Quarterly Update: Will the Post-Covid Labour Market ever be the same?
The 80s were probably best encapsulated in Gordon Gekko’s ‘Greed is Good’ speech. “Greed works”, he exclaimed. “Greed clarifies. Cuts through and captures the essence of the economic spirit”. Oliver Stone’s not-so-fictional investment icon equated the individual pursuit of happiness with the unbridled acquisition of wealth and made a compelling argument about how this leads to a better society. Arguably he’s unsurpassed in capturing the essence of that time. The ’80s looked like a decade-long consumerist party bought and paid for by lower taxes and the unleashing of unfettered bank lending. The culmination came with the loud bang of the Berlin Wall collapsing, providing assurance to western workers and consumers that their way, the way of Greed, was the right way.
In the ‘90s, under the auspices of Bill Clinton, banks shed the last fig leaves of Glass-Steagall, an antiquated piece of legislation preventing them from leveraging their clients’ deposits into other investments. The distinctions between ‘normal’ and investment banks were gone and the system created debt (a form of money) out of thin air. For consumers, everything and anything was possible. To the point that by the end of the decade, they started wondering: “how much stuff do we really need”, as Tom Cruise’s reluctant-but-affluent ‘Jerry Maguire’ took over from Gekko.
At the turn of the Millennium the world was set to become more colourful, more diverse and inclusive, as idealistic ‘Millennials’ entered the stage. Behind them, silently working in the backstage for a decade already, the Chinese giant was ascending. But the party was violently interrupted. First, by the ‘dot.com’ bust, a major stock market crisis, and just after it, the tragedy of 9/11. Alan Greenspan was forced to floor interest rates to keep capitalism going. Businesses felt something was amiss. They took production to Asia and started slicing costs. Western incomes stagnated, but that was ok. What was lost in terms of income was gained in terms of disinflation which brought cheap ‘luxuries for the masses[1]’ and cool iPod tunes. Sensitive Jerry Maguire was replaced by futurist turtleneck Steve Jobs, a new-age Carnegie for business and millennial guru.
Just before that decade ended, another bang, as banks could no longer solely bear the weight of global consumerism on their shoulders. The Fed’s Quantitative Easing may have saved markets and investment portfolios but exacerbated inequalities, now laid bare on social media. The more people felt pressure to pay their bills and mortgages, the more they were exposed to targeted advertisements and the ‘Rich Kids on Instagram’. The idea that each generation was destined to live better than the previous one collapsed. To be sure, there were enough jobs to go around, but increasingly less attractive. High paid manufacturing jobs were a thing of the distant past for the west. And white-collar jobs saw stiff competition, without nearly as much reward as in previous decades. Sounds got angrier and sadder. They now speak not of parties but revolution. So did votes. And movies. The ‘Wolf of Wall Street’ is no longer a secretly envied sleek-haired cultural icon, but a cartoonish cocaine addict whose downfall is all but certain, a cautionary tale that good times don’t roll forever.
Meanwhile, in real life, the turn of yet another decade found us holed up in our homes, hapless before an invisible minuscule viral enemy. The millennial is now a 40-year-old mid-level executive who can’t afford to buy their own house[2], and may never do.
Gekko, the millionaire seeking to become a billionaire also was my father-in-law’s icon. A successful building contractor and auto dealership owner, he had had three children and four grandchildren and at 85 he’s proud he’s never had to change a nappy. Generation X, my generation, has been buried knee-deep into the contents of those nappies, almost as much as in household debt. Millennials, meanwhile, are wondering whether they can afford to procreate at all. Their first debts came before they were twenty and their purchasing power is much lower.
When economists say ‘consumer’ they mean a being uniform across the ages, who according to Adam Smith will perpetually seek to maximise utility, and by utility we mean the ability to make purchases. A consumer will be cool during crises, accepting cyclicality and remain patient for the ‘invisible hand’ to show up and correct exaggerations. Of course, this person doesn’t exist.
Times change fast and with them, habits. Linking happiness solely to wealth was a feature of the previous decades that doesn’t apply wholesale to the present. To understand employees we have to understand that as consumers, they have been cooling on the idea of chasing wealth for over two decades since their incomes started stagnating. They didn’t fight, they did what human beings do best, they adapted. Younger employees, who have never experienced sharp increases in income, have few scruples tilting the work/life balance towards the ‘life’ element. A common feature of every crisis since 2000 is that many have been, ostensibly inexplicably, dropping from the workforce. If people don’t prioritise wealth anymore, modern economic theory, from Smith to Milton Friedman, goes out of the window. Trying to understand why someone who can work to make money, versus not working and not making money would choose the latter may seem inexplicable. But just as the ages, role models and culture change, so does the labour force.
The pandemic mass-forced millions of people to work from home, ripping consumer and labour norms through generations. Some were put on furlough or unemployment benefits and were left without work for a long time. Roles were redefined, as the person who would stay at home and take care of the children was decided not on the basis of entrenched social norms but availability. Managers, who in 2014 pressured workers to commute through massive London Tube strikes were now relaxed about their reports working from home five days a week. Working from home and/or the disruption of work cycles (a waiter at a restaurant forced on to furlough) is changing the work environment in such a massive scale it is bound to have massive effects. Until the necessary reshuffling is completed, demand for skill outstripping supply is pushing wages higher, exacerbating supply-side inflationary pressures around the world. Accommodative central banks have been the keystone to economic recovery for the past twelve years. Demand-side wage inflation could upend this.
This report looks at the trends behind labour during and post-covid, and tries to answer the most important question of all: Will those who left the workforce ever return? What are the effects of the ‘new normal’ on businesses, the wider economy, and investments?
Shorter-term effects – and life after furlough
To counter the economic effects of Covid-19, governments took emergency measures that have caused significant distortions in the labour markets. As Covid-related unemployment benefits in the US and furlough in the UK stopped in September/October 2021, we are already experiencing a very tight labour market where companies compete for talent and negotiating power has, temporarily at least, passed to workers.
Some of the characteristics of this market are:
We believe these effects will be, by and large, temporary.
In July, the US registered a near-record 4 million resignations[GL1] . Research showed this was driven by mid-career individuals [3], 30-45 years old. Conversely, the 20-25 year cohort which usually has the highest turnover rate actually saw decreased resignations. The reason is probably post-lockdown pent-up career shifts. Employees were waiting to see how the situation on the ground would develop and, emboldened by the end of lockdown measures, they decided to make long-awaited career moves. The dropout was largest in Technology and Healthcare, two sectors where employees came under a lot of pressure to perform during the pandemic, but also exhibit a lot of labour demand. This jump follows a period of very low turnover, so we feel it was merely scheduled career moves that were delayed because of Covid-19, and the tidal wave of resignations should abate.
Meanwhile, permanent placement growth hit a record high in the UK, but candidate supply dropped, driving sharper increases in pay. Vacancies have been growing to an all-time high. [4] However, these numbers feel temporary also, and we would expect the candidate pool to be filled quickly when cessation of furlough takes effect.
According to a study by Renovo[5], a software company, 69% of all UK employers anticipate job losses in the next year, with 46% expecting to make redundancies within the next six months. Most have cited the financial impact of the pandemic, with some (28%) citing technology as the main drivers for the upcoming job losses. One in eight also felt certain roles were no longer necessary due to the move to hybrid working. It is very interesting that of the employers expecting redundancies, 84% had employees on furlough. This shows the labour distortion caused by the pandemic.
People who have not worked for more than a year have had a chance to re-assess their careers, while in some cases their employers have learned to do business without them.
Workers in manual industries are also impacted. Despite a rise in wages which had already been taking place from 2014, manual workers come from lower socioeconomic statuses as University graduates opt for more desk jobs.[6]
Disadvantaged groups
A group that was primarily disadvantaged by the pandemic was young parents, especially women. Research by McKinsey[7], a consulting company, shows that women with children under 10 years old were considering downshifting their career (17%) or leaving the workforce altogether (23%). The respective number for men was 13% in both categories. The research shows that the groups most challenged were “working mothers, women in senior management positions and Black women”. This was confirmed in the September 2021 US Labour report which saw 0.5%, a relatively large number, of women dropping out from the workforce almost completely. The findings showed that women felt more pressure at work than men, with over 55% of senior-level women feeling exhausted, as opposed to just 40% of men. The effects have been worst in emerging economies, with job insecurity creeping in for countries where the labour market only recently made strides towards inclusiveness.
The impact was not just a matter of gender or race. Research by the OECD[8] suggested that other groups were also severely affected
How short-lived?
Some of those effects appear to be short-lived. A study showed that 32% of organizations are replacing full-time employees with contingent workers as a cost-saving measure. However, when those cost savings are achieved, equilibrium should be restored.
