Weekly Market Update and Featured Chart #7

This week’s market update highlights the latest macro news, stock market returns, interest rate decisions and general market performance across the UK, US and Asia.

Here’s the key takeaways:

• Hunt delivers pre-election budget – In his last budget prior to a general election, Jeremy Hunt cut national insurance by 2p, extended the freeze on alcohol and fuel duty (cheers,) and announced a consultation on a British ISA, with the proposed changes to include an additional annual allowance of £5,000 for investing in UK equities on top of the existing £20,000 ISA limit.
• Green shoots – Things look a little brighter for the UK economy as the Office for Budget Responsibility slightly upgraded its GDP forecast to 0.8% for this year (from 0.7%), however forecasts have seen a more marked increase for 2025 with growth expected to hit 1.9%. The OBR also said it sees inflation falling below 2% in just a few months’ time.
• Holding firm – The ECB kept rates at historically high levels at their latest meeting with the main refinancing rate held at 4.5% and the main deposit facility rate unchanged at 4%. The ECB is trying to balance concerns over a possible recession and persistent inflationary pressures.
• Bull market for bullion – The price of Gold hit an all-time high during the week driven by increased buying from investment funds, speculation over a FED pivot and increased geo-political and financial risks.
• Targets set – China set its annual growth rate at around 5% for full year 2024, an ambitious goal considering the economy is currently hampered by a property slump and persistent deflation. The 5% target will put pressure on policy makers to ramp up stimulus and support measures.

What does that mean for me and my clients?

Tax cuts filled the headlines this week, with workers’ on the average salary expecting to see an additional £450 in their pay packet each year. Coupled with the cut that came into effect in January, this now totals an extra £900 a year. With the first signs of Spring arriving this week, tax cuts were an extra cherry on top of the cake.

However, tax thresholds have been frozen, so individuals may end up paying more income tax. With the end of tax year just around the corner it is pertinent to ensure clients have effectively utilised all of their tax allowances.

Chart of the week

Source: Invesco, Bloomberg, March 2024

The chart above shows the UK inflation rate, interest rate on cash and the real return of cash from 1989 to 2023.

Why’s this worth sharing?

Current rates on cash may look attractive, especially relative to more recent history. However, as is evident by looking at 2021 – 2023, the real return investors would have received on cash over this period is deeply negative. In fact, since 2007, holders of cash would have lost money in real terms all the way until the end of 2023. Cash as an asset class is the least risky in the short term but as evidenced by the chart the riskiest asset to hold over the long term.

The FTSE 100 & 250 broke their consecutive weeks of declines with a small rise of 0.13% and a more pronounced rise of 1.19% respectively. Markets seemed to welcome a stable budget from the Chancellor, with the potential promise of a revival in fortunes with the British ISA consultation scheduled to commence shortly.

The UK is seeing a constant stream of M&A activity, but this week it was the turn of a domestic buyer as Nationwide offered to buy Virgin Money for £2.9 billion (a 38% premium to the current share price.) The combined entity would see it becoming the second biggest mortgage lender in the UK.

Returns in the US for the second week were relatively muted, as US stocks are looking increasingly expensive with index’s hovering round all-time highs. The Magnificent 7 now look more like the Magnificent 4, with Nvidia continuing to do most of the heavy lifting followed by Meta. Apple’s share price fell during the week following reports of a 24% drop in iPhone sales in China over the first six weeks of the year.

Bond yields fell in the US and UK following the budget and Chairman Powell’s testimony to the senate, where he stated the committee is not far from the confidence it needs to start cutting rates with inflation moving sustainably towards the 2% target. Gold hit a record high, as well as Bitcoin on surging demand for the digital currency.

This article is for financial professionals only. Any information contained within is of a general nature and should not be construed as a form of personal recommendation or financial advice. Nor is the information to be considered an offer or solicitation to deal in any financial instrument or to engage in any investment service or activity. Parmenion accepts no duty of care or liability for loss arising from any person acting, or refraining from acting, as a result of any information contained within this article. All investment carries risk. The value of investments, and the income from them, can go down as well as up and investors may get back less than they put in. Past performance is not a reliable indicator of future returns.