September 2022
The latest market movements and the global investing outlook
Welcome to our latest market update
We hope you have had a good summer. In today’s edition we’re providing a brief round-up of the latest market movements and some detail on the global investing outlook. In summary, a hawkish Fed, fresh lockdowns in China spark slowdown fears and the increasing likelihood of a recession in Europe have hit global markets over the last week or so. Our thanks to our friends at Charles Stanley for their input into this content.
As always, we hope you find our words useful and insightful. Should you have any questions or wish to discuss anything in more detail then please just get in touch with your adviser, who wil be very happy tp help.
Russia and gas
Russia has completely halted gas supplies to Europe the Nord Stream 1 pipeline, saying repairs are needed. Russian state-owned energy giant Gazprom said the restrictions would last for the three days, but the latest news seems to suggest this may last for some time. Moscow continues to deny accusations it has used energy supplies as a weapon of war against Western countries, but it looks like an attempt to prevent storage facilities from being filled.
At the same time, Gazprom will hand a bumper £8.6bn payout to the Kremlin after it posted record interim profits. The Russian state owns 49.3% of Gazprom and will share in a bumper dividend payout to investors. Details of plans to impose a price cap on Russian oil are expected imminently as the Group of Seven finance ministers meet virtually online. It aims to cut revenues for Moscow's war in Ukraine but avoid price spikes.
Economics
The chair of the US Federal Reserve, Jerome Powell, told a gathering of central bankers at the Jackson Hole Economic Symposium in Wyoming that the US Fed would act "forcefully" to control inflation though it would result in "some pain" for households and businesses. This was the US central bank’s clearest indication that US interest rates would continue to rise into next year. Many in the market had thought the pace of interest-rate rises would ease next year – with some expecting interest rate cuts. Equity markets fell as investors are concerned that a combination of a slowdown in the economy and higher interest rates increases the likelihood of a recession.
The US economy showed signs of continuing strength. Jobs openings and a consumer confidence gauge both topped forecasts, pointing to strength in household and labour demand. Markets are awaiting a key jobs report due out later on Friday. It is expected that employers continued to hire workers at a strong rate in August, with raising wages and signs of persistent labour market strength that may encourage the Federal Reserve to deliver its third 75-basis-point interest rate hike at its meeting on 20-21 September.
The Japanese yen has declined to its lowest level against the US dollar in 24 years. The Bank of Japan maintained its ultra-low interest rates to support economic recovery, with the US Federal Reserve indicating that interest rates will continue to move higher. Higher interest rates tend to attract foreign investment. That increases demand for and the value of currencies from countries with higher interest rates and vice versa. The Sterling has been one of the worst-performing currencies against the dollar this year. Many economists expect the pound to continue to fall against the US currency.
Euro-area inflation accelerated to another all-time high, strengthening the case for the European Central Bank to consider a large interest-rate hike when it meets on 8 September.
Arla Foods, the maker of Lurpak butter, said it expects dairy prices to remain high due to a decline in global milk production and soaring costs. The company posted a 17% rise in revenues during the first six months of the year driven by significant price increases. Arla said the Ukraine war had pushed up farmers' costs as the price of fertiliser and animal feed had jumped.
Geopolitics
After initially firing warning shots to warn off civilian drones thought to be from China that were buzzing its islands close to the mainland, Taiwan’s military has now shot one down. Also, the founder of Taiwanese chipmaker United Microelectronics outlined plans to fund military training for millions of “civilian warriors” in Taiwan to repel any potential Chinese invasion.
“I am Giorgia. I am a woman. I am a mother. I am an Italian and I am a Christian”. This dramatic declaration now set to music as a rap sums up much about the appeal of the politician who may become Italy’s first female Prime Minister.
Shares of major chipmakers Nvidia and AMD fell amid concerns of new US restrictions on the sale of artificial intelligence chips to China. Nvidia said the US government required a new licence, effective immediately, to address the risk of chips being "used in, or diverted to, a 'military end use'... in China and Russia". There are concerns the rule could lead to millions of dollars in lost revenue.
Covid-19
The Chinese metropolis of Chengdu will lock down its 21 million residents to contain a Covid-19 outbreak. The capital of Sichuan province, Chengdu will be the biggest city to shut down since Shanghai’s two-month lockdown earlier this year. Other restrictions are currently in force elsewhere in China, including in Shenzhen in the south and Dalian in the northeast.
Consensus growth forecasts for China’s economy have been further reduced for 2022 as turmoil in the property market and Covid-19 lockdowns persist. The economy is now expected to grow just 3.5% this year, down from a previous forecast of 3.9%.
Travel
Ryanair chief executive Michael O’Leary said the no-frills airline will grow even faster in the event of an economic downturn in the UK. Mr O’Leary said people would still fly during a recession, but they would choose low-fare airlines such as Ryanair.
They announced what it described as its “biggest ever winter schedule” to and from the UK. He said the expansion was because competitors such as IAG-owned British Airways had cut their capacity.
In conclusion
As we always say, there is no one-size fits all approach to financial planning. At Financial Framework Wealth & Estate Planning we continually monitor the market and work with you to ensure your investments and other financial plans are working as hard as they can for you in these challenging times. If you’d like to discuss this or anything in this update then please get in touch.
And please note
This newsletter is for information only and should not be seen as advice or a recommendation to act. The investment updates represent the opinion of Financial Framework Wealth and Estate planning only. Investments can go down as well as up and you may not get back the original capital invested.