Childcare issues are also slowly being resolved. Despite a spike in new Covid-19 cases, especially in school children and young adults, vaccination levels are prompting a paced return to working from the office. Covid medication in the pipeline could speed up this return. Globally, around half of pre-Covid workplace activity has returned[GL2] . Given the realities of hybrid working, we don’t feel we would see more than an 80% return to pre-Covid activity.
Young professionals and lower-wage workers that were displaced should be absorbed back into the workplace relatively quickly as offices, shops, and cafeterias are re-opening, especially in western economies. Parents who have felt burned out from constant childcare (something no econometric model can possibly measure), may feel better when a work routine sets in.
Friction due to workplace movement dominoes (one movement could cause at least a three-month vacancy) should settle, as lock-down pent-up demand for changing jobs will naturally lose steam. And as emergency economic measures end, vaccination proceeds and supply chains are restored, so should some of the more extreme dislocations in the labour market address themselves.
The work ‘new normal’
However, we don’t believe that returning to pre-2020 ‘normality’ is now an option. Disruption has lasted for a long time, giving business leaders and governments time to reflect on how things can be done better. The challenge ahead is not how we restore what was lost, but how we can effectively and efficiently transition towards a ‘new normal’ with distinctive features
Hybrid working
First, let’s look at the realities of hybrid working. In 2013 Yahoo! famously banned working from home, only to relent after a public pressure build-up. Even before the pandemic, agile working and hot-desking were leading the way towards some form of hybrid work. People were happy to sacrifice part of their salaries to avoid long commutes. Technology developed around telecommuting was available during lockdowns, suggesting to many business bosses that their operational models might be successful even with remote working, for those activities that don’t absolutely require physical presence. A recent poll by Gartner suggested that half of employees would likely work remotely at least part-time, up from 30% pre-pandemic. According to a survey[9] conducted by Harvard Business Review, three of four workers want to work from home at least part of the week, and one in three wants to work from home full-time. Demand for full-time work from home was more pronounced amongst young mothers. Around forty per cent suggested that they would likely change jobs if a hybrid model wasn’t offered. Employers responded to this, and roughly only 16% are considering a full return to the office, while another 20% is still unclear about their strategy. Around 50% consider offering 3-5 days working from home. This represents a four-fold increase of remote working since pre-pandemic.
According to a survey conducted by McKinsey[10], “the pandemic accelerated existing trends in remote work, e-commerce, and automation, with up to 25% more workers than previously estimated potentially needing to switch occupations”.
The same survey suggests that the longer-term challenges are concentrated around jobs that require high levels of proximity: leisure and travel venues (including restaurants and hotels), retail and hospitality, computer-based office work and production and warehousing. In less dense work arenas such as outdoor production sites, the pandemic’s effects may fade quickly; “Depending on how extensively these trends stick, our scenarios suggest that more than 100 million workers in the eight countries may need to switch occupations by 2030, a 12 per cent increase from before the virus overall and as much as 25 per cent more in advanced economies. Workers without a college degree, women, ethnic minorities, and young people may be most affected.”
De-Globalisation
A larger trend that has been at play even before the pandemic was de-globalisation. For the past decade, stagnating incomes in the West have alerted policymakers to the dangers of dependence on China for manufactured goods. Globalisation has been a purveyor of low inflation. Additionally, for the US it has provided a way for Chinese savers to fund American debt. The downside was the migration of high-paid jobs to the East which has been often deemed a primary culprit for the dramatic reduction of labour’s share of income (the labour earnings proportion of Gross Income) dropping in the US and other large economies. In the US alone it has dropped from 65.4% in 1947 to a historic low of 56.7% in 2016[11].
As a result, policy response was initially focused on China. However, as industrial towns in the western world came under increasing pressures, citizens demanded a wider deceleration of globalisation and, where possible, re-onshoring of key operations. Brexit was one such instance. Another was Ms Merkel’s call to re-onshore important operations to the EU, after India stopped exporting vaccines to Europe, following its own outbreak.
The reality is that globalisation has two underlying components: technology and optimism. The technological element remains intact. In fact, remote working is making it even easier to conduct regular cross-border operations. The latter element, though, is in short supply. The pandemic saw closed borders and disrupted trade, let alone a build-up of tensions at home. It featured western countries hoarding vaccines at the expense of developing economies and a rise in Euro-sceptisicm even amongst key European countries.
We don’t yet have any solid evidence of accelerating de-globalisation. The Kof Globalisation index[12] does appear to slow down, hamstrung mainly by slower rates of trade globalisation, a trend that already began in 2008, when China had reached a stage of manufacturing maturity. And overall the index is still tending towards more globalisation. However, we feel that extending pressures towards China and strained global relationships post-Covid could threaten that picture.
The impact on labour could be momentous. De-globalisation would mean a reduction in labour mobility, which could push wages higher. It would also mean a material slowdown of technology and know-how, leading to the rise in local versus global standards. The effect, meanwhile, on blue-collar labour would probably be less than anticipated. According to the abovementioned McKinsey survey only one-tenth of the falling share of labour income can be attributed to globalisation and labour bargaining power. A lot more has to do with the boom and bust of super-cycles in mining, construction, real estate and energy as well as faster depreciation (electronics increase the share of assets from intellectual property products and with it faster depreciation).
Thus de-globalisation may become a trend going forward (no matter how right or wrong the reasons), and could disrupt labour mobility without compensating with the return of manufacturing jobs on-shore. In fact, ‘on-shoring’ has now been substituted with ‘Friend-shoring’[13], a return to the Cold War dogma of keeping key production within key allies.
What are the effects on businesses
A number of factors mean that the UK labour market may remain tight for several years to come. Demographics, Brexit, sector realignment all play a role. The challenge is well beyond one of turning offices into business and meeting hubs. What will business leaders need to do to make sure the labour force remains productive is:
What are the effects on the economy and investments
The question in investors’ minds is whether this new era will be able to address key economic challenges such as
In the previous section we discussed how de-globalisation will not affect the falling share of labour income. This has more to do with where the Capital lies, (i.e. rise in intellectual property goods) than with what labour gets out of it. In fact, another study [14] suggests that the net labour share income (excluding taxes and depreciation) is only 2-3% below a 1969 historical high.
The conclusion is that this particular metric has a lot more political than economic value. It does not signify income inequality. Instead, it suggests that balance sheets are swollen by the high value of intellectual property goods, to the development of which labour input is minimal. While the few tech savants behind them might see significant payoffs, the large majority of labour associated with the production of a smartphone is deemed to be more replaceable. If the value of the technology-related intellectual property falls relative to other sectors, and mining and energy super-cycles subside, we could see a meaningful rise in the share of labour income, without still a material improvement in people’s lives.
Instead, could focus on two other key issues: secular stagnation, and lower labour participation rates. Secular stagnation was covered in our previous quarterly publication5. We feel that it would take a combination of significant fiscal stimulus and the relaxing of bank lending rules to change and sustain the post-GFC conservative consumer mindset. And while we may see increased fiscal stimulus in the next few years, it would take a significant leadership upgrade to unshackle banks from the current regulatory framework. Thus, by and large, we expect consumers, who are also labour, to remain conservative.
The big question for us is really whether the labour participation rates will return in pre-covid levels. This is important from many perspectives:
From the outset, we should say that why people of working age drop out of the labour force is very difficult to gauge and no research exists that can positively ascertain the source of reduced labour participation.
Surveys suggest that the impact is higher on manual workers who can’t return to work due to inaccessibility to child care and continued unemployment benefits5. However, only the former (childcare) explains why someone would not be looking for work. Inasmuch as childcare is the issue, we would expect to see a gradual return of labour and an easing of wage pressures.
However, we can’t help but notice that each of the previous crises, in 2000 and 2008 has resulted in a reduction of those who are of employable age and are either employed or seeking work altogether. For the US, the rate peaked at 67% in 2000, fell to 66% until just before the global financial crisis and subsequently settled around 63%. After the pandemic it fell briefly to 60%, before rebounding to just below 62%. The inflationary implications for even a 1% shift in this index can be significant. In the UK the numbers are different. Labour participation peaked at 80% just before the pandemic, then dropped also by two percentage points to 78%. Differences between social systems and statistics can explain the disparities in headline numbers amongst similar, but not the same, economies. For the UK, we are fairly positive that once schools are running Covid-free, labour participation rates should increase near previous highs. Having said that, this does not necessarily mean easing wage pressures. The combination of Brexit and the pandemic has forced a large number of low-wage Europeans out of the workforce, and the country altogether. This factor alone should keep the UK labour force tight for years after the first wave of post-furlough layoffs has subsided. High participation rates also mean that there isn’t much room for more people to come (or return) to the workforce, so wage pressures should remain high.
