It has been a hectic week for our team as Monday marked the final stage of our transition to Columbia Threadneedle Investments with our move to the offices in Cannon Street in the City of London
After 11 years in Exchange House, above Liverpool Street station, we now have a new home, and a new coffee machine to get used to! In the past 3 decades our team has been based in Bank, Aldgate, Canary Wharf, Mayfair, and Liverpool Street. At this rate in few more decades we can create our own Monopoly board! The latest move brings the founders of our team – Rob, Kelly and Paul – to within a stone’s throw of where it all began with the Five Arrows Private Portfolio Service based within the Rothschild office in St Swithin’s Lane. Many years have passed since 1994, but the basic principles of the team and process have remained. Creating diversified, active, tax efficient all-in investment solutions seeking out the best fund managers that we can find.
The economic releases over the week have been mixed, with soft flash PMI data suggesting the persistent weakness in manufacturing is starting to spread to the services sector across some western developed markets though a slew of US data provided comfort that overall growth was still positive across the pond. Consumer confidence data also pointed to continued resilience. The flash PMI numbers showed a marked weakening in the eurozone services data, and while it remained in growth territory, when combined with the persistently weak manufacturing data, left the composite PMI figure for the currency bloc teetering on the brink of contraction. While the eurozone is already in recession, having seen two consecutive quarters of negative growth, the data does imply any pickup in Q2 looks weak.
The news out of the UK was reasonably strong in comparison, with services offsetting manufacturing weakness and it was a similar story in the US though manufacturing was notably weaker than expected. Consumer confidence data was more upbeat, with US consumer confidence at a 17-month high and beating expectations. Eurozone consumer confidence reached a 16-month high while UK consumer confidence was also at a 17-month high. Is this the calm before the consumer storm? As we’ve repeatedly said, interest rate hikes come with a significant lag in terms of their impact, so it seems likely consumers are yet to feel the full impact of the past 12 months of rate hikes.
In the US, better data came in the form of first quarter GDP being revised higher to an annualised pace of 2% and new home sales data surprised to the upside, giving more weight to the narrative that the weakness in the US housing market has begun to stabilise, despite mortgage rates hovering around 7%. It’s unwise to draw too many conclusions from the mixed data we have seen this past week – what is clear is the direction of travel is still lower, but the data shows that the pace of decline is gradual, and equity markets appear relatively untroubled right now.
The political headlines have been dominated by the apparent coup attempt last weekend in Russia which has left analysts with more questions than answers and financial markets, outside of some minor moves in Russian assets and gas prices, largely unmoved. Last Saturday saw the leader of the Wagner Private Military Company, Yevgeny Prigozhin, launch a rebellion which saw a large number of Wagner troops travelling in the direction of Moscow and taking over Military facilities in Southern Russia as well as capturing Rostov-on-Don, Russia’s 9th biggest city. Prigozhin said that this was “not a military coup; this is a march for justice” and accused Russian leadership of “murdering tens of thousands of Russian soldiers as a result of their disastrous invasion of Ukraine”. With his forces some 200 kilometres from Moscow Prigozhin ordered his military convoy to turn back.
There appeared to be a deal brokered by Belarussian President Lukashenko, the details of which are unclear but it appears Prigozhin is now exiled to Belarus and while the Russians initially declared no charges would be brought, it now appears Treason charges are being considered. President Putin made a televised address and declared that the “criminals who organised the mutiny will be brought to justice”. Putin said the majority of Wagner troops were patriots and not to blame – this is no surprise as the Russian army is trying to recruit Wagner mercenaries into the regular army in what Prigozhin saw as an effort to close down his private army.
The western view seems to be that the events of this week have weakened Putin. Given the Wagner resources were vital to Russia’s overall military effort, this may swing the pendulum slightly towards Ukraine as it ramps up its offensive efforts. However, we need more time to see if this represents a genuine shift in Russian politics and if there are any implications for the ongoing conflict in Ukraine or within Russia should Putin feel the need to reassert his authority.
The European Central Bank has been holding their annual forum for central bankers and policymakers this week in Sintra, Portugal. ECB President Christine Lagarde gave a speech on ‘Breaking the persistence of inflation’ and said that “barring a material changed to the outlook, we will continue to increase rates in July” Lagarde noted that “it is unlikely that in the near future the central bank will be able to state with full confidence that the peak rates [of interest] have been reached. Markets are pricing two more 25 basis point hikes from the ECB but we may well witness further hikes if core inflation remains stubbornly high even as headline CPI eases. Lagarde was joined on a panel with the Governors of the Bank of Japan, Bank of England and US Federal Reserve.
Bank of England governor Andrew Bailey noted the resilience of the UK economy so far but noted the “clear persistence” in inflation as justification for the higher-than-expected interest rate hike last week and said that the tightening cycle was “not really done” at the moment. Fed Chair Jay Powell said that policy “has not been restrictive for long enough” and while he sees “a lot of signs” of the labour market softening, but “it is really just the beginning”. Kazuo Ueda, of the Bank of Japan appeared in no hurry to hike rates despite Japanese inflation above 4%, saying that if their inflation forecast for 2024 was met, “that would be a good reason for reconsidering policy change”. It doesn’t sound much like the Bank of Japan will be hiking rates any time soon, even as their peers continue to tighten policy.
A reminder that we will be holding a webinar on Thursday 13 July with Scott and I reviewing the first half of the year, considering how the Artificial Intelligence theme has enlivened curtained equity indices and discussing our recent activity in adding to Japan. You can register here.
Have a good weekend,
Kind regards,
Anthony.
