Stock Take

Dramatic events across the globe last week had a notable impact on investment performance.

The developing situation in the Middle East is likely to put pressure on oil prices. Brent crude prices rose nearly 5% at the start of Monday in the aftermath of the weekend attacks.

Concerns relating to future demand weighed on sentiment, bringing down oil prices last week. Despite ongoing supply cuts by production giants Saudi Arabia and Russia, a surge in treasury yields and the negative impact that a higher-for-longer interest rate environment could have on the global economy hit prices last week. Overall, the price for Brent Crude oil fell 11.3% from Monday to Friday.

With oil prices showing some signs of weakening, equity markets managed to deliver ‘mixed’ performance. In the US, the S&P 500 managed to break its four-week losing streak with a 0.5% gain. This was driven by a number of large technology companies, that significantly outperformed the wider market.

Part of the challenge facing US equities is the ongoing strength of the US economy, which has been driving the ‘higher-for-longer’ narrative around interest rates. For example, last week saw US job figures released. 336,000 new jobs were created during September, nearly double economist expectations whilst the previous month’s data was also upgraded.

Commenting on the positive sentiment, Mark Dowding, Chief Investment Officer at BlueBay noted: “For now, economic activity remains relatively upbeat, as suggested by business sentiment surveys and a rebound in the number of job openings, in the wake of weaker data last month. Anecdotal discussions in the US this week have also highlighted a shortage of housing inventory (in the Connecticut area) and shortage of new autos for sale (in Minnesota). It is interesting that such discussions remain much more prevalent than worries related to rising credit card bills or fears of economic slowing. However, sentiment can quickly shift, as we saw in March of this year.”

US politics has provided an additional challenge for markets. The start of last week saw the Republican House of Representatives Speaker Kevin McCarthy removed from his position. The Republicans hold a tiny majority in the House, and McCarthy had struggled to bring together the disparate wings of his party. The prior weekend he had helped pass a compromise bill that prevented a government shut down for 45 days. However, his departure suggests the spectre of a US government shut down is likely to reappear before the end of 2023. The current turbulent political situation is leading to significant short-term uncertainty.

The coming week will see US inflation data for September released. With increased oil prices, headline inflation may rise, however economists will be paying attention to the core inflation data, which strips out more volatile sectors, including fuel.

Any drop in evidence will encourage the belief that the Federal Reserve will keep interest rates steady, with it meets to discuss the topic in November. Such a belief is likely to be encouraging for markets.

These challenges have carried over to European markets. Weekly losses were seen in Europe, where the MSCI Europe ex UK. index and FTSE100 retreated by 1.1% and 1.5% respectively.

European markets are currently having to contend with a more challenging economic environment, with slow growth across the majority of the large markets.

With events occurring that are impossible to plan for, yet which can have a dramatic impact on investment performance, the past week is a good reminder that markets can be volatile in the short-term, and therefore investments should be viewed in the long-term.

Wealth Check

Your company’s first customers are a rich source of information about everything from themselves and other potential customers, to the market, suppliers, competitors and even your business itself.

Learning from your customers is important – it could shape your business’s early performance and growth, and potentially, your long-term strategy. To learn those lessons, you’ll want to establish good communication with your early customers so you can build immediate enhancements that accelerate your success.

By engaging with these early customers, you can also find out more about the wider market – information such as how much others charge for a similar product or service, how you might be able to upgrade your offering, and how much extra they might pay.

Andrew Shepperd, Co-Founder of Entrepreneurs Hub, says: “Find out what people want to buy and sell it to them – it’s simple but critical to keep remembering this. Say you make an electronic device that works on two frequencies. By speaking to your customers, you may find that you could add a third frequency and charge more for it. To do this, you need to determine whether they would use that frequency, how often, whether the market is price sensitive, and how much extra they would be willing to pay.”

Andrew says that a good place to start is asking your customers: ‘What is the most valuable thing we do for you?’ It might not be what you thought – and if so, you can build on that element to increase the value. Ask how you can improve, what your client likes about you over the competition and what will keep them returning.

Once you’ve gathered information from multiple customers, look for trends and common themes. Aim to implement any learnings quickly – if you are busy with other aspects of the business, it could be worth hiring someone to collate this information, analyse it and execute improvements.

These feedback exercises can also help you build your relationship with the customer and learn about them – for example, their lives, interests, challenges, and how they win in their businesses – so you can take all these lessons to help win in yours.

In The Picture

According to Hetal Mehta, Head of Economic Research at St. James’s Place, Friday’s job data showed that the US still has far more job openings than it has people looking for work. She noted: “This is clearly inconsistent with what the Fed requires to get inflation down, let alone signal rate cuts.”

Source US Bureau of Labor Statistics

The Last Word

“Our plan will drive far more growth and opportunity here in the North than a faster train to London ever would.”

Rishi Sunak confirms HS2 will now go between London and Birmingham, with a number of alternative schemes to be introduced further North.

BlueBay is a fund manager for St. James’s Place.

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