In the US, the picture is different. According to the Census Bureau[15], the problem is one of demographics. As baby boomers enter retirement age but continue working they are not only taking jobs from those within the measured labour force but also forcing lower wages outside their own bracket. 27% of those between 65 and 74 and 7.2% of those 75 and older (up from 25% and 5.7% respectively from a decade ago) are still employed, but not considered to be part of the labour force. If this is the whole story, then it is one of counting. If we included those over 65 and working to the labour force, we would probably see higher rates. As such, we expect that the pandemic could see the usual post-crisis employment friction, but by and large a sufficient number of workers should return to ease wage pressures all other things being equal.
What it all means for investment portfolios
Our research suggests that as vaccinations increase and childcare concerns fade, a large portion of workers should return to the workplace easing wage pressures across the board. The UK may be an exception due to the complexities caused by Brexit. Thus, we continue to feel that sustainable demand-driven inflation may be a product of game-changing fiscal stimulus and easing in bank lending, both of which are, at this point question marks.
From a bird’s eye view, the Covid-19 Crisis had a rather unique element. It was exogenous to the financial system. Endogenous crises were addressed in wholesale, top-down fashion. Inflation was dealt with high interest rates in the 80s. Problematic banks were helped in the 90s. The Sarbanes-Oxley Act fixed financial reporting and governance issue which led to the Enron collapse in the 00’s. The Fed and the Dodd-Frank Bill saved and secured the financial system in 2008. In any one of these instances, the dislocation was internal to the system and the system self-corrected.
Conversely, an exogenous crisis can’t necessarily be addressed by policy, never mind a single policy. Let alone a crisis that is ongoing and mutating, not a one-off event. The pandemic has already had a profound impact on businesses and labour and challenged some sectors a lot more than others. To find answers for the world that is to follow, we should look from the bottom up, not the top down.
Investors may be misled if they follow the red herrings of de-globalisation, labour force participation rates and labour shares. For all the political baggage these concepts carry, ultimately labour conditions are a product of technology and sector composition.
Instead, portfolio managers should turn their sights towards sector adjustments. Some sectors will transition to a new type of economy easier and faster than others. The course won’t be deterministic, but rather the product of executive decisions by sector leaders.
The keyword here is ‘management’. If management of a company is procedural, you should expect more difficulties in adjustment. Even pricing power may not be enough to protect companies from tardiness in adapting to new labour conditions. These companies may face challenges to their status quo faster than the market currently anticipates. Instead, where management is adaptive (not necessary visionary) and quick to move, you should expect competitive advantages to be built. If those companies are already leaders, then investment managers should expect their sectors to outperform.
Addendum: The UK economy
Regardless of where one stands vis-a-vis the great issue of Brexit, both sides acknowledged that a modicum of pain would be involved with the process. Those against feared that the pain would be insurmountable and that despite its obvious shortcomings, the EU wasn’t worth leaving. Those for believed that short and even medium-term pain was a worthy price to pay for an envisioned ‘new Britain’. What neither side could have ever contemplated was that Brexit, really a trade challenge, would be implemented at the height of the greatest trade disruption the modern world has ever known.
Global economic arrhythmia
Global supply chain arrhythmia after a protracted pandemic is a key feature shaping the global economy today. As the western consumers went into lockdowns and shops closed, production across the world slowed or halted altogether. Not knowing how the pandemic would play out, producers decided not to overstock, but wait. After the Covid-19 vaccine was licenced, developed economies quickly came out of their slumber with a lot of pent-up demand. Factories in the East struggled to cope. As a result, huge backlogs were created, significantly pushing up transportation costs. According to Clarksons, a UK-based shipping broker, costs to transfer goods from China to the US have risen by 350% and to Northern Europe by a whopping 890% in the last year. Waiting times in ports have almost tripled since before the pandemic. This sort of disruption means shortages of imported goods and inflation; an economic element most modern consumers haven’t really experienced in over twenty years. Companies like Intel forecast microchip shortages for all of 2022. After the initial rebound, global growth is now slowing again, even as the pandemic continues to grip countries with low vaccination rates, where most supply chains begin. The labour force is also struggling to cope, as school program disruptions persist, keeping many parents away from employment or forced to work from home.
The state of the British economy
The challenges for British people are exacerbated due to Brexit complications. Waiting times in ports are increasing further because of increased paperwork. Imports through the Irish sea are becoming contentious. Where in other countries labour participation rates have dropped, in the UK the situation is made worse by the mass exodus of European workers. As a result, and despite adequate inventories, British people are experiencing gasoline shortages due to a lack of drivers. Similar pressures can be seen across hospitality, retail and construction, where at least the pool of workers is large enough to keep those industries afloat. Overall, shortages of skilled labour pushes wages higher. Housing prices rising 5% to 15% per annum, put further angst on consumers. All of these factors are further exacerbating inflation which has reached 3% per annum, a level not seen for nearly a decade and with no signs of abating. Meanwhile, economic output (GDP) virtually stalled, up only 0.1% for the three months to July 2021. We are now entering an economic phenomenon called ‘Stagflation’ (Stagnating Growth + Inflation).
Despite those conditions, the Bank of England, whose primary objective is to fight inflation, has adopted a more ‘hawkish tone’ (econo-speak for a more aggressive approach to interest rates).
Purchase Manager Indices, popular forward-looking economic indicators, suggest that while economic activity is slowing, overall conditions are still expansive and the pace of the slowdown is actually lower than we would have anticipated. Meanwhile, empty city centres are slowly coming back to life, with 60% of Britons now saying that they are returning to some sort of regular commute.
UK economic outlook
The pandemic is very much still with us, with different variants threatening further economic instability. And while western consumers may be the first to learn to ‘live with Covid’, supply chain disruption may well last into 2023, or at least until the problem has been dealt with on a global scale. The UK, one of the most open economies in the world, is especially sensitive to those disruptions. Having said that, the UK, also one of the world’s seven biggest industrialised economies, still has the resources and a strong enough currency to weather the storm.
The IMF has improved the aggregate growth outlook for 2022 from +3.1% to +4.3%, with some estimates bringing the number up to 5.5%. Macroeconomic volatility will probably persist into the next year as well, but we would expect fewer surprises as vaccination rates increase and the pandemic eventually subsides. We also expect the gradual return of the services and retail sectors to conditions close to pre-2020 after mid-next year.
We believe employment friction will continue well into the next year. The pandemic augmented ‘Brexodus’ and it will take some time before the UK has a big enough supply of skills to smooth economic performance.
Policy makers in Downing Street are also considering changes in the economic mix and fiscal stimulus especially after the end of furlough. However, they are probably holding out for the US government decisions as to how much the world’s premier consumer economy will fiscally inflate its own output, the consequences of which will reverberate across the world.
Inflation 1.0 and Inflation 2.0
We left the thorny issue of inflation for last. Supply deflation was the biggest gift of globalisation. As long as supply chains remain global, supply side inflation is considered by and large transitory. Even if de-globalisation trends pick up, modern logistics chains have ways to efficiently source and produce. Having said that, if Chinese economic and political convulsions persist, we could see the transfer of factories to other countries, an event with at least a two-year impact on inflation and production capacity. This is inflation 1.0, one for which central banks and local policy makers can do very little about.
Then there is inflation 2.0, demand inflation. In the past twenty years, real incomes have stagnated across western economies. Demand has been muted and savings rates have picked up, especially after 2008. The US, the world’s premier economy, is now considering breaking this cycle, with massive fiscal stimulus. If this does happen, other countries would have to follow, for fear that their currencies would rise in value and they would lose competitiveness.
Central banks may well maintain low interest rates if ‘Inflation 1.0’ remains dominant. But if and when western consumers become more empowered, then we would not only see a significant rise in disposable income, but also interest rates, to keep the economy from over-heating.
Inflation 1.0 is already happening, and the only relevant question is one of duration. Inflation 2.0 is the possibility of an empowered consumer. How and when this second part will occur, whether it will overlap with the first or leave a gap are still difficult questions with significant policy implications.
What it all means for consumers and business owners
[1] HBR Luxury for the masses.
[2] Investopedia.com: The real Reasons millennials aren’t buying homes
[3] HBR: Who is driving the great resignation, 15 Sep 2021
[4] KPMG and REC, UK Report on Jobs, Sep 2021
[5] City AM: Wave of Redunduncies Looming
[6] CNBC: Why the biggest job wage boom is blue collar
[7] McKinsey: Seven charts that show Covid-19’s impact on women’s employment
[8] OECD economic outlook December 2020 March and June 2021
[9] HBR: Don’t force people to come back to the office full time
[10] McKinsey, “The Future of Work after Covid-19”
[11] McKinsey, a new look at the declining labor share of income in the United States
[13] ‘Onshoring’ is so last year. The new ling is ‘Friend Shoring’.
