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Astute Market Overview - 21st May 2024

Hello, and welcome to the latest Astute Market Overview.

Since our last update, global equity markets have climbed higher. Of the 20 biggest equity (or stocks and shares) markets, 14 have recently hit, or are very close to, all-time highs; markets in India and Japan sit close to their peak, the Eurostoxx 600 (an index containing 600 European stocks, which is over 20% exposed to the UK) hit all-time highs over the period since our last update, and currently hovers around that mark. And in the UK, where today’s overview will focus, the 100 largest companies by market capitalisation pushed the FTSE 100 to new all-time high levels (with the FTSE 250, the next 250 largest companies, also climbing in price).


For many years, the UK equity market has been underappreciated, beaten up, and underperforming compared to peers. The index is cheap, with its earnings per share ratio much lower when compared to many other key regions, indicating a lower share price relative to the level of earnings per UK share. Whilst the UK has performed strongly so far this year, we believe there is further to climb, particularly for smaller and medium-sized companies in the region.


Turning from UK markets to the UK economy, and the outlook is just as pleasing. Despite the highest inflation in 40 years, a steep series of interest rate increases to the highest level in 16 years and a real income squeeze over the last three years, the UK economy has fared well.


Whilst the UK economy did tip briefly into recession last year (shrinking by -0.1% in the third quarter of the year and -0.3% in the final quarter of the year), recent data from the office for national statistics (ONS) revealed that, in the three months ending March 24, the economy grew by 0.6%. With the benefit of hindsight, we can confirm that the recession didn’t make it into 2024. The recession that we saw last year was brief and shallow, doing little more than hitting the minimum criteria defining a recession.


At their last meeting, the Bank of England’s Monetary Policy Committee (MPC) met, and predictably voted to keep interest rates unchanged at 5.25%. The vote split, however, came as a surprise to markets, with a whole 2 members in favour of a rate cut, and the other 7 voting to hold rates.


Digesting the MPC inflation forecasts and narrative from the meeting, we believe that, data allowing, a rate cut could be possible in June.


Furthermore, this week, Ben Broadbent (a deputy governor for monetary policy) suggested that we could see an interest rate cut sometime this summer. This is allowing for inflation to come down, and tick back up slightly towards the end of the year. Given that the next two meetings are 20th June and 1st August, both fit the definition of summer, giving his estimations a bit of wiggle room.


Some of the data releases we will be watching over the next couple of weeks include UK and Japan CPI inflation, UK retail sales, US GDP and Eurozone consumer confidence.


See you next time.

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