31st July 2023

Cappuccino Commentary

A relaxed read on the issues of the day

June was a positive month for equities on the whole, with a number of regions rebounding from losses in May. In the US and Europe inflation numbers have continued to fall from their highs, although in the UK inflation is proving more stubborn. The Bank of England responded by increasing interest rates 0.5% during the month and the European Central Bank announced a 0.25% increase. In the US, the Fed is likely to be much more cautious about raising interest rates from this point and may be able to take a breather in the coming months to allow the impact of previous rate hikes to be monitored. Above target inflation and the likelihood of more interest rate hikes from some central banks continued to be a headwind to bond investors.


The latest data showed some modest growth in the UK economy during April, helping to support hopes that the UK will avoid recession in 2023. This was mainly driven by services and provided a welcome boost to the UK equity market. Retail sales of summer clothes and other seasonal items also contributed. Headline inflation remained at 8.7%, well above the target level of 2%. Core inflation, which is a measure of inflation that excludes food and energy (both of which tend to be quite volatile) increased, prompting the Bank of England to take swift action, raising interest rates by 0.5%, which was more than expected. The fight to quell inflation in the UK continues.


The US equity market was up during June, primarily driven by some of the very largest companies, which dominate both the US and global markets. The Fed paused on interest rates, choosing not to hike during the month. This, combined with government agreement to raise the debt ceiling, was good news for US equities. Investors continue to keep a close eye on the job market to gauge the health of the US economy and although unemployment did rise, the number of jobs created was strong, reassuring investors that the labour market has been resilient even as inflation has dropped sharply.

In Asia, Chinese equities made gains during June despite some underwhelming performance in the industrials sector and disappointment over the strength of the post-covid recovery. This recovery continues to be patchy and may require further support from government or the central bank. Elsewhere, it was the Latin American countries that led in emerging markets. Brazil’s growth has surpassed expectations, while inflation has also provided a pleasant surprise being lower than expected. Brazilian equities have been strong performers, inflation data came in below market expectations at 3.94%. Brazilian equity markets were up 16.1%, with energy stocks among the star performers during the month.


Within global bonds, government bonds continued to struggle with the high inflation and high interest rate environment. Bonds that are less exposed to interest rates and more exposed to the risk of an individual company fared better and delivered positive returns.


Our outlook continues to be cautious, with portfolios positioned defensively to protect against the risk of a deteriorating economic environment. Perhaps counterintuitively, the team sees some excellent opportunities where the risks are already reflected in the valuation of the assets, though we continue to focus on those areas we think will prove most resilient and come to the fore if there is a deterioration in the outlook, such as high-quality bonds and dividend paying equities.


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    Copia Capital Management

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

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    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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