SLIGHTLY MORE POSITIVE GLOBAL ECONOMIC DATA

Economic data out this week confirmed that global economies are holding up better than expected in spite of last weeks’ increases in interest rates. Here in the UK, we narrowly avoided recession for another quarter. State side 500,000 jobs were added in the US. Markets have taken this news to heart and adjusted expectations accordingly. That said, the UK avoided recession by the narrowest of margins and the GDP figure can be rather unreliable and we expect the figure to be revised as more information comes through.

The accurate state of the global economy will not be clear for some months to come and thus policy makers have to work with the data available which leads to the impact of today’s decisions perhaps not being felt for 6 months to a year down the line.

 

US: STRONG JOBS MARKET FORCES RETHINK

The US jobs market appeared far stronger than anticipated as more than 500,000 new jobs were created in January. This was far higher than the 190,000 forecast and caused Federal Reserve chair Jerome Powell to repeat his warning that interest rates are likely to rise higher than markets expect and then remain high for longer. Powell was joined by several other members of the Fed in making the case for higher interest rates if inflation remains stubbornly high. In the UK, Catherine Mann, a member of the Bank of England rate setting committee, said the UK is more likely to raise rates than cut them to ensure inflation is brought under control.

Markets initially rallied on the positive employment data, but the warnings from the US central bank caused US government bonds and US equities to decline. UK government bonds also fell while the dollar climbed against the pound and the euro as foreign exchange markets factored in the potential for more rate hikes in the US.

UK: OUTLOOK IMPROVES BUT DOUBTS OVER RESILIENCE REMAIN

The UK avoided recession in 2022 as GDP remained unchanged in the final quarter of the year. The International Monetary Fund has singled out the UK as the only developed economy expected to fall into recession in 2023, however, the National Institute for Economic and Social Research estimates the UK will avoid recession with modest annual growth of 0.2%. It expects unemployment to rise slowly and says older workers who left the workforce during the pandemic are likely to return to the workforce to deal with higher living costs. However, the NIESR says high inflation means it will feel like a recession for many people, with up to 7 million people unable to meet all their bills and disposable incomes falling by up to 13% for middle earning households.

Meanwhile, the FTSE 100 hit a new all-time high as it passed the previous high water mark from 2018. The index of the UK’s largest companies has benefited from strong profits from the energy sector and the weaker pound has boosted the value of overseas earnings.

 

 

GLOBAL: BIG TECH BETS ON ARTIFICIAL INTELLIGENCE (AI)

Google has turned to artificial intelligence to protect its position as the dominant online search engine. Google currently account for more than 80% of online searches worldwide. This control of the market and its Ad revenues helped parent company Alphabet generate earnings of $63bn in the fourth quarter of 2022. Microsoft recently announced a $10bn investment in the owners of the ChatGPT AI language engine which it hopes will help drive traffic to its Bing search engine. The stakes for Google are clear as shares initially rose 5% before falling more than 10% after criticism of the accuracy of the new technology.

Chinese tech firm Baidu is also looking to AI to secure its place as China’s dominant search engine and this week it announced it would launch its AI language engine Ernie Bot next month, helping its shares to rise around 15% this week. Meanwhile, Apple is also developing an in-house search function aided by its acquisition of AI firm Laser like in 2019.

However, recent tests of the AI have discovered that the tech is not impartial and has been labelled “woke” by some commentators. The big tech companies have, in the past, proven to be more political than one would have expected. For example, during the pandemic years when descenting voices arguing against lockdowns were “cancelled”.

 

PRIVATE OFFICE ASSET MANAGEMENT – POSITIVE OUTCOME FROM 3-DAY COMPLIANCE VISIT

Following a 3-day compliance visit by an independent compliance consultancy firm, we are delighted to confirm the positive conclusions made about our services, our processes and our adherence to all regulations and industry guides. The compliance visit was a full 3-day audit of client files selected at random, and the closing paragraph of the comprehensive compliance report stated “Finally, it is noted that the portfolio performance Private Office Asset Management achieves using their managed advisory service strategy is certainly higher than the vast majority of firms we visit, as well as being above benchmark and in addition the portfolios demonstrate lower volatility”.

Please note that nothing written here by the author should be construed as giving advice, it merely outlines our thinking.  Any advice will be discussed and proposed on an individual basis with each client when any advice that is given should be fully discussed with us before proceeding with any proposals made.