In the week that we’ve welcomed Chris Robinson as Investment Director of our new managed portfolio service (MPS), read what the MPS team made of the week just gone – as well as what lies ahead.
For information purposes only. The views and opinions expressed here are those of the author at the time of writing and can change; they may not represent the views of Premier Miton and should not be taken as statements of fact, nor should they be relied upon for making investment decisions.
In brief
- Equity market rally supported by the positive economic backdrop once again.
- UK and US inflation pressures ease supporting the probability of interest rate cuts.
- Retail sales in the UK and US provide positive signs for company earnings.
A storm in a teacup is soon forgotten
A double helping of inflation data was on the menu this week. It was reassuring to markets after the uncertainty of the week before.
The US was first to report, with producer and consumer price inflation both marginally lower than expected, and the latter coming in at 2.9% year-on-year. The US bond market is now pricing in five rate cuts in a row between September and March 2025. This appears rather optimistic, but clearly supportive for equities. Thursday’s US retail sales numbers provided further optimism, with the highest reading since January 2023 – up 1% in July, and a clear indication the US consumer isn’t being impacted by higher interest rates.
Across the pond, here in the UK core inflation came in at 3.3%, down from 3.5% the prior month. The services component, which accounts for more than 70% of the UK’s economic output, continued to slow to 5.2%. The UK’s larger company market notched its fourth gain in a row and longest winning streak in three months. Last Friday’s retail sales numbers in the UK added to the positivity, up 0.5%, bouncing back from the -0.9% fall in July. The number of retailers providing discounts was notable. Price wars may be commencing – watch this space.
Elsewhere, Japan’s equity market continued to recover following last week’s fall. Gross domestic product (GDP) came in at 3.1% year-on-year for the second quarter. This is of benefit due to our position here. The European equity market also shrugged off Ukraine’s excursion into Russia. Geopolitics doesn’t tend to move markets, it’s the secondary effects that cause concern, and this doesn’t appear to be any different.
Historically, August tends to be a calm month relative to the months of September and October for equity markets. This week reflects that return to normality and supports expectations that the economic environment is returning to a path of more normal inflation and growth expectations.
Looking ahead
Next week the focus will be on forward-looking economics indicators: the purchasing Managers indices (PMIs) for the US and Europe. Manufacturing has been in a global slowdown over the last year, as companies reduce inventory levels built up post-pandemic. PMIs tend to signal hiring, spending and earnings, so are regarded as good indicators of current trading and potential earnings.
Eyes will also turn to Jackson Hole, where central banks will provide guidance on the economic outlook.
Whilst the Middle East tensions are being ignored by equity markets for now, we are keeping a close eye on any potential for escalations. A positive for now is that both countries don’t appear to want a full-blown conflict.
Ian Rees, Head of Multi-Manager Team; David Thornton, Fund Manager; Nick Kelsall, Fund Manager; Chris Robinson, MPS Investment Director
