29th April 2022

Cappuccino Commentary

A relaxed read on the issues of the day

After a shaky start to the month global equity markets climbed higher in March, allowing investors to claw back some of the losses that had been registered in the previous two months when the war in Ukraine and central banks’ intentions to dampen inflation through higher interest rates weighed heavy on investors’ minds. As sizeable producers of commodities, the war between Russia and Ukraine has seen oil and commodity prices skyrocket as uncertainty over supply has increased. After oil prices peaked in early March, extra supply from the US resulted in prices falling back over the course of the month, although concern around supply chains and price inflation linger.

Within equities, the UK market has proved to be resilient this year. Among its largest companies the UK has exposure to oil, metal miners and banks, which have benefited from higher commodity prices and interest rate expectations. Many of these companies also pay dividends, which have also helped to shield investors from weaker share prices.

In Europe, consumer confidence has been dented by the war and with many EU nations relying on Russia for a considerable proportion of their energy requirements, there is concern that the conflict will push up inflation and damage economic growth. Emerging markets have also begun to struggle as China has been imposing lockdowns to deal with a surge in Omicron cases in several of its major cities.

Inflation continues to rise well above levels we’ve been accustomed to seeing for several decades, running it close to 8% in the US and around 6% in the UK and Europe. In the US, which as a commodity and oil producer is less affected by the war in Ukraine, the Federal Reserve has shown its determination to tackle inflation through a more rapid move to raise interest rates. The Fed has pushed through a 0.25% rise this year, with the trajectory to higher interest rates supported by a strong jobs market and wage inflation. On this side of the pond, there is a delicate balancing act for the ECB and the BoE which are looking to raising rates in an environment where growth is more fragile. The UK has pushed through two interest rate hikes in the first quarter and Europe may follow later in the year, but in both cases the path to more ‘normal’ interest rates looks shallower. Japan, where inflation is much lower, is something of an exception and interest rates are unlikely to rise in the same way.

Inflation and interest rate rises present a particular challenge to bond investors and we have seen performance struggle in recent months as the value of the bond’s income falls in real terms and markets expect more forthcoming new bond issues to be more attractive to investors. In the short term we expect some headwinds to remain, although we are beginning to see bonds valuations look more appealing.  

As the war in Ukraine moves from its early weeks into a conflict that could last for months or longer, global economic growth could become a casualty as consumer sentiment, inflation and supply chains all experience greater strain. In periods of short-term uncertainty, our focus remains on powerful investment themes that we expect to play out over the coming years. Some businesses that are aligned to these trends are now more attractively valued and by avoiding the panic, investors have an opportunity to benefit over the long term.  


    Subscribe to our blog and get our best content in your inbox.

    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.

    © 2021 - 2023 Copia Capital

    Advisers, staff of professional firms and other eligible counterparties

    I work for an advisory / professional firm or other eligible counterparty.

    I will take responsibility for any jurisdictional restrictions that apply to the services described by this website in accordance with applicable law and regulation.

    I have read and accept that Cookies are used on this website.  I understand that a Cookie will show that I have accepted the terms to access this website.

    Customers and prospective customers

    I confirm that I am resident in the UK or other EU Country and I am not a US citizen.

    I have read and accept that Cookies are used on this website.  I understand that a Cookie will show that I have accepted the terms to access this website.

    The content of this website may only be viewed by persons that meet either of the above conditions.  If neither option is applicable please click here which will close this webpage.