[14] Tax Foundation: Labor share net income within historical range
[15] Census Bureau: Why did the labour participation rate decline when the economy was good
Despite higher interest rates and persistent (though falling) inflation, global equity markets continued to err on the side of optimism as consumer spending remained strong and company earnings were better than expected.
The debt ceiling drama-that-wasn’t is squarely behind us. An eleventh-hour deal was signed, averting the wanton default of the biggest economy in the world, and the global risk-free asset, the US Dollar, marking the 79th straight time that the debt ceiling was successfully raised.
Our key theme since the beginning of the year is that the world is a volatile and unpredictable place. To be fair, this could have been our theme every year since 2006 and we would have still hit the mark. But this is not garden-variety volatility.
The global economy remains unbalanced as the pandemic disrupts global trade, supply chains and international relations. As a result, individual economies diverge and data is unpredictable and volatile.
If investors collectively believe in the second coming of QE, then at some point, we should expect a severe market retrenchment. But what if markets are more sanguine than that? What will be the major catalyst, to unleash market forces for risk assets to escape their narrow bands?
The last quarter of the year saw some relief for investors who had been hit from all sides throughout 2022 as markets rallied on the belief that the economy was perhaps showing enough signs of stress to persuade central banks to consider slowing, and then stopping interest rate rises.
Outlooks, our own included, paint quite a grim economic picture at the start of the year. Inflation is really an independent variable and, even if the rate of price rises moderates, prices themselves are set to remain high. Meanwhile, central banks are determined to put the brakes on economic growth in a bid to prevent inflation from becoming entrenched.
It is an uncomfortable message that we end the year with, yet a necessary one. Stability should never be seen as the ‘normal’ state of things. And that’s well and truly better for truly long-term investors.
Even if we recognise that the world has profoundly changed, we try to analyse it with the eyes of the past. Instead of trying to forecast with the past’s eyes, we need to acknowledge how the present has changed, and develop the right tools to analyse the future properly.
Outlooks. The time-honoured financial industry tradition of toiling to write 30-40 pages of annual forecasts promptly binned by April- at the very latest. Yet, the industry gods demand it and deliver we must.
It’s bad news for our ‘pivoting’ camp, a word that in the past few months has been grossly and infuriatingly overused. Not only is the Fed speeding up the rate of Quantitative Tightening, but it is also showing no signs that it is ready to change its aggressive tightening policy.
The third quarter of the year saw markets start to second guess central banks’ resolve to raise interest rates in order to combat inflation. Expectations of a change in monetary policy gathered momentum and caused a rally in global equities of over +11% in a five week period. Alas this proved to be a short- lived bear market rally as central banks, led by the US Federal Reserve, signalled their determination to stay the course with rate rises.
We find ourselves in the midst of a once-in-a-decade paradigm shift for financial markets and the global economy. The first six months of the year have seen the worst equity performance in nearly a century. Already, average portfolio performance is the worst in twenty years, on par with the 2008 global financial crisis.
Having been absent for decades, the return of inflation is forcing market analysts to learn how to respond to rising interest rates and squeezes on the real purchasing power of consumers’ disposable income. As interest rates rise, the notion of ‘There Is No Alternative’ is diluted, and the prospects for a slowing economy increase, leaving valuations on risk assets vulnerable despite the recent falls.
On the 23rd March 2020, the United Kingdom entered its first official lockdown in an attempt to limit the spread of the COVID-19 virus. The initial uncertainty was catastrophic for the economy and many UK businesses were forced to cease trading as revenues plummeted to zero almost overnight.
Globalisation is not inherently “good” or “bad”. It is the natural historic evolution of the nation-state, made possible by the internet and the potency of capitalism. But is it over?
The new year brought about a significant change of market sentiment as concerns about inflation and fundamental changes to monetary policy caused a reassessment of asset prices. The war in Ukraine has added to inflationary pressures particularly in commodity markets, as further disruption is expected in supply chains as China announces further lockdowns.
China was the first country to successfully emerge from the initial Covid-19 wave. People were back to the office in 2020 itself, infection rates plummeted and as a result economic growth was stellar, beating all expectations. China emerged as the winner at a time when most western countries were still coming to terms with the […]
2012 was a year for the financial history books. Europe’s greatest experiment, the common currency area, was moribund after only twelve years of life. The post-Lehman economic convulsions had driven Greece, its weakest economy, bankrupt, and had brought Italy, its most indebted economy, to its knees. Mario Draghi, then Chair of the ECB, and the […]
There’s a strong possibility we may see the end of the episode soon. But supply chains could take long to mend and overall price levels could remain elevated versus pre-pandemic numbers.
The worst start to the year inn 20 years leaves investors confused. Here's why we are more relaxed about it.
2022 is the year where QE (conceivably) ends, and a decade-long Sustainability theme begins. Read our annual outlook.
In no surprise to anyone, Covid-19 remained at the epicentre of all matters economic, and the emergence of the highly transmissible Omicron variant forced governments and public health officials to reassess the speed at which normal daily life can resume.
China’s Evergrande Group has rapidly become Beijing's biggest corporate threat as it wrestles with debts of more than $300 billion as a result of years of aggressive expansion. But that was just the tip of the iceberg.
The global economy is entering another difficult phase which features a broad range of emerging and evolving risks. The persistence of the pandemic has disrupted the way business is conducted across the globe, in some ways permanently. The economic impact for developed countries has been somewhat mitigated by emergency fiscal stimulus. However, the debt burdens […]
Inflation rising may upend a 12-year investment paradigm. Is there life after Quantitative Easing?
COP26 officially concluded on November 14th, ending two weeks of negotiations. What do the announcements mean for investors?
The course of the pandemic in 2022 is not expected to be linear. By and large the pandemic continues to determine economic output and supply chain cohesion. An even more transmissible variant, even if completely covered by current vaccines, could materially increase pressures on consumers, businesses and supply chains.
As the new german government is being installed, European risk indicators are on the rise. Are markets preparing to challenge the Euro's new status quo?
This quarter we consider the UK’s rising inflation and gas prices, look at how the shortage of workers is adding to inflationary pressures, and review the funds we use to invest in US Small Cap stocks.
Much of the recent news in the UK has been devoted to the spike in household energy costs and the potential collapse of the number of providers in that market from around 50 to 10 by the end of winter. In fact, since writing this first draft of this piece 2 providers have gone bust, leaving more than 800,000 customers without a provider. Of itself this is an interesting topic: it seems remarkable that rising wholesale gas prices can rupture the UK energy market and reduce the number of energy providers by 80%. For us the more relevant question relates to the wider economy and how energy costs can impact consumer demand and inflation, which contributes to our discussions when deciding asset allocation. This blog post aims to explore the former and explain the Mazars Investment Team thinking on the latter.
With inflation pressures coming mostly from the supply side, there is little the Fed can do to curb it. Interest rates are tools best used to cool down the economy during a mature, credit-driven economic boom. They are not designed for a recovering economy and much less for one still under the threat of a pandemic.
Investing during the past twelve years has been underpinned by a basic principle: market participants have been encouraged to take risks, mainly to offset the trust shock that came with the 2008 financial crisis (GFC). Each time equity prices have fallen significantly, the Federal Reserve, the world’s de facto central bank, would suggest an increase in money printing, or actually go ahead with it if volatility persisted. Bond prices, meanwhile, kept going up, as central banks and pension funds were all too happy to relieve private investors of their bond holdings even at negative yields. Market risk was all but underwritten.
Global stocks have rallied hard since the crunch following the Covid-19 outbreak in Europe. However, UK investors noticed that their portfolios were following at a slower pace, even after the UK became the quickest vaccinated country amongst the G7. Since February 2020 the MSCI World, the global equity benchmark, has risen 27% in Sterling while […]
This article is the first in a series about Islamic investing Most investment advisers have encountered investors looking for Shariah compliant portfolios at some point. My own experience has previously been one of frustration as the universe of investable funds did not offer enough options to be able to construct portfolios which satisfied clients’ risk […]
Christine Lagarde, President of the ECB, gave a press conference on 10 June following a meeting of the ECB’s governing council. Her speech contained some unequivocally positive observations about the European economy, lamenting a bounce back in services activity, continued strong manufacturing activity and improving consumer spending, all against a backdrop of strong global demand. […]
Yesterday was a big day for the oil and gas sector as one of its biggest players, Royal Dutch Shell, received the verdict on a landmark hearing to speed up its cuts to greenhouse gas emissions. In the world of responsible investments, this was a historic development. A panel of judges in a lower court […]
Rising concerns for the prospects of inflation dominated the first quarter of 2021 and caused bond market yields to rise in both the US and the UK. As a result, US treasuries lost over -5% of their value (in Sterling terms) during the period, whilst the loss on gilts was even greater at just shy […]
Upon floating onto AIM on 31st March, Deliveroo saw more than £2bn wiped off its £7.6bn valuation, after its share price tumbled by more than 26% during its first day of trading. Deliveroo’s heavily touted IPO and its subsequent flop has highlighted the risks of overlooking the ‘S’ in ESG when making investment decisions. Continue reading to know more about the key ESG takeaways from Deliveroo's IPO:
Inflation expectations rising scared lethargic bond markets and became the most contentious subject of debate in the first three months of the year. Read our outlook to find our position on inflation and the impact on risk assets
While it remains to be seen how long value leadership will last, many of the drivers that led investors to flock to growth stocks have reversed and now favour value stocks.
