihood and depth of any impending recession. Headline inflation data (including food and energy) released by Germany, France and Spain, has come in weaker than forecast for December and lower than the prior month, helping to spur an early rally in European equity markets. Whilst US equities have had a harder start to the year, as despite leading indicators pointing towards a slowdown, the jobs market remains tight, and markets continue to worry about the effects of wage pressures on the inflationary outlook. Later today, the latest employment data in the form of the non-farm payrolls will be released, however, earlier this week, the ADP private payrolls came in stronger than forecast and higher than the figure for November, with 235,000 new jobs having been created.

Against this backdrop, as of 12pm on Friday, European equities rose 3.6% over the week, with the UK market climbing by 2.7%. Whilst the US market fell 0.8% and the US technology sector dropped 1.5%. Both onshore and offshore Chinese stocks have started the year on a strong footing, benefitting from an easing in Covid restrictions, despite an explosion in the spread of the virus. Chinese ‘A’ shares rose by 2.2%, whilst offshore Hong Kong stocks are up 6.1%. This has helped to propel emerging markets up by 2.9%. However, this hides a wide dispersion in returns in the emerging world, with Latin America down by 1.0%, suffering from falling oil prices. Australian equities rose by 1.0%, whilst Japanese stocks fell by 0.8% following the Bank of Japan relaxing its zero-yield policy control before Christmas. Yields on 10-year government bonds can now trade in a range of plus or minus 0.5% around zero, versus the previous range of plus or minus 0.25%.

Government bonds strengthened

Government bonds strengthened in price, as the continued strength in the US labour market raised concerns that US interest rates will continue to rise, increasing the risk of a recession. 10-year US Treasury yields, which move inversely to price, fell to 3.72%, whilst shorter-dated 2-year yields, which are more sensitive to interest rates, rose to 4.47%. 10-year German bund and UK gilt yields fell to 2.29% and 3.56% respectively.

Commodities

Gold rose by 0.8% over the week to trade at $1,840 an ounce, having risen close to 12% since its lowest point in 2022, recorded in November. Copper was little changed over the week, trading at $8,361 a tonne, whilst iron ore continued its recent recovery, rising by 1.5%, benefitting from the relaxation of Covid controls in China. Crude oil traded down, with Brent crude falling almost 9% over the week, now priced at $78.5 a barrel. European natural gas rose by 2% over the week but has fallen to levels last seen in 2021. On the back of a warm winter, prices have fallen by over 50% since the highest level for December, and by over 70% since its peak reached in August of last year. It is a similar story in the US despite prices never having reached the stratospheric levels witnessed in Europe. US Henry Hub gas prices have declined by over 45% since the peak for December, and over 60% since the highs of August.

Issues under discussion

No imminent let-up in future tightening

The dominant narrative of 2022 continues into the new year: inflation, the response from central banks, and the probability and depth of a recession.

Headline inflation, that is, including food and energy, looks to have peaked, with recent inflation prints coming down faster than estimates. However, core inflation, excluding food and energy, remains stubbornly high. The US Federal Reserve has moderated its rate increases, although comments from the chair, Jerome Powell, and minutes released from the last meeting suggest no imminent let up in future tightening whilst inflation remains significantly above its target of 2%.

Monetary policy acts with a lag of somewhere between twelve to eighteen months, therefore the danger is that the Fed over-interprets the need to continue tightening, leading to a sharper downturn than required some time in 2023.

The flip side of this, is that some investors look to history and suggest that when periods of inflation have come about before it has taken much longer periods of tightening to tame it. Therefore, bond yields have further to rise from today’s levels before inflation is brought under control.

The truth is, there is very little consensus on what the root causes of inflation are, and therefore similarly, the remedies.

Market Update Monday 19th December 2022

Central Bank rhetoric leads markets lower

In a week that was dominated by major central banks action, equity markets finished broadly lower. Markets came under pressure by the end of the period after central banks, particularly in the US, Eurozone and UK all raised interest rates and signalled the fight against inflation was not over.

In the US, the Federal Reserve (Fed) took the unanimous decision to raise its target interest range by 0.5% to a range of 4.25% to 4.5%. Whilst this was anticipated by investors and ended the successive 0.75% rate rises of late, it was the hawkish tones of meetings that sent stocks lower. Fed Chair, Jay Powell, said it would take “substantially more evidence to give confidence that inflation is on a sustained downward path”. Meanwhile, in Europe, the European Central Bank (ECB) also raised rates by 0.5%, with comments from the ECB that “inflation remains far too high”. In the UK it was a similar story with the Bank of England also raising rates by 0.5%, to 3.5%, the highest level in 14 years. Again, the central bank warned of likely further tightening.

