Contact us
Client and adviser portal
Log in

Time for Plan B

Weekly update
  • Weekly market update
  • 5 minute read

A good week for

  • Equities recovered last week on better sentiment
  • Oil rebounded +7.5% in US dollar terms, recouping last week’s losses

A bad week for

  • US government bonds weakened c. -1% in local terms
  • The US dollar weakened on a trade weighted basis

Coronavirus

Omicron cases continued spreading in the UK last week, causing the Government to introduce “Plan B” measures in England. Masks are once again compulsory in many indoor settings and working from home is once again encouraged where possible. Given the diminished efficacy of existing vaccines against the Omicron variant, the booster programme is being ramped up, with a third dose offering greater protection. Despite encouraging people to work from home, Number 10 did not change guidance around work Christmas parties or hospitality, which would have had a negative impact on the sector. However, initial data suggests that weaker health confidence has nonetheless damaged consumer appetite for social consumption. The risk to growth may influence the decision of the Bank of England’s Monetary Policy Committee this week, with Omicron adding downside risks to growth.

Chinese financial system

China’s central bank eased financial conditions last week. The People's Bank of China (PBoC) announced that it will lower the reserve requirement ratio (RRR) for almost all banks by 50bps, effective from Dec 15th. The RRR is the fraction of deposits that regulators require a bank to hold in reserves and not loan out. The cut allows banks to make more loans, releasing c. RMB1.2tn of liquidity. The PBoC said the aims of the policy were to support liquidity and growth for SMEs by lowering funding costs. China’s economy has been hindered by curbs on the heavily-indebted real estate sector, with sharp declines in home sales and tight restrictions on pre-sale revenues causing a liquidity squeeze. More targeted support for the sector is likely required, with the government hinting at further easing of financial conditions to support growth.

US inflation

US Inflation surged higher in November, reaching the fastest pace in 39 years. The headline index rose 0.8% month-on-month, and the core measure 0.5%, translating to annual increases of 6.8% and 4.9% respectively. Food prices were a key contributor, rising over 6%, along with energy, up 3.5%. Shelter, a large share of the CPI basket, continues to advance at a steady pace, with auto prices continuing a secondary surge. At these levels, inflation is well ahead of wage growth, weighing on consumer spending power. This week the Fed must decide whether to accelerate the asset taper, in order to be in a position to raise rates when required, or delay, in order to provide maximum support to the economy as Omicron hits the US.

Eurozone politics

Germany’s influential leader, Angela Merkel, stepped down last week. After 16 years as Chancellor, Merkel was replaced by Olaf Scholz of the Social Democrats. Scholz will govern in coalition with the Greens and the Free Democrats and is expected to bring continuity, having acted as Merkel’s vice-chancellor. Scholz’ immediate agenda includes tackling Germany’s fourth wave of Covid-19 cases and the threat of a Russian invasion of Ukraine. The end of Merkel’s leadership may have an impact further afield, given Germany’s prominence within the European Union. Merkel’s pro-trade stance was thought to have influenced relations with China and the US, with a tougher stance on China now possible.

Chinese real estate

China’s most indebted real estate company missed a debt deadline last week, triggering a default. Evergrande was due to pay $1.2bn in interest on international loans on Monday, but had not paid by Wednesday, causing ratings firm Fitch to declare a default. This may make it more difficult for the firm to restructure its debts. While China’s government has stepped in to ease liquidity conditions and limit contagion within the financial sector, it is clear that domestic investors are a higher priority than overseas bond holders.

 

Important information
The information contained in this article is believed to be correct but cannot be guaranteed. Past performance is not a reliable indicator of future results. The value of investments and the income from them may fall as well as rise and is not guaranteed. An investor may not get back the original amount invested. Opinions constitute our judgment as at the date shown and are subject to change without notice. This article is not intended as an offer or solicitation to buy or sell securities, nor does it constitute a personal recommendation. Where links to third party websites are provided, Close Brothers Asset Management accepts no responsibility for the content of such websites nor the services, products or items offered through such websites.

!

Before you invest, make sure you feel comfortable with the level of risk you take. Investments aim to grow your money, but they might lose it too.

Close Brothers Asset Management Logo

Important compliance information for institutional investors and FCA authorised intermediaries

For use by institutional investors, FCA authorised intermediaries and connected persons only – it must not to be relied upon by retail clients. If you are a retail client please return to the main part of the website.

