Welcome to our quarterly investment overview

We have spoken to a number of investment houses who we work closely with, and we would like to share their views on where the markets are heading.

I have described the markets like a washing machine in that there are lots of mini-cycles at play and just when you think everything is going to calm down and come to the end of the program, another one starts. Yet, despite all the uncertainty, equity markets are creating gains and there is becoming a significant dispersion between some asset classes reinforcing the need for active management.

The inflationary cycle is beginning to slow which the markets like, but elevated interest rates are still hurting sentiment. There are mixed views as to how the investment markets may respond in the near term, but it does look as though we are seeing a gradual climb up the wall of worry, helped by the news on UK inflation this week.

This week we saw the UK markets get excited about the reduction of year-on-year inflation. We stated only last week that there was room for positive surprises but on the flipside, there could be negative surprises still to come.

As this is a quarterly review, set 10-15 mins aside, as usual, to digest what’s going on.

Here is the agenda:

• The latest news flow
• How are the markets responding?
• What sectors are favoured?
• What is the immediate outlook?
• Summary

The latest news flow 

UK inflation figures surprised in a positive way this week.

Inflation in the UK dropped to 7.9% in the year to June from 8.7% in May, according to the Office for National Statistics. Forecasters had predicted a fall from 8.7% to 8.2% so that’s a bigger step in the right direction. Falling prices for motor fuel led to the largest downward contribution to the monthly change, while food prices rose in June 2023 but by less than in June 2022.

The futures market repriced its interest rate expectations as a result. Some were predicting that the bank base rate could rise by another 2% and reach 7%. The market now sees the rate peaking around 5.8% in quarter 1 2024. This is down from the 6.5% high the market was pricing earlier this month.

The odds of a 0.5% hike in August have fallen to around 50%. Unloved gilts also found some friends, with the yield on the two-year over 0.2% lower to 4.86% putting it on course for its biggest drop since March. The pound was similarly under pressure after the data, falling nearly 1% against the dollar and the weakest since late May against the euro. (Source EPIC Investment Partners).

The Chancellor, Jeremy Hunt released a statement saying:

“Inflation is falling and stands at its lowest level since last March, but we aren’t complacent and know that high prices are still a huge worry for families and businesses.” 

“The best and only way we can ease this pressure and get our economy growing again is by sticking to the plan to halve inflation this year.”

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Risk warning

Please Note: This communication should not be read as giving specific advice regarding your personal circumstances. This would only be given following detailed assessment of your individual needs. The value of investments may fall as well as rise; you may get back less than invested. Past performance is not necessarily a guide to future returns.