As of 8.30am London time, given the outlook of tighter monetary policy, the US ended lower by 0.98%, with the US technology index down further by 1.78%. UK and European stocks also struggled, lower by 0.67% and 2.19% respectively. Weaker Chinese retail sales and uncertainty over rising Covid numbers did not help matters, with the Hong Kong index falling 2.17% and the Shanghai Composite also down for the week by 1.22%. The Japanese market fell by 0.58%, and the Australian market declined by 0.89%.

Global growth worries keep investors nervous

In addition to the prospect of further monetary tightening, economic data releases this week did no favours for investor sentiment. China, despite a gradual ease of restrictions, still posted disappointing retail sales and industrial production, both declining 5.9% and 2.2% respectively year on year, worse than forecast. Meanwhile, Japan’s manufacturing activity shrank at the fastest pace in more than two years in December. US retail sales also disappointed falling 0.6% month on month, the biggest drop in 11 months. That said, in the US, 211,000 Americans applied for unemployment aid in the past week. This was less than last week and lower than forecast, signalling that the domestic labour market is still tight and likely to rationalise the Feds decision to keep rates higher.

Yield curve inversion remains entrenched

Shorter-term bonds in major economies continue to trade at higher yields than longer-dated bonds, and this inverted relationship to the normal is one that signals an impending recession. Bond yields, which move inversely to their price, fell marginally despite the rate move this week; the 2-year US treasuries fell by 10 basis points to 4.24% as of 8.30am London time and with the US 10-year treasuries trading at 3.47%, this illustrates the inversion in the yield curve.

In Europe, shorter-term debt reacted more to central bank action with 2-year German bund yields rising by 30 basis points to 2.45% whilst its longer 10-year debt trades at 2.16%. In the UK bond moves were less muted with 2-year Gilts rising just 3 basis points over the week to 3.45% whilst 10-year gilts trade at 3.3%.

Optimism over China’s Covid restrictions helps oil price rises

The demand outlook for China, the biggest oil importer in the world, continues to improve with its re-opening after harsh Covid lockdowns. Brent crude traded back above $80 per barrel marking a 6.08% rise, whilst WTI crude oil trades at $75.54 per barrel, a 6.36% increase. The shutting of the Keystone pipeline across Canada and US due to a leak also limited short-term supply earlier this week.

Market Update Monday 12th December 2022

Strength in the US Service Sector raises concerns over further rate rises

Data released this week surprised economists by pointing to continued strength in the US service sector, despite the sharp increase in interest rates. The Institute for Supply Management Service Sector index was released on Monday, which provides an insight into the business conditions faced by service sector companies. The index came in at 56.5 for the month of November, up from 54.4 in the previous month (any number above 50 equals expansion, and below 50 contraction), and higher than the decline forecast. This unsettled markets trying to gauge when the Federal Reserve may pause their interest rate hiking cycle, designed to crush the sharp increase in inflation, but risking triggering a recession as a result.

Chinese equities continue to rally, despite weak import and export data

However, despite some very weak import and export data for the past twelve months, both domestic ‘A’ shares and offshore Hong Kong stocks in China made further gains this week, on a gradual relaxation of zero Covid rules. China has increasingly been seen to target economic growth over the virus for the first time since the pandemic began, accelerated by the wave of protests witnessed across China at lockdown rules.

As of 12pm on Friday, London time, US equities fell 2.7% over the week, with technology stocks dropping 3.3%. European markets fell 1.4% and UK equities slumped by 1.4%, with more domestic orientated mid cap stocks falling by 3.1%. Australian stocks fell by 1.2%, whilst Japanese equities bucked the trend in developed markets, rising 0.4%. Although for overseas investors this was all but lost through Yen weakness, which fell by 0.9% versus Sterling and 1.3% versus the Dollar. Emerging markets lost 0.5% despite Chinese and Hong Kong stocks rising by 1.6% and 6.6% respectively. The weakness came predominantly from Latin America, where markets fell by 3.0%, not helped by a sharp fall in the price of crude oil.

Government bond yields were broadly stable over the week, with the yield on 10-year US Treasuries now trading at 3.49%, German Bunds 1.88% and UK Gilts 3.12%.

