Stock Take
The tradition of May festivities dates to Roman times and the celebration of Flora, the goddess of flowers. The UK has got Michael Foot to thank for the May Day bank holiday, which he introduced in 1978 when he was the Labour Employment Secretary.
With Japan also on a public holiday, it was left to China and Europe to get markets off to an upbeat start, as the previous week’s softer-than-expected US jobs report continued to underpin sentiment.
New figures showed Chinese manufacturing and services still heading in the right direction and business sentiment rising solidly, boosting hopes of an economic recovery. A meeting of the country’s highest political body, the Politburo, resulted in a promise of additional support for the economy. Whilst this outcome was in line with expectations, analysts suggested the Politburo showed an increased urgency to address structural headwinds.
Adding to the upbeat mood was news that eurozone business activity expanded in April at its fastest pace in almost a year, led by the area’s dominant services industry. Germany’s service sector notably picked up the pace, expanding at its quickest rate in ten months. However, factory activity across the bloc took another downturn, extending the divergence between the two sectors.
Expectations of a 0.25% interest rate cut by the European Central Bank in June have continued to firm up. The Swedish central bank proved a frontrunner by cutting its rate by the same amount last week, becoming the second leading economy to ease policy after Switzerland’s move in March.
Ahead of the Bank of England’s rate-setting meeting on Thursday came figures showing that UK construction growth hit a 14-month high in April, adding to signs of recovery from the shallow economic recession. However, housebuilding saw a further drop, and the challenges in the sector were underlined by the Halifax saying that house prices have been largely flat so far this year. Mortgage rates have been rising in recent weeks, mainly due to expectations that the Bank of England (BoE) will make fewer interest rate cuts this year.
The FTSE 100 reached a record closing high on Thursday after the Bank of England (BoE) gave the clearest sign yet that its first interest rate cut is approaching. Whilst keeping rates at a 16-year high of 5.25%, BoE boss Andrew Bailey expressed optimism that inflation was moving in the right direction but stressed that a rate cut as early as June was “not a done deal”. Following the Bank’s comments, financial markets now expect rates to be cut to 5% by August and then trimmed to 4.75% in November or December.
Hetal Mehta, Head of Economic Research at St. James’s Place, said: “Any expectations of a rate cut in June would be premature as base effects will only temporarily get inflation down to target.”
Mark Dowding of BlueBay Asset Management agreed: “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.”
The UK’s emergence from recession was confirmed at the end of the week with news that the economy grew by 0.6% in the first quarter of 2024, the most in almost three years and exceeding all forecasts – including the BoE’s.
Over in the US, it was another case of ‘bad news is good news’ as weekly jobless figures exceeded expectations and rose to their highest level in eight months. This added to the previous week’s news that the economy had added the fewest jobs in six months in April; both signs of an easing labour market that boosted rate cut hopes.
Yet all eyes will be on this week’s US inflation numbers, which will be pivotal in setting the tone for markets. “A benign reading would put rate cuts back in play and would be a positive catalyst for bonds and stocks,” suggested Dowding. “However, another disappointing release could easily produce the opposite result.”
The rally in global stocks continued through to the end of the week. The STOXX Europe 600 index posted its biggest weekly gain since late January to notch a record closing high, boosted by strong corporate earnings and growing hopes that interest rate cuts are near. The FTSE 100 hit a fresh record high, and the leading US indices also posted weekly gains as investors took comfort from an earnings season in which corporate results exceeded aggregate expectations.
BlueBay Asset Management is a fund manager for St. James’s Place.
Wealth Check
When it comes to managing finances, everybody has an opinion, whether it’s about retirement planning, reducing your tax liability or choosing investments. Here, we myth-bust the most common preconceptions about financial advice.
Myth 1: “I’m too young to start planning for retirement.”
Fact: Nowadays, it’s common for people to retire at different ages. Gone are the days when retirement came at age 60. With the right advice and financial plan, you can identify the financial steps required to retire earlier and achieve your goals.
Myth 2: “My property is my retirement plan.”
Fact: Your home, or a buy-to-let property you may have, can be part of your retirement plan, but you risk putting all your eggs in one basket if it’s your only source of retirement income.
Myth 3: “I can do my own financial planning.”
Fact: Financial planning isn’t the same as budgeting. Many people are good at managing their personal or family budgets, but effective long-term financial planning requires an additional level of professional expertise and knowledge.
Myth 4: “Financial advice is only for wealthy people.”
Fact: Many people imagine that you need a six-figure sum to start investing. In fact, regularly investing smaller amounts means you take advantage of times when market prices are low, so your money buys more shares, as well as when prices are high.
Myth 5: “Financial planning just means investing.”
Fact: Knowing where or how much you want to invest, or how much risk you’re willing to take, is very much a part of financial planning.
Myth 6: “I don’t need to have a plan until something happens.”
Fact: If your financial circumstances suddenly change – whether you lose your job or win the lottery – it’s important to get some proper financial advice on your next steps.
Myth 7: ”I need to keep my money in a savings account.”
Fact: If you keep all or most of your money in a savings account, you need the interest rate to be higher than the rate of inflation. Otherwise, your money will be losing value in real terms.
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 & 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
This week is Mental Health Awareness Week. Here are a few signs to help recognise if someone is suffering from financial anxiety.
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, celebrates their victory over the weekend.
SJP Approved 13/05/2024