Global markets continued their recovery last week, even as the Bank of England suggested an announcement of increasing UK interest rates could happen in the next two weeks. In the UK, inflation dropped to 3.1% in September, compared to 3.2% in August. However last week the Bank of England’s chief economist Huw Pill told the Financial Times it was likely to rise to around 5% early next year.
He also gave a clear indication that a rate rise announcement could be made as early as the Bank’s Monetary Policy Committee meeting on 4 November, describing the situation as finely balanced.
These comments followed a speech from Andrew Bailey the prior Sunday, in which the BoE chief said the central bank would have to act to keep a lid on inflation – widely interpreted as a comment on a potential rate rise.
Markets did not react in a panicked manner to these statements, however – the FTSE dropped just 0.24% over the week. Part of the reason for this – as Martin Hennecke, Asia Investment Director at St. James’s Place, notes – is because any increase in interest rates will be gradual and coming from a historically low starting point.
He said : “Central bankers and governments will probably have to toughen their language somewhat soon, though; and at least be seen to take inflation seriously, if not launch some actions here or there – if small ones – to maintain the impression that there is no reason to worry much about inflation… simply because if they didn’t, sovereign yields – and thereby government refinancing costs – would likely rise significantly.”
That said, Hennecke warned investors to be mindful of growing inflationary risk when considering their investment decisions: “Investments that can provide protection from inflation over time include any type of physical assets, of course, but also the asset class of equities as well – noting that companies with an edge in the market will typically be passing on rising costs to customers in the form of higher prices charged for their goods and services… though passing on of costs may not always happen in a linear way, and clearly equity prices can still be volatile and subject to correction risks.”
As companies look to combat inflationary pressures, an increasing number have either begun to pass on these costs to consumers, or have revealed that price rises are likely in the future – including Unilever and Akzo Nobel (the parent company of paint brand Dulux).
According to Mark Dowding, chief investment officer at BlueBay Asset Management, there is currently some room for price increases for consumers: “With rising prices, sentiment indicators have stalled somewhat recently, but the consumer continues to spend, as highlighted by US retail sales last Friday showing 12% year-on-year growth and Chinese retail sales outperforming expectations. This indicates that, for now, companies have the power to pass on higher prices to consumers, and so those prices are more likely to show up in inflation, rather than impacting corporate margins.”
This has been reflected in recent company results, with several companies beating earning expectations over the past week.
Strong earnings helped lift US and European markets, with the S&P 500 breaking its own record high by Thursday. The Nasdaq Composite and STOXX Europe 600 both finished the week up, although neither quite reached the historic highs they hit earlier in the year.
While this is all positive, investors need to remain wary of the challenges that continue to exist. Supply chain issues continue to be a problem, with the chip shortage especially affecting a wide range of companies. On Friday, for example, Renault revealed it will produce at least 300,000 fewer vehicles this year as a result of a shortage of components. These shortages may well continue into 2022.
At the same time, COVID-19 numbers are continuing to rise in the UK, and energy prices remain high, adding to issues with supply chains; while the Chinese property industry remains brittle following the struggles at Evergrande, which only narrowly avoided a default last week.
With equity prices rising in the face of a number of potential challenges, diversification is likely to play a key role in achieving long-term returns, as different sectors come under different pressure, and at various times.
BlueBay is a fund manager for St. James’s Place.
A regular health check can offer peace of mind, help to keep you on track and spot any issues before they become serious. Getting one is a no-brainer – and increasingly so in our later years.
The same applies to your finances – and never more so than in retirement. Just as your physical and mental health can become more complex in later life, so too can your financial plans. Remaining invested in retirement, as many people now do, offers plenty of opportunities. But it also requires oversight and decision-making throughout a period that could last for over three decades or more.
Once you move into retirement and start to take an income from your pension pot, you’re exposed to a new set of risks – such as sequencing risk and longevity risk – which tend to have impacts that only become clear when it’s too late.
Regular reviews – with the aim of recognising and mitigating the effects of those risks – are therefore essential, says Danni Brotherston, Head of Advice Policy and Development at St. James’s Place Wealth Management.
“Ongoing advice is important before retirement, but arguably even more so in retirement – especially if you remain invested or you’re heavily reliant on other assets to provide an income.” In a climate of widespread redundancies, some people will have been faced with the prospect of retirement a bit earlier than expected. Others are opting to work for longer, taking a more phased approach to retirement, or even returning to work as they look to bolster their savings.
“You need to evaluate the impact all these types of events can have on your financial objectives and vulnerability – all the way through retirement,” argues Brotherston.
This includes financial events such as the gifting of an inheritance, divorce, or changes in your health. In fact, she adds, changed circumstances in retirement are often linked to health – and the effect a decline can have on life expectancy and expenditure.
Regularly reviewing your plans at least once a year will help your investments to continue to reflect your risk appetite and that everything remains in line with your objectives.
The value of an investment with St. James’s Place will be directly linked to the performance of the funds you select and the value can therefore go down as well as up. You may get back less than you invested.
We support a greener future by engaging with some of the world’s largest companies to ensure they are committed to combatting climate change. We do this through our fund managers – who have all signed up to the UN Principles for Responsible Investment – and through our partnership with Robeco, whom we have appointed to engage directly with companies on ESG issues.
Here’s how the companies that our fund managers invest in are applying ESG principles to their business model to deliver genuine shareholder value.
“The most valuable sneakers ever offered at auction – Michael Jordan’s regular season game-worn Nike Air Ships from 1984 – have just sold at $1,472,000 in our luxury sale in Las Vegas”
Auction house Sotheby’s confirms the most expensive sale ever of game-worn footwear, after the basketball legend’s size 13 trainers were snapped up by a collector.
The information contained is correct as at the date of the article. The information contained does not constitute investment advice and is not intended to state, indicate or imply that current or past results are indicative of future results or expectations. Where the opinions of third parties are offered, these may not necessarily reflect those of St. James’s Place.
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