POSITIVE SIGNS THAT INFLATION MAY HAVE PEAKED

This weeks new data could influence central bank rates. Data on inflation, job creation and growth have been well scrutinised by central banks and will affect their decisions over interest rate increases. It has been a bit of a mixed bag. Inflation in the US has continued to slow, notwithstanding it remains high, employment growth is still strong, albeit not as strong as it has been, and the UK and Europe are actually growing slightly more than expected.

All of this has been largely interpreted as good news, with inflation appearing to have peaked without causing a full blown recession. However, some of the effects that people associate with a recession, including rising unemployment, typically happen after economies have been shrinking for a while and are not necessarily a good marker. It is good news that prices are starting to moderate, but there is still a long way to go before central banks can relax their monetary policies. If monthly data continues in the same vein we may get a softer landing than feared, but January is clearly too early to call but at least the signs are positive!

 

  US: LOWEST INFLATION NUMBERS FOR 12 MONTHS

US inflation continued to slow as it dropped to its lowest level in 12 months. The headline Consumer Price Index slowed to 6.5% for the year to December. This is the sixth straight monthly decline for CPI and core inflation (excluding more volatile food and fuel & energy costs) also slowed to an annual rate of 5.7%, down from 6% in November. The decline in CPI was caused by lower petrol prices as well as second hand cars falling in value. Bond markets were relatively unmoved by the inflation update, and the dollar fell slightly.

Last Thursday saw the release of US unemployment which showed the number of job losses hit a three-month low. US Federal Reserve officials have been trying to reinforce the bank’s commitment to raising rates and two members this week as they said rates will need to rise above 5% and remain there for an extended period to make sure inflation is brought under control. This sentiment was echoed by the head of the Spanish central bank who said the European Central Bank will increase rates significantly at its next few meetings.

  UK: JOBS MARKET SHOWING SIGNS OF COOLING

Whilst States-side new jobless claims in the US were lower than expected, but there are signs that labour markets there and in the UK are starting to cool. The number of people hired in the UK fell for the third month in a row, according to the Recruitment & Employment Confederation, which also reported that starting salaries increased at the slowest rate in almost two years. The Office for National Statistics reported that the number of online job adverts also dropped in early January, which is usually a busy month for recruitment, and the number of vacancies is approximately 16% lower than the same period this time last year. 

Recruitment firms Robert Walters and PageGroup both reported significant slowdowns in their earnings in the last quarter of 2022. Robert Walters said it was particularly affected by drop in recruitment among US tech firm as it warned profits will be lower than expected. PageGroup also reduced its forecast for profits as it reported fewer candidates for advertised positions as well as companies cutting back on their recruitment plans.

  UK: BUILDERS

The financial regulator issued a stark warning about the number of people in financial distress due to rising mortgage costs. Bank of England rate hikes as well as the disastrous mini-budget in September helped push the average rate of a two-year fixed rate mortgage from around 1.4 % in January 2022 to above 6% in November. This has reduced slightly since then but the Financial Conduct Authority warns that 200,000 households are already in arrears and warns that a further 570,000 households are at risk of defaulting as their fixed term deals come to an end over the next two years.

 

We at Private Office Asset Management warned against the merits of such severe rate rises to combat inflation which we argued is mainly due to imported inflation through rising energy and food costs. The amount of the inflation which is due to consumers here in the UK spending too much is simply not the reason for the huge rises seen in UK inflation rates which makes it all the more unpalatable to hear of the huge numbers of ordinary hard working people that are now in serious financial distress due to these interest rate rises. If you are looking for portfolio management, our expert team can help guide you through the rising costs.

Housebuilders are facing a sharp slowdown in demand caused by higher mortgage costs and falling house prices. Barratt Developments, Persimmon and Taylor Wimpey all released updates this week. Despite Barratt and Persimmon reporting considerably lower advance sales, investors appeared relaxed about plans to cut back on new developments and reassured by strong balance sheets as shares rallied this week.

 

 

PRIVATE OFFICE ASSET MANAGEMENT – PAST QUARTER’S RISK-ADJUSTED RETURNS HELPED BY TIMING OF OIL

The past quarter’s performance data and risk-adjusted returns have been very pleasing.  Carrying considerably less risk than the FTSE UK Private Client Investor Risk-Rated Benchmarks we have out-performed across the risk profiles.  This has been helped by our recent oil trade which again shows the merits of investment advisers and managers who have the courage of their convictions to apply common sense along with investment skill and utilisation of decades of experience, rather than choosing to follow the herd and hide behind benchmarks.

Over a 2 day-period at the beginning of January Brent Crude dropped -10% in value from US$86 to US$78.  We bought in and sold out after just 12 calendar days to post a net profit after all fees of +6.55%.

Our Quarterly Performance Data October 2022 to January 2023 and respective Managed Advisory Rebalancing Proposals are currently being sent out to all clients.

Happy New Year, and let’s hope that 2023 is rather more positive in every respect than 2022!

Please note that the opinions expressed in this newsletter are those of the author, and they do not purport to reflect the opinions or views of Private Office Asset management and should not be construed as advice.

If you enjoy reading this weekly update, please feel free to share it with your friends and / or family who may also find the contents of interest, and do not hesitate to contact us if you need any help, information or advice yourself about any of the areas covered this week. 
 
Yours sincerely,

 

Phil Simmonds
Philip A. Simmonds MBA, LL.B(Hons), FPFS, Chartered MCSI

Chartered Wealth Manager | Chartered Financial Planner

Solicitor (company in-house solicitor)

Chief Investment Officer | Head of Strategy