Please read this page before proceeding, as it explains certain restrictions imposed by law on the distribution of this information and the countries in which our funds are authorised for sale. It is your responsibility to be aware of and to observe all applicable laws and regulations of any relevant jurisdiction.

This part of the Close Brothers website is for information purposes only. It is not intended to be relied upon to make any investment decision. Although the information herein has been obtained from sources believed to be reliable, neither Close Brothers Asset Management or any of its employees guarantee its accuracy, completeness or fairness. The most recent data has been used where possible. Except in so far as liability under any statute cannot be excluded, no member of Close Brothers Asset Management accepts liability (whether arising in contract, tort or negligence) for any error or omission in this document. 

The information contained on these pages is believed to be correct but cannot be guaranteed where data is sourced from third parties. Opinions constitute our judgment as at the date shown and are subject to change without notice. The information on this website is not intended as an offer or solicitation to buy or sell securities, nor does it constitute a personal recommendation. This does not constitute an offer or solicitation to sell shares in any of the funds referred to on this site, by anyone in any jurisdiction in which such offer, solicitation or distribution would be unlawful or in which the person making such offer or solicitation is not qualified to do so or to anyone to whom it is unlawful to make such offer or solicitation. 

Applications to invest in any fund referred to on this site, must only be made on the basis of the offer document relating to the specific investment (e.g. prospectus, simplified prospectus or other applicable terms and conditions). 

As a result of money laundering regulations, additional documentation for identification purposes may be required when you make any investment. Details are contained in the relevant Prospectus or other constitutional document. 

If you are unsure about the meaning of any information provided please consult your Close Brothers contact, financial or other professional adviser. 

The information contained on this site is subject to copyright with all rights reserved. It must not be reproduced, copied or redistributed in whole or in part. 

We may source data from reputable third party data providers, however, we accept no responsibility or liability for the accuracy of such data. 

We accept no liability whatsoever for any direct or consequential loss arising from any use of this report or its contents. 

You acknowledge and agree that it is your responsibility to keep secure and confidential any passwords that we issue to you and your authorised employees and not to let such password(s) become public knowledge. If any password(s) become known by someone other than you and your authorised employees, you must change those particular password(s) immediately using the function available for this purpose on the Website. 

On accessing the Close Brothers Asset Management website, you are aware of the following investment risks applicable to all Close Funds: 

PAST PERFORMANCE RISK-Past performance, though extensively used in analyzing investments, is not a reliable indicator of future returns. 

RISK OF PERMANENT CAPITAL LOSS-The risk that investments may fall in value permanently with little or no expectation of recovery, including the possibility of total loss of the amount invested. Typically, this applies to individual securities. 

RISK OF REDUCED INCOME-The risk that income derived from investments falls significantly and no longer fulfils its objective in a portfolio with a corresponding fall in the capital value if realised. 

VOLATILITY RISK-The risk of a decline in the value of a group of investments due to market fluctuations. Typically investors measure this risk over short timescales. 

INFLATION RISK-The risk that the growth of investments does not keep pace with inflation over the longer term, i.e. a reduction in the real purchasing power of one's capital. 

LIQUIDITY RISK-The risk that an investor cannot gain immediate access to capital. 

TAX RISK-The risk that the tax regime generally affecting returns, a particular asset or a specific tax efficient scheme may change or be removed with consequent impact on investment returns and strategies. 

CURRENCY RISK-The risk that movement in rates of foreign exchange may cause the value of investments and/or income derived from them to fluctuate independently of the value of the underlying asset and may amplify losses or impact gains when translated into the investor’s base currency. 

BENCHMARK RISK-The risk that investments do not beat a specific benchmark over the longer term, e.g. the failure to match the returns of a given equity index, bond index, or a blend of these. 

This site is operated by Close Asset Management Limited (Company No. 1644127) which is registered in England and Wales, is authorised and regulated by the Financial Conduct Authority and is a subsidiary of Close Brothers Group plc. Close Asset Management Limited is a member of the Close Asset Management group and uses the trading name Close Brothers Asset Management. Registered office at 10 Crown Place, London EC2A 4FT. VAT Registration No 245 5013 86.