Week ending 9th September 2022.

We would like to start by saying that we acknowledge with great sadness the passing of Her Majesty, Queen Elizabeth II – and our thoughts are very much with the Royal Family at this time.

We have seen and experienced many different (and many turbulent) economic and equity market environments, but Queen Elizabeth was not only the one reigning monarch we have known, but she was a much needed and very reassuring constant and inspiration to us during those changing and challenging environments, and for that we will be forever grateful.

God save the King.

In her new role, Liz Truss didn’t waste any time in announcing plans to cap household energy bills in order to help ease the cost-of-living crisis and hopefully avert a recession. As a consequence, share prices in those companies which have been hurt by our belt-tightening (such as retailers and those in the hospitality sector) rose during the week.

Whilst much was made of the huge headline cost of this policy, we believe the price the government actually pays will be significantly lower.

This is because the government expects the measures to reduce inflation by up to 5% – and this will result in a massive saving to the government by reducing index-linked debt costs and welfare payments.

Additionally, we should also all benefit from the fact that some of our household bills which are linked to inflation (such as our mobile phone and internet contracts) won’t rise as much as we previously expected; and furthermore, a lower inflation rate should also help to persuade BoE policymakers that an aggressive increase in UK interest rates is not actually needed.

Elsewhere, as expected the ECB not only joined the trend for large interest rate increases, with a 0.75% increase in Eurozone interest rates to 0.75%, but policymakers also indicated that there would be further increases to come to reduce inflation.

The ECB also revised its economic growth and inflation forecasts.  The ECB’s new inflation projections suggest inflation will end this year at 8.1%; 2023 at 5.5%; and 2024 at 2.3%.

However, what was surprising given the increase in Eurozone interest rates, coupled with how much gas prices have increased (not to mention all the talk of potential winter shortages and blackouts), the ECB increased (yes, increased) its economic growth estimates for 2022 to 3.1% from 2.8%.  This simply reaffirms our opinion that central bank policymakers are completely disconnected with the real world!

Thankfully, as you can see from the accompanying table, none of the week’s events stopped global equity markets from ending the week nicely higher.

Looking ahead to the coming week, in the UK there will be 10 days of national mourning, meaning that Liz Truss will not be making any government announcements during that time and we will have to wait even longer to find out what the new Chancellor of the Exchequer, Kwasi Kwarteng plans for our finances.

Although UK economic data releases will continue to be published as usual next week (the main highlights of which are GDP for July; industrial production; employment data; CPI inflation; and retail sales), the BoE has deferred its monetary policy meeting by one week to 22 September 2022.

However, the week’s most important data release for global financial markets will be Tuesday’s (13 September 2022) US CPI inflation – especially as Fed policymakers will not be able to pass any comment given they will be in their ‘blackout’ period ahead of their monetary policy meeting the following week (Wednesday 21 September 2022).

Additionally from the US, we have retail sales; the Empire State Manufacturing Survey; and the University of Michigan Consumer Sentiment Index.

Elsewhere, we have Eurozone and Chinese industrial production and Chinese retail sales.

Investment Management Team

Links to websites external to those of Wealth at Work Limited (also referred to here as 'we', 'us', 'our' 'ours') will usually contain some content that is not written by us and over which we have no authority and which we do not endorse. Any hyperlinks or references to third party websites are provided for your convenience only. Therefore please be aware that we do not accept responsibility for the content of any third party site(s) except content that is specifically attributed to us or our employees and where we are the authors of such content. Further, we accept no responsibility for any malicious codes (or their consequences) of external sites. Nor do we endorse any organisation or publication to which we link and make no representations about them.