WeekWatch

Stock Take

Markets meandered last week as the volatility induced by the recent turmoil in the banking sector subsided and investors eased themselves into the holiday weekend.

The week was book-ended by two significant developments. At the start of the week, the OPEC+ group of oil-producing nations announced another surprise cut in output of around 1.16 million barrels a day. The voluntary cuts, which start in May, come on top of those already agreed in October. The organisation said the move was aimed to support market stability. It came despite Washington’s pressure on Gulf states to weaken their ties with Russia.

The cut could push oil prices back towards $100 a barrel, hitting businesses and consumers with higher costs and challenging the efforts of central banks to put out the inflation fire.

The other key event for investors last week was Friday’s release of US jobs data, seen as a major indicator of the likely next move on interest rates by the Federal Reserve (‘the Fed’), and the last such report before the next meeting of its rate-setting committee in early May. The Labor Department data showed that jobs growth slowed in March, adding 236,000 positions, which was in line with economists’ forecasts and therefore didn’t shift the dial in terms of Fed expectations.

The figures added to news earlier in the week that US job vacancies dropped to their lowest level in nearly two years in February. There are now 1.7 job openings for every unemployed person, down from 1.9 in January. Wage increases also eased, rising 4.2% year-on-year, the lowest reading since the middle of 2021.

Although the unemployment rate slipped to 3.5%, the figures suggest the US economy is cooling off, albeit not enough to take the pressure off inflation in the short term. The jobs report heightened expectations the Fed will raise rates by 0.25% at its next meeting.

Data released earlier in the week also suggested that cracks are starting to appear in the US economy. An Institute for Supply Management (ISM) survey on Monday revealed that US manufacturing activity slumped to its lowest level in nearly three years in March, as new orders continued to contract. Tighter credit conditions could see activity decline further in the months to come. Deutsche Bank observed there have only been four occasions in the past when the ISM manufacturing reading was as low without a recession in the following 12-18 months.

This was followed by news that the US services sector slowed more than expected in March as demand cooled. The services industry accounts for more than two-thirds of the US economy and is now at the heart of the fight against inflation, as services prices tend to be stickier and less responsive to interest rate increases.

Recent wobbles on Wall Street may be signalling a change in sentiment. Investors were previously cheering weak economic data on hopes that it meant the Fed’s tightening policy was working and that it would ease up on its interest rate hikes. But as fears of recession increase, ‘bad news is good news’ has transitioned to ‘bad news is bad news’.

The past week was relatively quiet in European markets. Economic researchers at the Ifo Institute forecast that Germany would narrowly escape recession and post growth of 0.1% in the first quarter of the year, but that inflation was unlikely to ease quickly. Mark Dowding of BlueBay Asset Management agrees. “Our recent meetings with policy makers have highlighted how core prices in the region continue to trend higher for the time being, and so it still feels premature to talk about the end of the European Central Bank (ECB) rate hiking cycle, let alone commencing a discussion as to when the central bank may start to lower rates. There is a sense that inflation may stay above 4% for some time to come, and if this is the case, then the first ECB rate cut is unlikely to occur for another 12 months.”

The challenges faced by the global economy were underlined by a warning from the head of the International Monetary Fund (IMF), Kristalina Georgieva, who said it was set to grow at around 3% over the next five years – the slowest pace since 1990. The IMF said it expected 90% of advanced economies to see growth decline, reflecting the weight of higher borrowing costs.

Markets in Europe, Australia and Hong Kong were closed on Easter Monday, but Wall Street slipped as expectations grew that the Fed will hike interest rates in May.

Wealth Check

Fraud is an increasing problem for all businesses, including small and medium-sized enterprises (SMEs), and protecting your company has become critical. The value of fraud cases in the UK rocketed by a staggering 151% between 2021 and 2022, from £444.7 million to £1.12 billion, according to the KPMG Fraud Barometer 2022.¹ But that data only registered cases over £100,000; there are likely many more frauds against SMEs below that value.

Criminals can view small businesses as soft targets, as they often don’t have enough awareness or resources to prevent fraud. Meanwhile, busy SME owners can see prevention and protection as a lower priority as their business grows.

Investment fraud involves a criminal posing as an investment services provider to convince you to transfer large sums of money. In advance-fee fraud, criminals persuade victims to pay for bogus goods or services upfront.

The most common frauds by value were money laundering, investment scams and fraudulently obtaining mortgages – all these crimes rose dramatically between 2021 and 2022.

Business owners must be hypervigilant because, while professional criminals are the biggest perpetrators, the threat can come from employees, management, private individuals, customers, and other business contacts. Financial services is a particularly vulnerable sector because there is more potential value for fraudsters, but any company with money flowing in or out could be targeted from anywhere worldwide.

Many fraud-prevention tools and technologies are available, including identity and authentication tools; fraud data and trace services; automatic monitoring; and anomaly detection.

However, Matthew Smith, Head of Cyber and Information Security at St. James’s Place, says every company should start by making sure it has a secure email and multi-factor authentication (MFA) turned on. “It isn’t necessarily expensive or time consuming – it might just take an hour to ensure you have the right security settings; the latest versions and updates of all software; and two-factor authentication on your accounts,” he says.

Source: ¹ KPMG, ‘Fraud barometer 2022’, February 2023.

In The Picture

Even with recent volatility and inflation, long-term investments can help protect and even grow wealth over the long-term.

Please be aware past performance is not indicative of future performance. Please note it is not possible to invest directly into the Indices shown and the figures do not take into account any charges applicable to the appropriate investment wrapper or any relevant tax charges.

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.

The Last Word

“25 years ago, Northern Ireland’s leaders chose peace. The Belfast/Good Friday Agreement ended decades of violence and brought stability. I look forward to marking the anniversary in Belfast, underscoring the U.S. commitment to preserving peace and encouraging prosperity.”

Joe Biden on his upcoming planned visit to Northern Ireland.

BlueBay Asset Management is a fund manager for St. James’s Place.

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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Source: MSCI. MSCI makes no express or implied warranties or representations and shall have no liability whatsoever with respect to any MSCI data contained herein. The MSCI data may not be further redistributed or used as a basis for other indices or any securities or financial products. This report is not approved, endorsed, reviewed or produced by MSCI. None of the MSCI data is intended to constitute investment advice or a recommendation to make (or refrain from making) any kind of investment decision and may not be relied on as such.

SJP Approved 11/04/2023