WeekWatch

Stock Take

After a tough 2022, markets greeted 2023 with a strong first week back, after positive data from Europe and the US encouraged an improved sentiment.

European indices were the strongest performers among the major equity markets last week, with the French CAC 40 and German DAX 30 rising by 6.0% and 4.9% respectively. These were supported by headline CPI inflation figures, which dipped back below the 10.0% mark for the first time in two months, lifting hopes that the peak may now be behind us.

Given the ongoing war in Ukraine, along with Russian sanctions, European economies benefitted from the mild winter. This meant less natural gas was used than might have otherwise been the case, helping keep gas prices down on the Continent, which benefitted wider equity markets during the week.

If inflation were to ease in 2023, it would help the European Central Bank to strike a more conciliarity tone when discussing interest rates in the future, which would also help equities recover.

Meanwhile, US equities were helped by solid job figures. The country added 223,000 jobs in December, above general expectations, while average hourly earnings rose by less than in previous months.

These combined to give the impression of a healthier-than-expected economy, and while the low unemployment rate means the job market will remain tight, Andrew Hunter, Senior US Economist at Capital Economics, noted: “The softer gain in average hourly earnings suggests wage growth is nevertheless slowing and we still think the labour market will weaken more markedly this year.”

All in all, this data encouraged thinking that a soft landing for the economy could still be achieved as the Federal Reserve continues along its tightening path.

Although both the S&P 500 and NASDAQ grew last week, the coming week will see December’s inflation figures released for the US, which could have a big impact on how long this recovery lasts. It is expected to have fallen to 6.5% in the month.

Encouraged by wider market sentiment, the UK’s FTSE 100 also jumped 3.3%, despite a series of strikes and ongoing economic uncertainty. Monthly GDP from the Office for National Statistics will be released on Friday, with the economy forecast to have contracted by 0.3% back in November.

Turning to Asia, one of the key stories from the New Year break was the most recent outbreak of COVID-19 in China. Towards the end of 2022, China had moved away from its zero-COVID policy, reopening much of the economy. While this has seen the recent surge in cases, China reopening has generally been seen as a positive step for both the Chinese and wider global economies.

All this led to a positive start to the year for global equities. However, Mark Dowding, Chief Investment Officer at BlueBay, questioned whether this is the start of a trend that can shape the landscape in the year ahead, or a shorter-lived period of respite amid a policy-tightening that will continue to negatively affect prices.

“Listening to central bankers, it strikes us that we may be nearing the top of the hiking cycle within the next few months. Policy-tightening is gaining traction and inflation should continue to moderate through the course of the year, on both sides of the Atlantic. However, with labour markets remaining tight, there is ongoing anxiety that pressure on wages could continue to be a factor that drives up prices in the quarters to come,” Mark noted.

For this reason, it will be worth paying attention to the language used by central banks when announcing future rate changes for indications of future moves. Although inflation now appears to be falling in the West, it remains well above the 2% target of most central banks.

Although 2023 got off to a strong start, a year is a long time in financial markets, and a good start to the year shouldn’t hide that there remain significant economic challenges.

Wealth Check

Many of us will have a money-related goal among our New Year’s resolutions. It’s a perfect time of year to break old money habits and make some new ones. “Getting into good tax and financial habits helps make your life so much easier,” says Tony Clark, Senior Propositions Manager at St. James’s Place. “The key is to form new habits that make your good intentions stick, so they become second nature, and you don’t even realise you’re doing them.”

Good money-management habits make us feel more confident and in control of our finances, as well as keeping us on-track to achieve our long-term goals. They’re at the heart of personal financial wellbeing.

These are our top five tax-smart habits to get into before the end of the tax year:

  • Make the most of your allowances

Making the best use of your tax allowances helps to make your money go further. Many of us have ISAs, but there are other possibilities that are sometimes overlooked and left unused.

  • Breaking the ‘last-minute’ tax habit

The 2022/23 tax year may not end until 5 April, but there’s no need to put yourself under unnecessary deadline stress by leaving everything until the last minute’.

There are sound, practical reasons for sorting your taxes and year-end finances in good time. It can take much longer for providers to process transactions if there’s a bottleneck at tax-year end.

  • Get your papers in order

Many more of us are self-employed, which means many more of us are filing self-assessment tax returns. The end of January deadline for online self-assessment returns can spark a last-minute panic search for records, receipts, missing statements, and other information that you need to make sure your return is accurate and complete.

  • Use the HMRC app to organise your paperwork

Simply knowing where all your documentation is, the correct tax codes and other official information, saves you time and last-minute searching for information at tax-year end. Downloading the HMRC app is a good place to start.

  • Speak to a financial adviser on a regular basis

If you’re not already taking financial advice, this is perhaps the best habit to get into. Financial advice helps you stay on-track for your long-term goals, and gives reassurance as well as practical, clear advice in more challenging economic times like the present. Financial advice is the step that will drive other good financial habits.

The value of an investment with St. James’s Place will be directly linked to the performance of the funds selected and may fall as well as rise. You may get back less than the amount invested.

The levels and bases of taxation, and reliefs from taxation, can change at any time and are generally dependent on individual circumstances.

The Last Word

I condemn the assault on democracy and on the peaceful transfer of power in Brazil. Brazil’s democratic institutions have our full support and the will of the Brazilian people must not be undermined.

US President Joe Biden comments on Brazilian protestors storming the Brazilian Congress, presidential palace and Supreme Court.

BlueBay is a fund manager for SJP.

SJP Approved 09/01/2023

The information contained is correct as at the date of the article. The information contained does not constitute investment advice and is not intended to state, indicate or imply that current or past results are indicative of future results or expectations. Where the opinions of third parties are offered, these may not necessarily reflect those of St. James’s Place.

Source: London Stock Exchange Group plc and its group undertakings (collectively, the “LSE Group”). ©LSE Group 2023. FTSE Russell is a trading name of certain of the LSE Group companies.

“FTSE Russell®” is a trade mark of the relevant LSE Group companies and is used by any other LSE Group company under license. All rights in the FTSE Russell indexes or data vest in the relevant LSE Group company which owns the index or the data. Neither LSE Group nor its licensors accept any liability for any errors or omissions in the indexes or data and no party may rely on any indexes or data contained in this communication. No further distribution of data from the LSE Group is permitted without the relevant LSE Group company’s express written consent. The LSE Group does not promote, sponsor or endorse the content of this communication.

Sovereign Wealth Hong Kong is a Partner Practice of St. James’s Place (Hong Kong) Limited

The ‘St. James’s Place Partnership’ and the titles ‘Partner’ and ‘Partner Practice’ are marketing terms used to describe St. James’s Place representatives.

Members of the St. James’s Place Partnership in Hong Kong represent St. James’s Place (Hong Kong) Limited, which is an insurance broker company licensed with the Insurance Authority (Licence No. FB1075), a licensed corporation with the Securities and Futures Commission (CE No. AAV439) and registered as an MPF Intermediary (Registration No. IC000852).