Crude oil prices fall sharply, despite the European ban on Russian seaborne oil deliveries

Crude oil prices fell sharply in a week that Europe banned all seaborne Russian oil imports and the G7 countries imposed a $60 price cap. Although many thought this would have sent oil prices higher, a number of factors conspired to send crude oil around 10% lower. OPEC, the Organisation of Petroleum Exporting Countries, chose not to alter their production targets, having been expected to make cuts in response to the price cap. Future demand fears trumped supply constraints. This was exacerbated by the strong service sector data out of the US, raising concerns of the Federal Reserve sending the US into recession through further rate rises. And finally, the more limited supply destinations available to the Russians has meant Asian refiners have been able to negotiate lower prices. Brent crude is now trading at $76.3 a barrel and US WTI (West Texas Intermediate) $72.

Industrial metals rise as China relaxes Covid restrictions

Industrial metals made gains, helped by the gradual relaxation of covid restrictions in China. Copper rose by just over 1%, trading at $8,525 a tonne, and iron ore rose by almost 5%. Gold prices are up slightly, now priced at $1,813 an ounce.

Issues under discussion

China’s switch to prioritising growth over health

Chinese ‘A’ shares have risen by over 10% since hopes have grown as to an end to the zero Covid policy, and offshore Hong Kong stocks have gone up by a massive 35% from very cheap, oversold levels. Whilst this continues to look like a gift to investors, especially against a difficult backdrop of western countries tightening monetary policy to combat inflation, there remain a number of headwinds for China’s switch to prioritising growth over health.

The efficacy of the Chinese vaccine is lower than those used in the developed world; the capacity of hospitals to deal with any sharp increase in Covid infections that comes with opening up is limited; and there remains a sizeable proportion of the population who are unvaccinated. All of this together means that although the opportunity in China looks attractive, as always, there remain plenty of risks.

Inheritance Tax

Minimising the impact of on your estate

The latest Inheritance Tax (IHT) statistics show an additional 4% was added to HM Revenue & Customs receipts compared to the previous year. IHT is a tax payable when you die. Whether your beneficiaries have to pay it, and how much they’ll pay, is based on the value of your estate.

Your estate’s value is the value of the whole entirety of your assets. An asset is anything of value that is owned, for example: money, property, investments, businesses, possessions, payouts from life assurance not written under an appropriate trust, as well as any gifts made within seven years of your death. IHT is currently applied to estates worth more than £325,000, and will remain at this level until April 2026.

Surviving spouse

When the value of your estate exceeds this limit, known as the ‘nil-rate band’, everything over the threshold is taxed at 40% (unless you’re leaving it to your surviving spouse, in which case no IHT needs to be paid). For the 2021/22 tax year, there is also a ‘residence nil-rate band’ currently worth £175,000. If applicable to your particular situation, this is added to your nil-rate band of £325,000 – so your estate could be worth up to £500,000 before any IHT is payable.

Emotional times

This increased tax take suggests that the Chancellor’s freeze on the nil-rate band and residence nil-rate band at the last Budget is beginning to have the desired effect. It is achieving the ‘fiscal drag’ it set out to do, particularly given that asset prices have soared following the depths of the pandemic and could continue to do so given inflation is on the up.

As a result, many more people could end up having to pay IHT without realising they would fall into the tax charge. It is vitally important people start to have conversations with loved ones to fully understand an estate and the value of it. While it isn’t always the most pleasant conversation, it is better to have it now than during more emotional times such as following a death.

Complicated tax

With the government looking for ways to plug the holes in the public finances created by the pandemic, IHT will always be in focus. IHT is a complicated tax and one that requires a necessary level of knowledge to ensure you’re planning in the most tax-efficient way. So IHT planning should be considered but it’s important not to plan in isolation – it should be part of an overall strategy that encompasses your lifetime financial goals and assets, even though constituent parts may be executed separately and at different times.

Passing on your wealth to the next generation

You have worked hard to build your wealth – we will help you pass it on to the next generation securely and efficiently. If you’d like to find out more or to discuss your situation, please get in touch with us today – we look forward to hearing from you.

Information is based on our current understanding of taxation legislation and regulations. Any levels and bases of, and reliefs from, taxation are subject to change. The value of investments and income from them may go down. You may not get back the original amount invested.

Past performance is not a reliable indicator of future performance. The financial conduct authority does not regulate taxation & trust advice.

