This note contains an overview of our market views, what we are watching, and our portfolio strategy. These developments may not mean changes to your portfolio so please contact your Client Advisor for the latest update on your portfolio.
At a glance
How we’re positioned
- Equity markets continued their November strong run this week. The rally was supported by inflation for the US and UK both falling more than expected (3.2% and 4.6%, respectively). This should provide comfort for the market that the US Federal Reserve (Fed) and Bank of England (BoE) will keep interest rates on hold, which aligns with our view that we’re at peak rates in the West.
- The market debate will now shift towards when central banks should start cutting rates. In the US, despite pockets of weakness (jobless claims rose and retail sales fell last week), the US economy is still quite resilient. Therefore, we forecast that the Fed – along with the BoE and European Central Bank (ECB) – will start reducing rates around mid-2024 after the slowdown in growth accelerates.
- This means that the peak in developed market bond yields (which fell last week) is already likely behind us. This is good news for our position in US Treasuries, because as yields fall, prices increase.
- Elsewhere, emerging market equities outperformed their developed market peers last week, mostly driven by the fall in the US dollar and bond yields. Improving Chinese data (industrial production and retail sales were both up more than expected) was likely an additional contributor.
- However, house prices in China fell again in October, casting doubts that Beijing’s efforts to revive demand is not feeding through. This lack of clear direction in China amidst a deflationary environment and the broader impact on emerging market economies is why we’re maintaining a neutral stance on both bonds and equities in the region.
- Lastly, oil prices continued to decline, closing below 80 US dollars per barrel. This suggests that the market is not as tight as initially expected, with the fall in demand offsetting the reduction in production from oil producers.
- Last week’s data confirmed our expectations that inflation will continue to moderate, which also supports our view that Western central banks are done with interest rate increases.
- In this light, we’re not changing our portfolio positioning. High-quality bonds are attractive as interest rates peak, growth slows and inflation eases. Therefore, we hold more government bonds and less riskier bonds relative to our long-term allocation.
- In equities, we still hold slightly fewer equities relative to our long-term allocation, focusing on large, high-quality companies across the US and Europe, which are less volatile than the broader market. This equity selection has performed well during the recent rally.
Past performance is not a reliable indicator of future returns.
What we’re watching
- The Purchasing Managers’ Indices (PMIs) for November are out this week, in the Eurozone and the UK on Thursday, and the US on Friday. The market expects that manufacturing and services output will continue to contract in the Eurozone and the UK. This means that these two economies are likely to fall into a mild recession.
- In other data, this Friday’s German ifo business climate, an important gauge of activity for the largest Eurozone economy, is expected to show extra signs some stabilisation, but at low levels. In Sweden, there’s a market debate on whether the central bank will deliver a final interest rate increase, expected by a minority of forecasters, or keep rates unchanged at 4%.
- The Organization of the Petroleum Exporting Countries (OPEC) meets on Sunday and the outcome of the meeting could lead to some volatility in the oil market. The recent weakness in oil prices may cause the cartel members to continue their production cuts into the start of 2024.
Information correct as of 20 November 2023.
This document is designed as marketing material. This document has been composed by Brown Shipley & Co Ltd ("Brown Shipley”). Brown Shipley is authorised by the Prudential Regulation Authority and regulated by the Financial Conduct Authority and the Prudential Regulation Authority. Registered in England and Wales No. 398426. Registered Office: 2 Moorgate, London, EC2R 6AG.
This document is for information purposes only, does not constitute individual (investment or tax) advice and investment decisions must not be based merely on this document. Whenever this document mentions a product, service or advice, it should be considered only as an indication or summary and cannot be seen as complete or fully accurate. All (investment or tax) decisions based on this information are for your own expense and for your own risk. You should (have) assess(ed) whether the product or service is suitable for your situation. Brown Shipley and its employees cannot be held liable for any loss or damage arising out of the use of (any part of) this document.
The contents of this document are based on publicly available information and/or sources which we deem trustworthy. Although reasonable care has been employed to publish data and information as truthfully and correctly as possible, we cannot accept any liability for the contents of this document, as far as it is based on those sources.
Investing involves risks and the value of investments may go up or down. Past performance is no indication of future performance. Currency fluctuations may influence your returns.
The information included is subject to change and Brown Shipley has no obligation after the date of publication of the text to update or amend the information accordingly. Accordingly, this material may have already been updated, modified, amended and/or supplemented by the time you receive or access it.
This is non-independent research and it has not been prepared in accordance with legal requirements designed to promote the independence of investment research, and that it is not subject to any prohibition on dealing ahead of the dissemination of investment research.
All copyrights and trademarks regarding this document are held by Brown Shipley, unless expressly stated otherwise. You are not allowed to copy, duplicate in any form or redistribute or use in any way the contents of this document, completely or partially, without the prior explicit and written approval of Brown Shipley. Notwithstanding anything herein to the contrary, and except as required to enable compliance with applicable securities law. See the privacy notice on our website for how your personal data is used: https://brownshipley.com/en-gb/privacy-and-cookie-policy
© Brown Shipley 2023