As an analyst I hate metaphors. While they are a very useful tool to turn my thorough -but often thoroughly boring- analyses into actual readable pieces, they also almost always convey a false sense of proportion. One of the most successful, yet dangerously misleading narratives I’ve read lately is one that equates investors to slowly […]
Banning the President of the United States from Twitter might have come as a relief for some, but not for Jack Dorsey, the founder and CEO of Twitter itself. In a series of posts he acknowledged that the move has opened a particular can of worms he was previously keen on keeping shut. The discussion […]
Had you somehow been fortunate enough to have slept through 2020, you would have awoken to find that global equities had risen by nearly 16% during the year and could be forgiven for thinking that the world economy was in rude health. The reality is, as we are all too aware, altogether different with buoyant markets owing their gains mostly to the monetary and fiscal measures put in place to combat the effects of Covid-19, and partly to an optimism that that this year will be far better for businesses than last. A continuation of loose monetary policy also helped provide positive returns for bonds. Gold benefitted from its safe-haven status and a fear of rising inflation to post a 20% return for the year. Commercial property and Oil suffered steep losses as a direct result of lockdown measures.
Quarterly Investment Outlook Q1 2021
As we enter the final weeks of the year the Investment Team has once again come together to compile a list of books suitable for stocking fillers or long evenings spent avoiding Zoom calls with extended family. It has been a challenging year for all, the team have chosen a few books that have helped […]
During their youth, everyone is asked the much-dreaded question – ‘where do you see yourself in five years?’ or ‘what’s your five-year plan?’ the answer to which is never easy. Though, the answer certainly helps to determine how serious the person is about their future and the direction in which they’re headed. A couple of […]
The election is almost, but not, over and there are significant lessons for investors.
For the first time since March, the Coronavirus narrative is truly gripping markets.
The persistent dichotomy between stock market performance and economic performance has been a particularly hard puzzle for investors. While it is very clear that the previous 12-year economic cycle has undoubtedly come at an end, the financial cycle, thanks to central banks, has survived a five standard-deviation event (1 in 3.5 million probability), and continues unabated. With the global economy in turmoil, can stock and bonds be trusted to create or even maintain wealth?
Global stock markets built on the astonishing rebound from the Spring to post further, albeit more modest, gains during the third quarter of the year. Global stocks rose by nearly 5% in Sterling terms. That said, again the rises were far from uniform geographically, with US and Japanese equities posting strong returns whilst Europe struggled to a marginal positive return and UK equities lost further ground. Aside from Equities, Gold started the quarter strongly, but then sold off in early August as safe haven assets including the US Dollar retracted in less volatile markets.
A quarterly report is not normally a difficult document to put together. Usually it consists of an account of the trending state of affairs, the more possible outcomes and risks to those outcomes. In the past few years, these reports were actually made easier. The US Federal Reserve was underwriting risk at such an unprecedented scale, nearly unwavering for more than a decade, in a manner which suppressed all major hazards to the economy and financial markets. Ever since 2010 the question, repeatedly, had been: “With opportunity costs driven down so much for so long, whatever can bring markets down?”
Global stock markets staged a remarkable comeback in the second quarter with the MSCI World Index up nearly 20% in Sterling terms. Whilst not recovering all of the losses from the high point in March prior to widespread lockdowns, global equities are nonetheless at higher levels than at the start of the year. Given the absence of any meaningful advances in the treatment of or vaccination for COVID-19 and that the corporate world is temporarily being held together by a variety of hastily created measures of government support, this optimism could be regarded as being somewhat misplaced.
In the past few weeks, we have been experiencing a flurry of better-than-expected economic data, especially in the US, while global equities remained near the recent high levels they have been trading at for almost a month. A casual read of the situation could be that the markets had run ahead of themselves, and as […]
Please read the full article here: In the current investment climate where central bank activity and algorithmic trading strategies are two primary driving forces of asset prices, enabling rapid losses and even faster gains as momentum funds then push winners higher and losers lower, we are reminded how important it is to follow a long […]
I struggle with the idea how news that nothing has changed in my chances of survival from a killer disease that was enough to lock the whole world down, is enough to send the world’s biggest companies trading at eye-watering 22.6x earnings (the average is around 15-16). It seems to me more credible that the market is running on excessive amounts of QE
If capitalism is about efficiently allocating resources, credit is the delivery mechanism.
At our Investment Committee meeting in the first week of January we discussed amongst other things the heralded resolution of the trade war between the US and China, the fact that the US Federal Reserve was printing more money, and the renewed optimism that came from a stable government here in the UK. Cautious bullishness on risk assets was the tone of the meeting. Looking back at our discussion documents from that meeting, our ‘Wall of worry’ chart which details the things which we consider to be possibly obstructive to stock market gains, did not even mention coronavirus. In other words, we have experienced a true ‘Black Swan’ event. Global stock markets fell by 20% over the first quarter (around 15% for a Sterling based investor) having lost as much as 32% by mid-March. Gold performed its role as a safe haven rising 12% in Sterling terms, whilst Gilts rose by over 6%.
At our Investment Committee meeting in the first week of January we discussed amongst other things the heralded resolution of the trade war between the US and China, the fact that the US Federal Reserve was printing more money, and the renewed optimism that came from a stable government here in the UK. Cautious bullishness on risk assets was the tone of the meeting. Looking back at our discussion documents from that meeting, our ‘Wall of worry’ chart which details the things which we consider to be possibly obstructive to stock market gains, did not even mention Coronavirus. In other words, we have experienced a true ‘Black Swan’ event. Global stock markets fell by 20% over the first quarter (around 15% for a Sterling based investor) having lost as much as 32% by mid-March. Gold performed its role as a safe haven rising 12% in Sterling terms, whilst Gilts rose by over 6%.
what goals cannot be achieved within the former, might be achieved by investing in stocks and bonds, whose growth is concomitant with the survival of capitalism.
We can comfortably use a phrase that, under other circumstances, would surely risk bringing upon us financial anathema: “This time is different”.
This is a difficult note to write. Investors, stakeholders and human beings in general will always crave comfort in a world that is becoming increasingly uncomfortable. Whether it’s good news or bad news, the certainty of something is better than the uncertainty of, well, everything. Unfortunately, right out of the gate we should say that […]
Following a flat third quarter, global equities rallied to the end of the year with the MSCI World index up over 7% in local currency terms. Returns for unhedged Sterling based investors were broadly flat as the Pound strengthened following the Conservative’s decisive general election victory. The late final rally was primarily driven by renewed optimism for a ‘phase one’ trade deal between the US and China, and left global equities up 25% for the year. It is of course important to note that, by contrast, markets ended 2018 in very pessimistic mood as the Fed continued to raise interest rates, and therefore a global equity return figure of around 8% from September 2018 is a more useful measure of equity returns.
Since 2018, a key concern of financial markets has been the increasing trade tensions between the United States and China, more commonly referred to as the ‘trade war’. With delays and failed negotiations lasting over a year, markets finally breathed a sigh of relief on the 15th of January, as the US President Donald Trump […]
Henry Kissinger famously said “If I want to speak to Europe who do I call?”. That question has never really been answered, and although it could be argued for a long time that person was Angela Merkel, it is now not her immediate successor Annegret Kramp-Karrenbauer since she announced she would not be seeking reelection […]
This is a multi-level chess game, touching politics, intelligence and trade, and a move in each field directly affects the other two.