Market Update Monday 5th December 2022

US stocks rallied for the second consecutive month since 2021

Most equity markets managed to finish the week in positive territory as of 8am London time, with the US stock market recording the first back-to-back monthly gains since mid-2021, with a sharp rally on the last day of November. The start of the week was marked by volatility especially in Chinese and Asian markets, as protests broke out in cities across China against the government’s continued strict Coronavirus lockdowns. However, equities rebounded strongly on Wednesday, led by the US, after Federal Reserve (Fed) Chair Jay Powell suggested it may be appropriate to slow the pace of interest rates rises.

After a series of 0.75% interest rate increases, Powell suggested the central bank could raise rates by 0.50% instead and that there could be a path to a soft landing, if labour markets cool without the economy entering a recession.

As of Friday, 8am London time, the US finished up by 1.28% with the US technology sector strengthening even higher by 2.28%. Returns in the UK and Europe were more modest, with both markets rising 0.96% and 0.73% respectively. Asian equities also rebounded by the end of the week on signals that the Chinese government was willing to ease lockdowns to appease the public. The Shanghai index finished the week up 1.76%, whilst the Hong Kong index rallied remarkably by 6.44%. Japan was an outlier, falling by 3.17%, as the export heavy index was weighed down by a stronger Yen.

The US dollar weakens against major currencies

Following Jay Powell’s remarks and a shift in market expectations over Fed rate rises, the US dollar weakened against its peers. The DXY, the measure of the dollar against a basket of major currencies fell 1.2%. Since September the dollar has weakened 8%. Inflation data out of the US on Thursday also contributed to the currency weakness with the Fed’s preferred measure of inflation, the US Core personal consumption expenditures index, rising by 0.2% in October, lower than the expected 0.3% rise. As of Friday, investors have turned their focus on the US jobs numbers which will be released today. Economists are expecting US non-farm payrolls to increase by 200,000, a decline from October’s reading of 261,000.

Government bonds extend gains

Major government bonds also strengthened on the back of Powell’s dovish comments. The benchmark 10-year US treasury yield (which moves inversely to the bond’s price) declined by 15 basis points to trade at 3.5%. Whilst the yield on the more interest rate sensitive 2-year US Treasury, declined by 19 basis points to 4.25%. Meanwhile, benchmark 10-year German bund yields and UK Gilts finished the week trading at 1.8% and 3.1% respectively.

Crude Oil prices strengthen after a string of weekly declines.

With news that some Chinese cities are relaxing their Covid measures, hope of higher oil demand pushed Brent crude oil prices higher by 3.81% to $86.82 per barrel as of Friday 8am London time. The WTI crude price rose by 6.67% over the week. Oil prices were also supported by reports that the US administration may pause sales from its strategic petroleum reserve.

Market Update Monday 28th November 2022

Markets rally on rising hopes of a moderation in the interest rate cycle

Markets made further ground this week as the minutes of the last US Federal Reserve meeting were released, showing a “substantial majority” of officials supporting a moderation in the pace of interest rate increases. Investors looking for evidence to support this view were rewarded with a further contraction in the US manufacturing purchasing managers indices, which provide a window on the operating environment companies find themselves within, including new orders, hiring, and investment intentions. Whilst lower energy prices within the Eurozone have eased concerns over gas rationing this winter, providing a boost to European equities. However, hopes of further easing over China’s zero Covid policy were dashed, with a sharp escalation in the number of recorded infections.

As of 12pm on Friday, London time, US equities, having been closed for Thanksgiving on Thursday, were up 1.6%, with US technology stocks having risen 1.3%. European equities were 1.8% higher, and the UK market rose 1.2%. Japanese and Australian equities followed suit, rising 2.6% and 1.5% respectively. Whilst emerging markets only increased by 0.3%, held back by Hong Kong stocks which dropped 2.3% on rising Covid cases.

Yield curve inversion deepens as recession fears grow, despite hopes of a moderation in rate rises

As expectations hardened to an impending recession, longer-dated haven government bonds rallied, with yields, which move inversely to price, falling. 10-year US Treasury yields are now yielding 3.72%, with German Bund yields standing at 1.95% and UK gilts 3.11%. Whilst shorter-term debt trades at higher yields, this inverted relationship signals recession. 2-year US Treasuries, German Bunds, and UK Gilts currently yield 4.49%, 2.18% and 3.28% respectively. This picture was reinforced by comments made by Isabel Schnabel, a European Central Bank executive board member who signalled her desire for Eurozone rates to rise by 0.75% for a third time in a row to combat inflation. This was despite prices of goods leaving factories falling for the month of October in Germany, the first decrease in two years, following a decline in wholesale energy costs.

