Please find below our Investment Market Update as at 11th March 2022.
Blue Sky Investment Market Update
I left my desk and my e-mails behind on Wednesday as I headed for London for a couple of days, for a nice meal and a show. Good timing as it happens with equity markets surging on Wednesday with the Dax (German index) soaring by 7.92%.
So, why the rebound?
There were two main reasons:
- Comments from the Russian Foreign Ministry stated that it would be better if their goals in Ukraine were achieved through talks.
- The eurozone faces a real risk of recession but sentiment was boosted ahead of an EU summit on Thursday where leaders discussed a new growth and investment model and a focus on reducing dependence on Russian energy. Hopes about avoiding a recession in Europe “really helped rejuvenate some form of risk-on environment on global stock markets,” said Aneeka Gupta, research director at exchange traded fund provider WisdomTree.
As reported in FT.com, analysts believe the European Central Bank (ECB) might delay plans to withdraw emergency stimulus measures put in place to counter the financial shocks, wrought by coronavirus two years ago.
However, stocks fell on Thursday as the ECB announced it would actually reduce its bond buying scheme more quickly than planned.
Sectors which dropped the most see the biggest upturn!
It was not a surprise to see those sectors and stocks which have experienced the most damage recently, benefit the most. Financials and banks posted two strong days of gains, following big declines in the previous few days.
Swings in Sentiment
The market moves demonstrate that there is a huge amount of money sat on the side-lines looking to be positioned at the right time. The question is, when is the right time?
Clearly, we are not ‘out of the woods’ by any means, and so expect big swings in sentiment. On the back of the conflict, we should also expect wild swings in the oil price. Brent crude dropped 17% at one point on Wednesday, only to bounce back before sliding again. Influenced by the United Arab Emirates stating that it supported increasing production.
I liked the article on www.proactiveinvestors.co.uk, where Neil Wilson from markets.com said; “These markets are kind of insane right now: it’s the kind of market that will cut you up in both directions. Crude remains super volatile and super sensitive to Russia-Ukraine headlines”.
A 40 year high!
On the economic front, inflation dominates. On Thursday, it was announced that US consumer inflation accelerated in February to a fresh 40-year high on rising oil and gas prices, food and housing costs, with inflation poised to rise even further.
The consumer price index jumped 7.9% from a year earlier following a 7.5% annual gain in January, Labor Department data showed on Thursday. The inflation gauge rose 0.8% in February. Both readings matched the median projections of economists in a Bloomberg survey.
This was not deemed to be good news for the economy and as a result equities immediately gave back some of the ground they gained on Wednesday.
To combat rising prices the Federal Reserve is set to raise interest rates next week for the first time since 2018. However, the geopolitical situation adds uncertainty to the central bank’s interest rate strategy, over the coming year. A delicate balance is required because there may be further energy price shocks but at the same time a more cautious approach may be required if sinking consumer confidence and declining real wages begin to create a drag on economic growth.
Interest rates are also expected to rise next week here in the UK, moving up to 0.75%.
It’s encouraging to see an appetite for equities this week and it just shows the difficulties of trying to time this market. The FTSE All Share index is up by more than 1% for the day at the time of writing. However, we should continue to expect significant swings in prices.
Inflation will strengthen from here, but the question is, how will central banks respond?
It’s important to keep a cool head and not panic. A longer-term perspective is required and this is where your financial planning modelling really comes into its own.
Have a lovely weekend and let’s be grateful for what we have.
Gary and the Blue Sky Investment Team
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.