Investment Newsletter – A review of April

With no let-up in the Ukraine crisis, continuing concerns over higher prices hitting the global economy and concerns remaining that central banks may increase interest rates too quickly thereby stifling the growth comeback and potentially creating a recession, investment markets remain in the area of uncertainty which, as you’ll know from my previous newsletters, is the one thing they really don’t like. The result of which has been to pull all global stock markets down during April after the start of recovery from mid-March. This was not helped by the US Federal Reserve signalling that it could raise interest rates at a quicker pace than initially thought.

As to inflation, according to the Office of National Statistics (ONS) the consumer price index (CPI) inflation here rose to 7 % in March from 6.2 % in February, its highest level in three decades. Economists at the Bank of America sees UK CPI peaking at 8.3 %, possibly next month, followed by a second peak of 7.4 % in October when the next energy price cap changes, with the outlook for next year being an average of 3.9 %, but reducing as the year moves on.

An extensive ONS survey of more than 13,000 people showed 83 % saw an increase in their cost of living in March, up from 62 % in November and UK households and businesses were hit by the biggest monthly jump in motor fuel prices in at least two decades in March, with average UK petrol and diesel prices increasing by 11p and 22p per litre respectively, according to the RAC’s Fuel Watch.

The cost-of-living crisis has left more people unable to repay their debts too and this has led to personal insolvencies reaching a three-year high in the first quarter of 2022, with 32,305 individual insolvencies in England and Wales, an increase of 17 % on the previous quarter.

Dubbed “Bleak Friday” by several newspapers, 1 April marked price rises for many household bills, the most notable of these being the 54 % rise in the price cap on energy bills, with a typical household paying almost £ 700 a year more for their gas and electricity. For those who use oil to heat their homes, the cost was 28.5p per litre in April 2020 which has now gone up to £ 1 a litre. Regrettably, there are no price caps to help people here.

It’s not just consumer confidence that’s being affected by soaring prices, with research by GFK showing this to be at its second lowest level in 50 years, the economic confidence for businesses fell to its lowest point since October 2020, according to the Institute of Directors (IoD), with over half of business leaders saying the cost of energy is exerting a negative impact on their organisations, three times as many as a year ago and the concern is that many firms will be putting their investment plans on hold. Despite this and as you’ll see below, manufacturing growth did pick up last month.

Unsurprisingly then, the International Monetary Fund (IMF) has cut global growth forecasts to 3.6 % for 2022 and 3.8 % for next year, as it sees global economic prospects being severely set back, largely because of Russia’s invasion of Ukraine.

As you would have seen in last month’s newsletter, the Chinese government is sticking with its zero Covid policy despite growing fears about the hit to its economy, which slowed again in March, and whilst other central banks are winding in their financial support for industries, China’s central bank said it would step this up.

Coming back to inflation and in the US, CPI inflation rose to 8.5 % for the year to the end of March, its highest rate since 1981, whilst according to a preliminary estimate for the Eurozone, inflation now stands at 7.5 %, it’s highest rate since the single currency was created in January 1999. According to estimates, the annual CPI for Russia stands at 16.7 %, prices jumping by 7.6 % in March alone, although Turkey overshadows all, where their inflation rate for the year to March soared to 61.1 %, its highest reading since 2002.

It was widely thought that the inflation levels experienced last year would tail off as supply chain disruptions subsided and countries returned to some normality following the pandemic, however with the war in Ukraine and more recent strict lockdowns in China (where the world’s largest port in Shanghai is seeing a massive backlog of containerships waiting outside the port), means these inflationary pressures may take a lot longer to recede.

So far, not very good reading, however the ONS also announced that the UK unemployment rate dropped to 3.8 % in the three months to February, this trend was also reflected in the US, where the unemployment rate now stands at 3.6 % and for the Eurozone this fell to record low of 6.8 % in February.

Also, business activity in the Eurozone unexpectedly accelerated in April, despite higher prices, albeit it was a rebound in the service sector offsetting a stall in manufacturing, according to latest purchasing managers index (PMI). As mentioned above, the S&P Global/CIPS Manufacturing PMI for the UK actually rose to 55.8 % in April and the same research for the US Manufacturing PMI showed this to have increase in April too.

Regrettably, the Global Manufacturing PMI fell to 52.2 for April from 52.9 the month before, led by the sharp downturn in activity in China. According to S&P Global/CIPS this was the first fall for 22 months.

The property market continues at a pace, Rightmove last week showing that house prices hit new record highs for the third month in a row, they are now suggesting a figure of £ 360,000 as the average price, mainly resulting from a scarcity of properties. Rightmove are calling this a “frenzy” with sellers asking nearly 10 % more for their houses than 12 months ago. All regions and all sections of the market have hit record highs for the first time since 2007, with houses coming to the market taking an average of just 33 days to sell, 22 days if you’re in Scotland, with 53 % of these properties selling at or above their advertised asking price which is the highest percentage ever.

According to Rightmove’s director of property data, Tim Bannister, there are some early signs of an easing off from the frenetic pace of price rises and whilst buyer enquiries to agents are down by 16 % on last year’s stamp duty frenzy, enquiries are still 65 % above the more normal market of 2019 and the number of sales agreed is up 21 %. No doubt this will eventually unwind, but with the demand and supply imbalance being so out of kilter, it looks like this slowdown is going to take some time.

The picture is not too dissimilar in the US, where prices continue to rise because the supply of homes for sale is still incredibly low amid strong demand from the millennials.

I’ll leave you this month with the UK reflecting the strongest growth in the G7 last year (well at least for one reading) and the IMF reckoning we could be the fastest-growing major industrial economy for a second year running.

The other significant news – Russia’s state energy company, Gazprom, stopping gas supplies to Bulgaria and Poland for failing to pay in Rubles; France’s decision to give Macron another five years; Elon Musk’s plans to pay £ 44 billion for Twitter; the impact the cost of living and party gate will have on the results in our local elections; profits at Sainsbury’s more than doubling for the year to March and don’t forget BP’s profits for the last quarter and, regrettably, the expectation that higher inflation will be with us for a while yet.

Not one of my most positive monthly newsletters, so for anybody who wants to drown their sorrows, alcoholic drinks are only up 2.5 % over the past year, with beer up by just 2 % and in a 7 % inflation world, that’s a bargain!