The recent announcement that Huawei will take a “limited” role in the UK’s 5G network has highlighted the growing tensions between different trading blocs, while the temporary truce between Macron and Trump on digital tax, which Trump argues disproportionally affects US firms such as Google and Facebook, gives rise to the chance of renewed conflict […]
Read our Full Quarterly Outlook The Power of the Cycle John Kenneth Galbraith, an irreverent but brilliant economist best known for his work on the Great Crash of 1929, famously lamented about his own profession: “the only function of economic forecasting is to make astrology look respectable”. As always, we toyed with the idea that […]
Read our full MWM Investment Newsletter Winter 2020 Following a flat third quarter, global equities rallied to the end of the year with the MSCI World index up over 7%. Returns for unhedged Sterling based investors were broadly flat as the Pound strengthened following the Conservatives’ decisive general election victory. The late final rally was […]
With Christmas Day just around the corner the Investment Team have compiled a business/economics themed reading list for those looking for a quick stocking filler. Below is a book recommendation from each of us, and a few sentences explaining why you should rush out to your local bookshop, or if it is too cold out, add […]
Last night the British public decided to break the parliamentary deadlock which has lasted for over a year and give Boris Johnson a resounding mandate, with nearly 44% of the vote and a comfortable majority after gaining 365 of 650 seats. On the news the Pound surged, as some uncertainty has been removed – markets […]
The election tomorrow is somewhat of a paradox. On the one hand, it has been dubbed “The most important election in decades”, one that can “shape the next generation”. On the other hand, however, it offers little visibility when it comes to UK portfolios. Strange as it may seem, both statements might hold true. Throughout […]
Charles Darwin gave us the theory of evolution. The species most adept to change survives. This model applies not just to organisms but to economies and businesses. In fact, so ubiquitous is the analogy between business and hunting and survival dynamics the language we use to describe ordinary business processes and transactions often stem from […]
Trillion Dollar Question – Can We Lose Faith in Central Banks However, we would only be touching the surface, inadvertently veering into the sphere of gossip, were we to dismiss such disagreements as mere power plays. In fact, we do not think that investors should care much about ‘who controls the ECB’. Stereotyping, where northern […]
Read our full MFP Quarterly Investment Outlook Q4 Ghosts of Japan Growth has been consistently slowing across the globe. In the past two issues, we dealt with the impact of China’s slowdown, as the world’s marginal buyer goes through the necessary pains of transformation and the impact of elongated cycles on growth. In this outlook […]
Read our full MWM Investment newsletter Autumn 2019 Equity markets across the world ended the quarter broadly where they began having recovered from a slight loss of confidence during August. This stability came despite no improvement in economic data, and a further fall in government bond yields signalling a cautious economic outlook. In a similar […]
Recently, we were asked by our management committee to answer a deceptively simple question: what will the world look like in 2024 from an economic perspective? The task was daunting: articulating a cohesive world view, years ahead. To do that, we need to step back and look at the world we created at the dawn […]
Despite a recent selloff, $17tr in global bonds continue to trade with a negative yield. The spread between the US 10 Year Treasury rate and the Fed Funds Rate is negative and at the lowest level since the 2008 crisis. Germany may be paid to borrow for 30 years and the 10 year Bund is […]
Recent conversations with our clients have often begun with them expressing concern about the possible effects of Brexit on investment portfolios. Given the lack of clarity on how the situation will unfold or what the impacts might be, this is perfectly understandable. But, whilst the near term prospects for the UK economy are undeniably intertwined […]
It seems we should all be taking on debt. After all, about 30% of the global tradeable universe of bonds is negatively yielding, amounting to around $16.7trn. With bonds that are negatively yielding, holding to maturity guarantees a loss, at least in nominal terms. In other words, it seems you are being paid to borrow. […]
In the past weeks we saw markets react negatively to fresh tariffs on China. However, it is more likely that traders were simply responding to the Federal Reserve’s attempts to maintain its independence against the US President by taking a more staunch view on the cost of money. The Fed’s independence might just be an […]
UK assets continue to trade at a discount to the rest of the world, however, with so much political uncertainty facing the UK this may be justified. Boris Johnson’s new special adviser Dominic Cummings is by all means unorthodox. Mr. Cummings was the Campaign Director for Vote Leave in 2016, and used machine learning and data […]
Financial market turmoil continues for the second straight week, plunging the S&P 500 close up to 7% from its peak, in a bout of volatility similar to last December’s. The reasons behind the recent tumult are rather straightforward: 1) A stock re-rating, after Fed Chair Powell last week suggested that the central bank is not entering […]
We are at an inflection point. Technological innovation drives our economy, and ultimately, our standard of living. From rail roads to the Internet, technological progress has pushed our productivity levels to new heights, and we are now on the brink of the next step of this evolution. Artificial Intelligence. Once just the topic of sci-fi […]
After a decade of unprecedented monetary stimulus, we have failed to see global growth rates anywhere near their pre-crisis levels. At the same time, however, we have not seen a recession. The world seems to be ‘chugging along’ as output is pressured on all sides. So is it the Fed that killed economic cycles? Read our […]
Check out our new article on recession risk and thoughts on asset allocation: Is it time again for another crash? The US economy, the engine of global growth, has been expanding for 121 months, a historical record. As investors peer into the future, a case of acrophobia (fear of the extremes) is taking hold. “We […]
The chart below shows the range of returns across top nine countries in the MSCI Emerging Markets index by market capitalisation. Combined they make up 88.6% of the indexas of the end of March. The vast majority of emerging market equity funds use this as their benchmark. The largest constituent in the EM index is […]
In the past few decades, one of the policy decisions that were key for investors was central bank independence. In the past, central banks constituted the arm of the Treasury. Run by top notch economists, their ability to review economic conditions independently has given them the power to reduce economic volatility by making sure that […]
Football clubs fall into the ‘Consumer Discretionary’ category of businesses. I’m not entirely sure I would want to tell a Cardiff City fan that their support is discretionary. Regardless, football clubs are a fairly niche investment, with business models significantly different from a regular business. After all they have two measures of success which don’t […]
Do you have a significant amount of financial assets (bonds, equities) or a significant amount of financial liabilities (loans and mortgages outstanding)? In all likelihood you have a combination of both, which makes the following simple statement moot: people with savings dislike inflation, while those owing money tend to benefit from it. Essentially the real […]
Is this a bubble or a source of returns for diversified investors? What is the “Uber bet”? We live in a low interest rate super-liquid world, with a lot of money chasing too few opportunities. Overall equity issuance has stagnated over the last few years as CEO’s use buybacks to please existing shareholders, removing equities […]
It feels that Donald Trump’s “trade wars” with China have come to dominate financial headlines as they were considered the main culprit for last week’s stock market correction. However, a closer look indicates that the whole issue is, at this point, essentially noise, both in terms of market indices and the economy. First of all, […]
Game of Thrones is finally ending, with some great lessons about human excesses. After almost 75 hours of watching the world’s most successful show, plus another 20 reading the books, I now find myself not too keen on watching the final episode. I feel that there’s no walking back on the damage done from showrunners […]
In 2016 investors in global equities experienced a fretful start to the year as concerns about a possible Chinese hard landing caused a fall of over 10% in the first quarter of the year. As has been the pattern over the last few years these concerns quickly subsided in the face of continuing ultra-loose monetary […]
As the world slows down, it looks to China as both a cause and a solution. Will the world’s second largest economy come through? Read our MFP Quarterly Investment Outlook Q2
Read our full MWM Newsletter Spring-2019 Global stock markets regained their poise in the first three months of the year returning just under 10% in Sterling terms, and nearly recouping the losses from the final quarter of 2018. These gains were delivered despite continued concerns about economic growth which brought about a fall in sovereign […]
“Game of Thrones” is back on the screen, for the 8th and last season. Proselytised fans around the world are flocking to learn the final fate of Cercei, Daeneris, Jon Snow, the Stark children and Tyrion Lannister in what has become the most popular series of all time. The final season starts where the previous […]
The key question in 2019 is not Donald Trump or the trade wars between the US and China. The real Gordian knot is China itself. The world’s second largest economy is going through a painful transition, weaning off its dependence on manufacturing and exports and focusing on improving the standard of living for its citizens, […]
Last week NBA star Zion Williamson’s sneaker tore into pieces early on in his game vs UNC and he subsequently left the court with a knee injury. Zion is widely regarded to be one of the most promising young stars (He is just 18 and is projected to be the first overall pick in the […]
