MPS weekly market views: how much Truss(t) do we have in Government?

Market news and views from the Managed Portfolio Service investment team. 

In brief

  • A Budget of note sends government bond yields higher.
  • Equity markets take a step back ahead of the US election.
  • China’s manufacturing boosted by stimulus.

Bond, Government Bond

Who’d have thought it, two years since the Conservative government’s large spending package led to government bond prices falling and yields rallying, we seem to have round two! In mid-September, yields on the UK 10-year bond touched 3.75%, and now sit at just under 4.50%, a 0.75% move in a very short period. What does this actually mean for the UK? Well, it’s got to borrow to fund growth to the tune of about £2.9bn. This will, to an extent, be covered by expected tax take from increases in national insurance, capital gains tax and inheritance tax, to name a few. The implication of the moves is market participants want a greater return (yield) for lending to the government.

The offsetting factor is the Bank of England’s interest rate cuts. Unlike two years ago when Liz Truss announced a fiscal expansion and the economy had high inflation and interest rate rises on the cards, we have two expected rate cuts this year. This is good for the economy and growth, and could lead to yields coming down off these highs. We think this could be a great opportunity for UK government bonds considering the recent moves. Overall, this Budget wasn’t really a surprise, maybe the politics of the delivery was in question within the parliament, but outside the fact we knew what was coming aided markets and didn’t lead to a significant overreaction. We believe it’s not anything to be worried about and is supportive of long-term growth.

In the US, more positivity for the economy as private businesses added 233,000 jobs to payroll, much higher than the 115,000 expected. The hurricane impact for September was less severe than expected. Markets also interpreted results from Microsoft and Meta as the top seven names in the S&P 500 Index report for the quarter. Unlike Tesla’s from the prior week, the forward guidance from these two highlighted a less positive outlook. This is similar to a theme from a number of European companies, and led to markets pulling back. Note the earnings expectations remain very positive for the US into 2025.

Signs of a rebound in China’s economic growth continued, with the manufacturing survey suggesting the sector had returned to expansion once again. New orders and increased buying were highlighted as the main positive, while weakness remains from exports. Monday is the start of the National People’s Congress where more stimulus is expected to be announced – watch this space. The combination of positivity for Chinese manufacturing, OPEC potentially cutting production in December, and Middle East conflicts, have led to the oil price rebounding slightly. Notable was the potential for Iranian retaliation following the Israeli strikes. For now markets have noted this but we are watching developments closely.

Finally, the Bank of Japan met this week and left rates unchanged. This is not a surprise considering the recent inflation data. The Yen hasn’t weakened any further since the prior week, which would have aided the committee.

Equity and fixed income markets are assessing a significant amount of data, political uncertainty and interest rate expectations. For us it’s a surprise that weeks like this haven’t come along more often this year. It does, however, provide opportunity going into an investment committee. Active asset allocation is well and truly alive and kicking!

Looking ahead

Next week we have the US election – the big one! The Federal Reserve, Bank of England and Reserve Bank of Australia will be announcing interest rate decisions. US and UK 0.25% rate cuts are expected but the comments after will be key. Finally the National People’s Congress in China provide a fiscal update. What a week!

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Risks

Past performance is not a reliable indicator of future returns.

The value of stock market investments will fluctuate, which will cause the prices of the funds held in a portfolio to fall as well as rise and investors may not get back the original amount invested.

Forecasts are not reliable indicators of future returns.

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Reference to any investment should not be considered advice or an investment recommendation.

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This section of the website and the content it contains is for professional financial advisers only and should not be relied upon, or circulated to, retail clients. Retail clients should refer to the Individual Investor's site.

The content of the pages of this website is for your general information and use only. It, and the products and services described within it, are subject to change without notice. We shall not be liable to you, or any third party, for any amendment, modification, suspension or discontinuance of any product or service described on our website. Neither we, nor any third parties, provide any warranty or guarantee as to the accuracy, timeliness, performance, completeness or appropriateness of the information and materials made available on this website.

You acknowledge that such information may contain inaccuracies or errors and we expressly exclude liability for any such inaccuracies or errors to the fullest extent permitted by law. Your use of any information or materials is entirely at your own risk, for which we shall not be liable.

The information contained on this website does not constitute an offer or solicitation to sell shares in the funds or portfolio or to provide you with other products or services. Any application or investment must only be made on the basis of the relevant documentation of the investment, such as, for example, terms and conditions. The information on this website does not constitute any investment, tax, legal or other advice. Persons who do not have professional experience in matters relating to investments should always consult with an independent financial adviser before making an investment decision. Any opinion expressed on individual funds, services or products, represent the views of the individual at the time of preparation and should not be interpreted as a personal recommendation to buy or sell or otherwise trade all or any of the investments that may be referred to.

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Premier Miton Investors has expressed its own views and opinions on this website, and these may change and there is no obligation to update them. Nothing in this website should be construed as investment, tax, legal or other advice. The information contained herein is subject to change without notice.

