29th September 2022

Cappuccino Commentary

A relaxed read on the issues of the day

Equity markets were generally weak during August. However, from a UK investor’s perspective with sterling continuing its downward trajectory, global equity returns looked healthier as they reflected the benefit of holding company shares in US dollars in preference to the pound during the month. The UK and European equity markets delivered negative absolute returns for the month. The major concern facing equity markets is the further need for potentially substantial interest rate hikes to tame inflation. Of all the regions, emerging markets was the standout performer, where China pushed through supportive monetary and fiscal policies during the month, which was received well by the markets. Emerging markets and China in particular, have had a very rough ride through the year so far, and remain firmly in negative territory.

August proved to be an incredibly challenging month for bonds markets. Government and corporate bonds fell as inflation remained elevated and central banks reaffirmed their commitment to reining in price increases through raising interest rates. Markets have tended to take a big steer from the Federal Reserve (Fed) in the US and its direction of travel. At their annual conference at Jackson Hole, Fed Chair Jerome Powell, reiterated its message: the focus is on controlling inflation, which is running at multi-decade highs, by raising interest rates. The flipside to this, is that with higher interest rates, the prospect of a global economic downturn is increasing. Both equity and bond markets had been hoping for a “pivot” from the Fed, a shift in the tone or strategy away from the aggressive rate rising path.

The UK gilt market underperformed most other global government bond markets. Inflation hit 10% in July, which was higher than the market expected and raised expectations of a faster pace of rate hikes. Political uncertainty and the much-anticipated fiscal response to the energy crisis also weighed on the market. The Bank of England (BoE) raised interest rates by 0.5% to 1.75% at the start of the month.

Commodity markets were also weak in August. Energy was the biggest detractor of all commodities, with sharply lower prices for unleaded gasoline, crude oil and Brent crude. It could be inferred that with price declines in the energy commodities, that this is a sign of slowing global demand.

In conclusion, August was a tough month with little respite, with the focus from central banks remaining firmly on bringing inflation under control. With the uncertainty this is creating, we expect market volatility to remain elevated for the time being with the potential for further downside risk. We still believe caution is warranted and that portfolios should remain with a more defensive posture for the time being, until there is more clarity on the trajectory of inflation and interest rates going forward. Looking further ahead, we believe opportunities are beginning to open up and we will be looking to take advantage of better valuations in the months to come.


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    Copia Capital Management

    Hamilton House, 1 Temple Avenue, London, EC4Y 0HA

    Understanding the risks

    This information is intended for professional financial advisers only. Copia does not provide financial advice. This information is not intended as financial advice and should not be interpreted as such. Model investment portfolios may not be suitable for everyone. The value of funds can increase and decrease, past performance and historical data cannot guarantee future success. Investors may get back less than they originally invested.

    Copia Capital Management is a trading name of Novia Financial Plc. Novia Financial Plc is a limited company registered in England & Wales. Register Number: 06467886. Registered office: Cambridge House, Henry St, Bath, Somerset BA1 1JS. Novia Financial Plc is authorised and regulated by the Financial Conduct Authority. Register Number: 481600.

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