Over the past few months, ‘trade-wars’ have moved from obscure historic reference into everyday jargon, casually dropped by consumers on sentiment surveys. The US, suffering from chronic trade deficits and increasing imbalances in its co-dependent relationship with China, has set its sights on trying to disrupt this process, a policy that has had an impact […]
A populist Eurosceptic government, paired with a budget deficit target below 2% and membership of a monetary union is putting a lot of pressure on the Italian economy. The inflated currency strength due to strong countries like Germany sharing the Euro and the inability to use independent monetary policy has cornered Italy into a tough […]
It sounds like a story from the heady days leading up to the 2008 Global Financial Crisis, and something that will end in disaster. Rating agencies assigning the highest possible rating to an auto maker’s debt which is ‘guaranteed’ on clients paying for leases of its cars (which is essentially debt), with repayment on the […]
Read our full Market Update Week 6 Market Update It was a mixed week for equities, with US stocks ending the week up +1.3%, despite President Trump ruling out a meeting with President Xi before March 1 to strike a trade deal and put trade concerns to rest. It was also a positive week for UK […]
The Economist magazine has characterised Brexit “The mother of all messes”. To exit a trade agreement so comprehensive that over the past half century has come to encompass virtually all aspects of the British economy is, by and large, unprecedented. To do so in less than three years, in the midst of political turmoil, is […]
Read our full Mazars Quarterly Investment Outlook- Q1 2019 Outlook 2019 Sometimes it appears that the world is getting louder. The Norwegian Sociologist, John Galtung said that if a newspaper came out once every 50 years, it would not report half a century of celebrity gossip and political scandals but rather momentous global changes such […]
Read our full Monthly Market Update December 2018 November data indicated that the global economy continues to slow, despite a pick up in the services sector, as trade conditions deteriorate. Risk asset divergence, a theme of the previous quarter, seems to have abated, as US risk asset underperformance closed part of the gap with Europe and […]
Having regularly declared that he will only hire the best people, Donald Trump has been rather vocal in decrying the actions the Federal Reserve has taken since Jay Powell, his choice for Fed Chair, took office. Mind you he has decried many of his appointees at one point or another, with his Attorney General Jeff […]
The European commission confirmed that it would be starting the excessive deficit procedure for Italy. Under Eurozone rules, no country is allowed a deficit higher than 3% of its GDP, but the Italian budget proposal challenged the EU directly by assuming significantly higher growth rates. According to Commission Vice President Valdis Dombrovskis “The Commission confirms […]
Read our full Market Update Week 46 Market Update Global stocks continued their rebound this week, with both Global and European equities up +0.3%. Emerging Market equities led the pack, returning +2.5% as the slide in oil prices gave a boost to emerging market currencies. UK Stocks were hit by further Brexit volatility, hardest hit stocks […]
New Update! Monday 19 November 2018 After Friday’s dramatic cabinet session, which saw a third Brexit Secretary, Dominic Raab and Work & Pensions Secretary Esther McVeigh resign, there are several possible options on the table: 1) The deal might still go through parliament. Although divisions in the conservative party are high and it is unlikely that other […]
The US goes to the polls today for midterm elections. Every seat of the lower chamber (the House) is up for election (as it is every two years!), while a third of the upper chamber (the Senate) will also be voted on (Senators are elected every six years). For comparison to the UK Parliament, the […]
When Angela Dorothea Merkel became president of her party, the CDU, in 2000, her sights were set on the highest echelons of leadership in Germany. In 2005, she followed Helmut Kohl, her mentor, and Gerhard Schroder by becoming the third post-war leader of a united Germany. Furthermore, she was the the first who grew up […]
Read our full Market Upate Week 43 Market Update Global stocks continued to slide this week, with US stocks leading indices lower, the S&P 500 falling -2.2% in Sterling terms. The NASDAQ lost -3% due to disappointing results from Tech companies and a drop in the Consumer Discretionary sector following a disappointing sales outlook from […]
Read our full Mazars Quarterly Investment Outlook – Q4 2018 Global Divergence In an early 2010 report Morgan Stanley warned that the biggest consequence of the 2008 global financial crisis could be isolationism and the reversal of a 50 year old trend which saw increasingly open borders, open trade and freedom of movement. As each […]
Read our full MWM Newsletter October 2018 The global economy continued to grow in the third quarter of 2018 despite a backdrop of concerns over the continued imposition of trade tariffs primarily by the United States. It is apparent that any optimism a compromise between the US and its trading partners (China in particular) can […]
Read our full Monthly Market Update October 2018 September data continued to indicate global economic and risk asset divergence, consistent with a mature economic cycle, with USD assets rising as a result of Mr. Trump’s policies. The global economy is also diverging, with the US on a faster expansion path, while Europe and EM are […]
Read our full Market Update Week 41 Market Update Global indices suffered significant falls last week, down -4.1% in local terms and -4.5% in Sterling terms. US equities led the weak performance, experiencing their biggest losses in 8 months on Wednesday. Technology stocks were particularly affected as market participants reacted badly to rising bond yields. […]
Read our Full Market Update Week 39 Market Update US stocks dropped -0.2% in Sterling terms last week, as the Federal Reserve raised interest rates by 0.25%, with investors concerned about the elimination of the word “accommodative” from the Fed’s policy statement. UK stocks were up +0.3% and UK 10 Year Gilts were up +2.0 […]
Read our full Blueprint Sept 2018 August data continued to indicate global economic and risk asset divergence, consistent with a mature economic cycle, with USD assets rising as a result of Mr. Trump’s policies. The global economy is also diverging, with the US on a faster expansion path, while Europe and EM are slowing down. […]
Read our full Market Update Week 37 Market Update Equities rose across the board last week, both in local and Sterling terms. UK stocks gained +0.4% with US and Global stocks up +0.1% and +0.3% in GBP terms. Other areas fared even better, as European and Japanese equities rose +0.8% and +0.6% respectively. However, Emerging […]
When my daughter was first born she had trouble sleeping and hated her cradle. So I used to hold her by to the kitchen fan (new parents take note, this works!) for about 10’, until she was fast asleep. It worked magic every time. Until it didn’t. A few weeks later she didn’t like it […]
Established in Glasgow in 1849 under the name of Arthur and Fraser, House of Fraser (HoF) is a household name across the UK. The British department store group has 56 stores and 2 outlets across the United Kingdom and Ireland. However, despite its long history, strong brand, and rich heritage, HoF has become the latest […]
There has been a lot of coverage of Elon Musk’s musings as to whether he will take Tesla private again, having publically listed the company in 2010. Having shares listed in a company is supposed to bring benefits of increasing the ease of raising capital, while the greater liquidity and heightened corporate governance needed to […]
The US stock market has made some impressive gains year-to-date. In January the S&P 500 reached a record high of 2872.87, with the exchange falling just 10 points short of this figure two weeks ago. Apple also recently made headlines worldwide when it became the first US company to be valued at a staggering $1tn. […]
The article was originally published in the Money Observer on the 20th July 2018 The potential breakup of the Euro has been a permanently armed grenade under the bed of the global economy for almost two decades. The recent Italian elections driving yields up and the Euro down reminded allocators that European risks have never […]
In March the Bank of England released a working paper titled ‘The distributional impact of monetary policy easing in the UK between 2008 and 2014’. For context, quantitative easing and ultra-low interest rates have been blamed by many commentators for a rise in inequality which has fermented populism in recent years. However the paper found […]
Read our full Mazars Quarterly Investment Outlook-Mind the liquidity A cautionary tale There’s an old story about a man who was marooned on a deserted island. Searching for food and water, he instead found a cave hiding a chest of pirate treasure. No water in sight though. He spent his last few days, next to […]
Read our full Monthly Blueprint July 2018 Month In Review On the face of it, June has not been an exciting month for risk assets. Developed market stocks ended the month roughly in the same place as they started it, while long bond yields were little changed. However, beginning and end figures mask not only […]
Read our full Market Update Week 25 Market Update Global stocks turned negative last week following two weeks of positive performance. Emerging Market equities were the worst hit, falling -2.0% in Sterling terms, as rising trade war fears also weighed on global equities, which were down -0.7%. Japan was also badly hit due to its […]
Why geopolitics now matter more In the past few years, investors and economies have grown somewhat insensitive to geopolitical surprises. Brexit, for example, did not cause the massive initial shock to either the economy or the stock markets that many analysts had predicted. Neither did Mr. Trump, whose election has sent stocks soaring by more […]
Currencies have historically been extremely volatile, and predicting FX movements is recognised as a very difficult and risky strategy. Exchange rates move on several, often unpredictable, macro-economic factors, including differences in interest rates or inflation, geopolitics or due to government intervention such as capital controls. Many funds have exposure to currency risk from investing in […]
Whisper it very quietly, lest we jinx it: UK equities have been on a strong run recently. When was the last time you could say that? Certainly not since Brexit, which has been blamed for the poor performance versus global peers. However looking at the 4 quarters leading up to and including the Brexit vote, […]
