2nd Quarter Market Update

In a flash 6 months of year done, just like that. This year has moved at such a pace it seems only weeks ago spring had sprung and here we are now in a typical English summer.

The Russia and Ukraine war continues, and we are seeing less effects on the markets now as they get a grip on how this really affects us all.

The realisation that this will continue for the foreseeable future is now factored into market prices and we can now see this with energy being secured from alternatives sources.

The energy pinch point we have all experienced has now lessened and this does go hand in hand with better weather. The price or energy as you may well be aware has now fallen and this has taken pressure off.  Of course, we are not back to pre-war prices but it’s a move in the right direction.

The argument seems to suggest that the consumer is still using savings and reserves to see them over this hard time. The security of jobs has also allowed people freedom to continue to spend and fight off an official recession. 

With the UK being a consumer economy, consumers have done just that, we have continued to spend and not really alter our habits.

This is causing sticky inflation as spending is fuelling the inflation fire, but is this soon to turn?

During the last 3 months we must address the elephant in the room, interest rates.

With us having depressing rates really since 2008, we are now seeing some higher rates that look more attractive to savers and harder for borrowers.

The question now is are we at peak rates.

The last increase in June was a surprise in some respects seeing as the inflation figure of 8.7% was expected to have fallen to 8.5% which it didn’t.

The next Bank of England meeting is August so we can be certain this won’t change this month at least.

Taking a very small step backwards here, as mentioned above inflation remains high as we continue to spend. Higher rates are supposed to reduce money supply (pounds in our pocket) which in turn stops us spending.

With higher interest rates debt is now more expensive and we are seeing this in the property market (finally). Property prices are now in the most part flat or down.

The last rate increase saw 800 mortgage products pulled in readiness for higher rates as banks were not prepared for the increase, so it seems.

For the government to step in and help with mortgage payments would be a fight against the Bank of England putting rates up in the first place.

Savings rates have been adjusted and in most cases I can see fixed rate bonds are now the same for 1, 2 and 3 years.

Mortgages are basically the same for 2 and 3 years but slightly lower for 5 years.

In short, the banks don’t know how to price savings or mortgages as both could be changed extremely quickly.  

Savings rates do look attractive but let’s remember that at this point last year 1% was considered a great rate. These times can return if rates start to be cut.

As we have done in the past looking toward the popular market metrics, I have set these out below for the first 6 months of this year.

FTSE100                                   1.07%                          

MSCI World                              8.89%

S&P 500                                    15.90%

0-35% Mixed Investment       0.88%

20-60% Mixed Investment     1.20%

40-85% Mixed Investment     2.63%

Some stand out returns here over 6 months with the S&P really making some ground. We can see closer to home that the FTSE100 after its record highs of the turn of the year has now cooled by some way. As commented on before this is to be expected as its commodity heavy weighting and the quick fall in commodities has driven the index back down.

As investors we are planning around rates, and we know that we have limited control on how or when these will change. 

In my view the markets have already priced in these “peaks”, and we are seeing less and less knee jerk reactions to upward movements.

Yes, we may well see another rate increase next month but it’s then how that settles into the debt and savings markets overall.

It’s been a harder quarter than forecast but there now appears to be some better times ahead.

As always, we are here if you need anything at all, please feel free to just get in touch.