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By clicking accept you acknowledge that your use of this website is subject to our privacy policy, cookie policy and our general legal and compliance information available on our website.

THE UNITED STATES OF AMERICA:The investment products referred to on this website have not been and will not be registered under the United States Securities Act of 1933, as amended. They may not be offered or sold in the United States of America, its territories and possessions, any State of the United States of America or the District of Columbia or offered, sold or transferred to US Persons (as defined below). The investment products referred to on this website have not been and will not be registered under the United States Investment Company Act of 1940, as amended. Premier Portfolio Managers Limited has not been and will not be registered under the United States Investment Advisers Act of 1940.

“US Person” generally includes the following: (a) any natural person resident in the United States; (b) a partnership or corporation organised or incorporated under the laws of the United States; (c) any estate of which any executor, or administrator, is a US Person; (d) any trust of which any trustee is a US Person; (e) any agency or branch of a non-US entity located in the United States; (f) any non-discretionary account or similar account (other than an estate or trust) for the benefit or account of a US Person; (g) any discretionary account or similar account (other than an estate or trust) held by a dealer or other fiduciary organised, incorporated or (if an individual) resident in the United States; and (h) any partnership or corporation if: i. organised or incorporated under the laws of any non-US jurisdiction; ii. formed by a US Person principally for the purpose of investing in securities not registered under the 1933 Act. In addition, a Shareholder must qualify as a “Non-United States Person” as used in the US Commodity Futures Trading Commission (“CFTC”) Rule 4.7.

Investment products referred to on this website may not be sold or transferred to a US citizen, or an entity taxed as such or required to file a tax return as such under the United States federal income tax laws (a “US Tax Resident”).

The information in this site is solely for the purpose of acquiring information as, or for, an Institutional Investor (a corporate or other non-retail investment professional acting for their own account). This information must not be used or relied upon by anyone that may be considered a “retail investor” by the home regulator of the country from which this site is accessed.  

The information contained in this website is directed at persons who are resident in the United Kingdom and complies with appropriate UK legislation and regulations and is not directed at, nor intended for distribution to, or use by, persons in any jurisdiction in which the dissemination of such investment related information is not permitted.

The information or opinions contained herein should not be construed as an offer, or solicitation to deal in any investment or fund nor shall any such investment products or services be offered or sold to any person in any jurisdiction in which such offer, solicitation, purchase or sale would be unlawful or in which the person making the offer solicitation is not qualified to do so or to anyone to whom it is unlawful to make such offer or solicitation.

Premier Miton Investors has expressed its own views and opinions on this website, and these may change and there is no obligation to update them. Nothing in this website should be construed as investment, tax, legal or other advice. The information contained herein is subject to change without notice.

Neither Premier Miton Investors nor any of its group companies or affiliates accepts any liability for any losses arising directly or indirectly from any information accessed from this website, to the fullest extent permitted by law.

By clicking accept you acknowledge that your use of this website is subject to our privacy policy, cookie policy and our general legal and compliance information available on our website.

THE UNITED STATES OF AMERICA: The investment products referred to on this website have not been and will not be registered under the United States Securities Act of 1933, as amended. They may not be offered or sold in the United States of America, its territories and possessions, any State of the United States of America or the District of Columbia or offered, sold or transferred to US Persons (as defined below). The investment products referred to on this website have not been and will not be registered under the United States Investment Company Act of 1940, as amended. Premier Portfolio Managers Limited has not been and will not be registered under the United States Investment Advisers Act of 1940.

 “US Person” generally includes the following: (a) any natural person resident in the United States; (b) a partnership or corporation organised or incorporated under the laws of the United States; (c) any estate of which any executor, or administrator, is a US Person; (d) any trust of which any trustee is a US Person; (e) any agency or branch of a non-US entity located in the United States; (f) any non-discretionary account or similar account (other than an estate or trust) for the benefit or account of a US Person; (g) any discretionary account or similar account (other than an estate or trust) held by a dealer or other fiduciary organised, incorporated or (if an individual) resident in the United States; and (h) any partnership or corporation if: i. organised or incorporated under the laws of any non-US jurisdiction; ii. formed by a US Person principally for the purpose of investing in securities not registered under the 1933 Act. In addition, a Shareholder must qualify as a “Non-United States Person” as used in the US Commodity Futures Trading Commission (“CFTC”) Rule 4.7.

 Investment products referred to on this website may not be sold or transferred to a US citizen, or an entity taxed as such or required to file a tax return as such under the United States federal income tax laws (a “US Tax Resident”). If those investment products are held by a US Person, a US Tax Resident or a person who does not qualify as a “Non-United States Person” within the meaning of CFTC Rule 4.7, Premier Portfolio Managers Limited shall be entitled to redeem such Shareholder’s entire holdings.