Last year Europe was the darling of equity investors, as strong growth and improving sentiment throughout the Eurozone meant that it was only behind Emerging Markets in Sterling terms, which had a stellar year in spite of concerns about Trump, over the course of 2017. However, like Emerging Markets, Europe has had a relatively poor […]
This week I was asked to write 180 words on whether President Trump was a ‘welcome disruptor or market menace’ and how his policies can be factored into investment decisions. Despite becoming tired of the circus surrounding the 45th President of the United States, the question poses an interesting debate. Donald the Disruptor Innovative disruption […]
Read our full MWM Quarterly Investment Outlook Q2 2018 The first quarter of 2018 saw a return of market volatility and a reversal of gains from the end of 2017. Despite a strong January, global equities finished the quarter down 2.1% in local currency terms, but 4.7% for UK investors as the Pound continue to […]
The NIESR GDP growth estimate for the 3 months to March was revised up to 0.2% from 0.1% in February, having been revised down from 0.3%. However the figure is still a reduction from the 0.4% growth seen in Q4 2017. Quarterly growth of 0.2% equates to just 0.8% annual growth. According to Amit Kara, […]
The gender pay gap is a hot topic in offices across the country as the April deadline for companies to report their pay gap has recently passed. The gender pay gap helps to highlight major demographic changes, in terms of the age and gender, affecting the UK’s labour force. The gender pay gap In an […]
In a move that was expected, John Williams will move from the San Francisco Fed president post to take the same position at the New York Fed. He takes over from William Dudley, who late last year announced he would be leaving by mid-2018. The role comes with vice-chairpersonship of the FOMC – the Fed’s […]
The recent tumult in equity markets arrived despite robust macroeconomic data in the US, for example the latest earnings season saw 73% of companies beating expectations for earnings. Recent data for consumers and businesses appears to support this view. The NFIB Small Business Optimism index for February rose to 107.6 from 106.9 – the highest […]
Both US equities and the US Dollar fell last week when multinational companies such as Boeing were hit as Donald Trump sought to impose new tariffs on China, pressing China to cut its trade surplus with the US by $10bn. As a result, there is an increased likelihood of a trade war between the worlds […]
“An economist is an expert who will know tomorrow why the things he predicted yesterday didn’t happen today.” Laurence J. Peter When I was studying economics at university (not that long ago) I was taught under ‘neo-classical’ thinking, which had come to pre-eminence in response to the period of ‘stagflation’ in the 1970s. Under stagflation […]
In a reversal of the recent trend where good data is bad news for stocks, and bad data is good news, US equities rallied on Friday after the latest nonfarm payrolls report. The report showed the highest job creation […]
Donald Trump roiled markets on Friday by announcing on Twitter: He has since confirmed that he plans to impose tariffs of 25% on steel imports and 10% on aluminium. The move has been widely met with criticism, not just from Democrats but from many members of the Republican Party, including the House Speaker Paul Ryan. […]
Things have been looking up for China recently, as market sentiment towards the world’s second largest economy has finally started to take a positive turn. Since 2015, when the country’s stock market sold-off sharply and the Shanghai Composite Index crashed 45% in under two months, investors have understandably been wary of China. Redemptions in Chinese […]
US economic growth slowed slightly more than originally expected in Q4. On Wednesday the Commerce Department released revised quarter-on-quarter growth at an annualised rate of 2.5%, down from 2.6%, although this was in line with economists’ estimates. This compares to an annualised growth rate of 3.2% in Q3. The growth in consumer spending (3.8%, the […]
Markets continued their recent rocky period, with two separate events causing unease for investors. The first was Jay Powell’s first congressional testimony on Tuesday where he hinted at a faster pace of interest rate rises and stated a preference for rules based interest rate decisions. For example the Taylor Rule proscribes an interest rate for […]
The UK economy grew more slowly than previously estimated in Q4 2017, increasing by 0.4% quarter-on-quarter according to the second estimate by the ONS. This figure was a 0.1% downgrade from the original estimate. The downward revision was due to slower […]
A “Black Swan” is a very popular notion in modern stock market commentary, yet the phrase originates from a time before the public listing of stocks. In 16th century London, people used an old Latin quote : “a rare bird in the lands and very much like a black swan“, based on the presumption that […]
Over the last month global equity markets have sold off; since the 15th of January the MSCI AC World Index has fallen -4.12%, the S&P 500 -4.22% and the Japanese Nikkei -6.0%. The UK market similarly has tumbled with the FTSE 100 plummeting -6.36% over the last 4 weeks1. With stocks cheaper compared to a […]
French ILO unemployment dropped unexpectedly from 9.6% to 8.9%. It was further proof of the strength in the French, and subsequently, the European economy. European equities lost 1.5% briefly after the US inflation report was released, with figures higher than expected. The market recovered, but the move is indicative of the factors that affect traders. […]
The recent sell-off in markets and spike in volatility has so far been met by a wall of silence from the new Fed Chair Jay Powell. On the day of being sworn in, Powell faced a drop of 1,175 […]
German exports were weak for the month, up only 0.3%, but are still accelerating year-on-year. Chinese exports were stable, but imports picked up significantly, offsetting last month’s weak data. UK The Markit Services PMI dropped slightly to 53 from 54.2. The Halifax House Price Index year-on-year for the 3 months to January fell from 2.7% […]
After an unusually quiet two-year period, investors were once again reminded that volatility is part and parcel of the investment process. Global stocks suffered their worst week since 2016 and the sixth worst overall week since the recovery began in 2009. More importantly, bond prices also fell, as did other traditionally safer assets such as […]
Read our Monthly Market Update Global equity markets were positive again, registering a 5.3% performance in January, benefiting from the positive sentiment and the passing of the US tax reform at the end of 2017. The macroeconomic environment was less supportive, however, as some key indicators suggested that global economic momentum was slowing down in […]
US hiring picked up in January and wages rose at the fastest pace since the GFC. Hourly earnings increased 0.3%, resulting in an unexpected year-on-year increase of 2.9%, up from 2.7% in December (which was also revised up from 2.5%). This was on the back of a nonfarm payrolls increase of 200k, which was upwardly […]
UK Consumer confidence rose in January from -13 to -9, above expectations for the figure to remain flat. Nationwide housing prices year-on-year for January increased to 3.2% from 2.6%, the highest reading since March last year. The BOE’s concern surrounding borrowing was confirmed as consumer credit figures climbed to £1.52bn in December from £1.5bn the […]
By David Baker, Chief Investment Officer After a strong start of the year for equity markets, global stocks shed almost 5% of their value on Friday and Monday. US equities are now 6.2% below their highs, turning negative for the year, as are global equities (-6.5% from their highs). The S&P 500 is now trading […]
Last week marked a 3.5% pullback for global equity markets, the first since 2016. The move comes after a very good month, January, during which equities rose to fresh highs, gaining 5.2%, prompted by exuberance related to the US tax reform. However, the arrival of February marked fresh concerns for investors. First and foremost, economists […]
Provisional readings for US Q4 2017 GDP growth came in at 2.6%, slightly below the 3% figure expected by the market. This is an annualised figure and therefore growth for the quarter was actually only 0.1% behind expectations. Strong imports were the main reason for the surprise to the downside, subtracting 1.1% from the growth. […]
Dollar weakness persisted last week as ambiguous messaging from the US Government confused investors. Headline capital goods orders (blue) were robust, however the core capital goods component (red), the less cyclical of the two, has continued to weaken since September. UK Average earnings increased from 2.3% to 2.4% year-on-year for the 3 months to November, […]
Last year was very positive, both in terms of stock market and macroeconomic volatility (the volatility of macroeconomic releases). In recent weeks, however, we have noticed a deterioration in macroeconomic releases, especially in the US. Lower inventories and higher imports took a toll on GDP. More detailed data on capital expenditure also shows weakness in […]
Global equities were mostly positive in local terms last week, however a fall in the US Dollar, combined with Sterling appreciating, meant that returns for UK investors were generally negative. Weak US Dollar performance was largely due to a statement at Davos by US Treasury Secretary Steve Mnuchin being interpreted as suggesting that the US […]
The final quarter of 2017 provided investors with further positive returns to cap off an extremely profitable year for equities. Global equities added 5.6% in Sterling terms in the fourth quarter, to bring the full year return to 13.3%. Japanese (11.4%), US (7.0%), and Emerging Market (6.9%) equities were the stand out regions during the […]
German elections in November were met with cautious optimism by markets, with Angela Merkel’s CDU party gaining the most seats and seemingly in position to lead a coalition, so maintaining the status-quo in German politics. However negotiations have proven more difficult. The SDP, which claimed the second most seats, initially planned to be the main […]
This website uses cookies.
Some of these cookies are necessary, while others help us analyse our traffic, serve advertising and deliver customised experiences for you.
For more information on the cookies we use, please refer to our Privacy Policy
This website cannot function properly without these cookies.
Analytical cookies help us enhance our website by collecting information on its usage.
We use marketing cookies to increase the relevancy of our advertising campaigns.
Comments