Oil price falls on rumours of a supply increase being considered by OPEC

The oil price weakened further, with Brent crude dropping by 1.5%, now priced at $86.3 a barrel, following rumours that OPEC (Organisation of Petroleum Exporting Countries) were considering an output increase to counteract the loss of Russian crude supplies. However, this was subsequently denied, with OPEC reiterating their plans to stick with the current production cuts.

Build your own financial plan

Build your own financial plan

Easier to manage your money

Having a financial plan in place early on can make it easier to manage your money further down the line. It’s never too early to make a financial plan. The sooner you work out your goals and start following a plan to achieve them, the more likely you are to succeed.

Here are three key questions to ask yourself when building a financial plan.

1. What are my goals?

Building wealth takes time and a little effort. Like any activity, be it growing a business or learning a new skill, you need to decide early on what your long-term objectives are. It’s exactly the same when you are building wealth – it is important to set financial goals. Without a goal, your efforts can become disjointed and often confusing. Being able to keep track of your progress towards achieving a goal is only possible if you set one in the first place. Being able to measure progress is extremely rewarding and will help you maintain focus. Procrastination is something we all battle with from time to time. However, when you set goals in life, specific goals for what you want to achieve, it helps you understand that procrastination is dangerous. It is wasted time. It is another day you aren’t moving closer to that goal.

Setting financial goals is essential to financial success. Once you’ve set your goals you can then write and follow a roadmap to realise them. It helps you stay focused and confident that you’re on the right path.

Consider the SMART principle when setting your own goals:

Specific – Clearly define what each goal is and use details such as numbers where possible (quantify it).
Measurable – Think about a tangible way in which you can measure your progress.
Achievable – Are your ambitions realistic? With planning we are often capable of more than we realise but being pragmatic is important. Discussing your goals with us will help you to balance this.
Relevant – Are your goals in line with your own personal values? It is useful to chat this through with somebody else to clarify your values.
Timebound – Think about the timeframe you are working within and whether there is any flexibility needed.

Your goals are personal and unique to you. Perhaps you want to set up your own business and follow a lifelong passion, or maybe you want financial security and to ensure you can pass a legacy on to your loved ones. Once you’ve defined your goals and you’re clear on your current situation, it’s a good time to work out if you have enough to achieve your goals or if there’s a gap. This isn’t an easy task as there are often many variables to consider, such as inflation, tax and growth rates.

2. Where am i now?

Cash flow planning is a concept borrowed from business and every business owner or finance director will be familiar with the term. These same principles can be applied to your personal financial planning. As we’ve mentioned, the starting point is to identify each one of your personal goals. Cash flow planning is most effective when all likely future needs are taken into account too. Just focusing on immediate needs may seem more practical but focusing on one goal at a time can limit future options.

Make a list or a spreadsheet of what you have, specifying where and how much; this could include any assets such as property, cash balances, investments, pensions, protection policies and any debts such as mortgage, credit cards or loans. Look at your income and expenditure levels. Remember, the future is somewhere you have never been before. Cash flow planning guides and updates you on your journey. If there are delays on the way it can find another path. Combined with our professional advice, we can help you arrive at your destination more smoothly.

3. What do I need to do next?

As we’ve seen with the coronavirus (COVID-19) pandemic, things can change very quickly. It goes without saying that your financial plans should not be static objects, and that you should review your plans over time and on a regular basis to ensure that you remain on track towards your goals. You also need to adapt your financial plans as your circumstances change. Reviewing your arrangements regularly is a vital way of ensuring you meet your financial goals and ensures that all your plans are up to date in light of changes to your circumstances and the wider financial landscape.

Reviews can also prompt you to consider some of those things that sometimes get left undone – such as your Will, which might still need to be arranged or updated. Or perhaps there is a Lasting Power of Attorney that has not been progressed or a life assurance policy that should be placed under an appropriate trust. As we’ve all recently experienced, life has a habit of springing unpleasant surprises on us when least expected.

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Financial planning is the key to improving your financial wellness. Your personal plan is a roadmap to your financial success. You’ll see exactly what you need to do now to make a significant difference for your future. Please get in touch to find out how we can help you reach your financial goals – we look forward to hearing from you.

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