One Knightsbridge Capital Monday Espresso Podcast

Monday Espresso Podcast - 13th May 2024

[00:00:00] Nathan Sweeney: It is Monday, the 13th of May. Today, I'm joined by Raj Manon, our head of investment solutions for the multi-asset team. Good morning, Raj.

[00:00:09] Raj Manon: Good morning, Nathan.

[00:00:10] Nathan Sweeney: We'll get some insight from Raj in a second. Firstly, let's quickly recap on what was driving markets last week. As always, there's quite a lot to unpack, so let's dive straight in.

[00:00:21] Nathan Sweeney: Equity markets enjoyed a good week last week. The sun has finally come out in the UK after a long winter and UK stocks are leading the charge for the week and for the quarter. So if we look at UK stocks specifically, they were buoyed by expectations of interest rate cuts coming possibly as soon as June and an improved economic growth in the UK which helped to lift the UK out of recession.

[00:00:45] Nathan Sweeney: So this meant that bond markets also benefited from the prospects of interest rate cuts coming sooner than expected and that was across the board. So Raj, turning to you, there's been a lot of negative chatter about the UK recently. Why is this?

[00:01:00] Raj Manon: So the UK's been out of favor for a number of reasons, a few of those being low growth, political instability and low exposure to some of the more attractive sectors of recent times, such as technology. There has been a trend of outflows and just this year alone approximately £7 billion has exited UK stocks.

[00:01:21] Nathan Sweeney: Okay, and it's often said that sometimes investors can make the wrong calls at the wrong time. So, have investors been right to be so negative on the UK?

[00:01:31] Raj Manon: Not judging by the market moves we've seen so far this year.

[00:01:34] Raj Manon: So, the FTSE 100 this year alone is up 9% and this quarter up almost 6%.

[00:01:41] Nathan Sweeney: So, that is actually quite interesting because if we look at the uk stock market it's leading other major stock markets. And you know, clearly we're seeing people allocating away from the UK. So it looks like that has been in fact the wrong decision.

[00:01:55] Nathan Sweeney: So what's driving this?

[00:01:58] Raj Manon: The prospect of rate cuts has been key. So, last week we had the Bank of England deciding to keep interest rates on hold at 5.25%, but we actually had two members this time round voting for a rate cut. And following that meeting, Andrew Bailey provided some dovish comments, and that has led the market to price in a 50% chance of a rate cut in the next meeting, that meeting being the 20th of June.

[00:02:23] Nathan Sweeney: Okay, so that's quite promising for, I know for a lot of people, particularly those who have a mortgage, or particularly those who are considering remortgaging, they'll be wondering, you know, when those interest rate cuts come through. And it looks like actually that could happen a lot sooner than people expect.

[00:02:37] Nathan Sweeney: And we could see those rate cuts as soon as June, which is not that far away. Is there anything else worth highlighting about the UK at the moment?

[00:02:45] Raj Manon: Yes, the UK is no longer in a recession. So we had growth figures last week, and that showed that the economy grew 0.6% in the first three months of 2024.

[00:02:55] Raj Manon: And that's actually the strongest quarterly expansion we've seen in over two years.

[00:03:00] Nathan Sweeney: Okay, so again, some really good news there. So people concerned about weak growth in the UK, but actually we're starting to see stronger growth coming through. So this could be, you know, a change in trend of direction for the UK and hence why the equity market is performing so well recently. Thank you Raj. Some real crucial observations there. Finally, let's quickly look at the week ahead. So what do we expect on the cards this week? So if we look at the US first, I think, you know, the most important data point here will be inflation data.

[00:03:30] Nathan Sweeney: So, this data point comes out Wednesday and it's actually expected to come down slightly. So, that's good news because that could lead central banks to change their view on when we might get those interest rate cuts in the US. From a UK perspective, we have unemployment data, so we'll see unemployment data released during the week and that figure is expected to come in at about 4.2%, which is unchanged. We also have some economic data coming out in Japan and China. So we've got economic growth figures from Japan, again, likely to remain unchanged and then we have retail sales in China. That will actually be an important data point because Sentiment has been quite poor in China, obviously due to the property market.

[00:04:14] Nathan Sweeney: It impacts the consumer, and we want to see the consumer kind of regaining confidence in China and, you know, their market generally there, because that will usually translate into renewed positive sentiment for the equity market. So something to watch there. And then finally, We'll have a number of companies reporting next week.

[00:04:32] Nathan Sweeney: So we've got the likes of John Deere, Walmart, and some of the big Chinese tech companies, including Alibaba and Tencent, which investors will be watching. That's all for this week. But just as a reminder, if you do have any questions you'd like to submit, please do send them in. We'd be delighted to bring them up in the show and have a great week, everybody.