12 January 2023
January 2023
Falling inflation-rising markets?
Last year was largely about trying to preserve value. We hope this year will be about seeking opportunities to grow capital. The UK Government seems to be taking the view that the Russian invasion of Ukraine, and the ongoing inflationary consequences, is a Black Swan event (that is almost unique in nature). This gives them confidence in resisting inflationary wage demands that may build in an ongoing, self-fulfilling cycle.
Inflation does seem to be coming under control in the US, where market implies yields in a year’s time are around 2.5%. This at least suggests global equity market headwinds may reduce but, with a huge budget deficit, the US itself looks likely to see a weaker currency – and this may help UK import costs.
2023 could be the year not only for stock picking, but country picking as well, as some migration from Wall Street flows to other emerging nations. This trend, which is already evident as a result of the US/China cold war, is leading to onshoring and the identification of beneficiaries from (at least) a pause in globalisation trends. Energy markets have been volatile in the past year, and the current tension over Taiwan is putting a focus on the manufacture of sophisticated semiconductor chips. This issue is also seen in rare earth minerals, where China has a global monopoly.
Mexico feeds off the US economy and the Asian region will benefit from the post Covid revival of China; China is now not always the lowest cost producer in the region. Brazil and other Latin American countries are developing strong technology expertise and industries. That said, China is projected to be the strongest growing economy at c.5% for 2023 in a low growth world and merits attention.
The UK has relatively poor economic prospects. It is becoming clear that the NHS requires drastic remedial action, and that provides a general platform for strike action for other actors, such as the RMT. However, domestic stocks which have demonstrated a capacity to survive and thrive, are drawing the attention of foreign capital. That, and a more stable currency and Gilt market, could well result in further takeover bids.
On a macro basis, the US fiscal deficit and the money supply growth required over various crises since the Great Financial Crash in 2008; the Covid crisis; and liquidity injections to the system to offset the economic shock of the Ukraine invasion, all point to surplus US$ in the global financial system. While currencies are hard to predict, this does seem to point to potential weakness in the Dollar. This is a climate that tends to favour Gold as a store of value. In the recent past Bitcoin, frustratingly, stole that role but this seems far less likely now.
The other major beneficiaries of a weaker USS are Emerging Markets, whose debt is often in that currency and their export pricing too. Countries close to the two major economic powers, the US and China, are likely to benefit from these trends. This year looks likely to require flexibility and targeted fund deployment and if our main assumptions are borne out, we would hope to see positive absolute and relative portfolio returns.
W.Forsyth, Executive Chairman and Investment Director
22 December 2022
December 2022
View from the Square at Christmas
Despite the frost and snow on the ground, could it be that the bright blue skies above are an idiom for better markets next year?
Market expectations of future inflation are found in the predicted future yields of Gilts in the UK and Treasury bonds in the US, and there is substantial divergence between the two. Here in the UK, swap interest rates are about 6% in a year’s time, against current CPI inflation rates of 10.7%; whereas CPI inflation has already dropped to 7.1% in the US, and they are looking at rates of c.2.5% in a year’s time.
This suggests that after another interest rate hike or two, current measures already taken by the US are near sufficient, or may be, to quell inflation, whereas more medicine is required in the UK. The Sunak government clearly believes that conceding current wage demands will result in long term inflation in the UK, perhaps in an inflationary spiral.
This inflation rate differential suggests that the US economy will lead global growth next year, and there is likely to be a stronger contribution from a post Covid China, and surrounding areas. Markets will be difficult to predict in the interim as, although inflation may have peaked, the UK labour market remains tight. The current concern that wage inflation will persist or accelerate is a negative. However there is some softening of support by RMT members for their strike, and Mick Lynch showed signs of stress in his interview with Mishal Hussein of the BBC when answering straightforward questions. Another possible watershed moment was Labour’s Wes Streeting asking why the huge backlog of postponed hospital admissions persisted when the NHS had more nursing staff than before, yet less operations were being performed. The answer appears to be bed blocking.
The UK now has a business orientated government; putting national finances in order has to go beyond inflation control, critical as that is. The next election will be difficult to win for the Conservatives but, if they start to tackle some of the difficult issues now, then at least if defeated they will have set a useful trend for an incoming Labour government. The West has tackled Defence in a meaningful way, might a centrist government of either party set about constructive reform in similar fashion?
A weak US$ points to China and Emerging markets as likely beneficiaries; Europe looks underpriced, already, and particularly if the US keeps raising interest rates, bond markets should prosper. Against this background, we will continue with a relatively cautious strategy. There could be a risk that, having delayed increasing interest rates, there now may be an overreaction in the US in the other direction. This would favour Bonds in the short term.
Experience tells us that political unpopularity will soon lead to relaxation of tight fiscal policy, which is likely to result in a weak dollar. We will be turning our attention in these circumstances, to Equities in general, gold, and emerging markets in China and other parts of Asia, as areas that we believe will prosper.
5 October 2022
October 2022
A costly exercise in self harm
Central bank intervention is now rife in markets, with the Bank of Japan propping up its currency and, more recently, the Bank of England intervening in the Gilt market. Such developments are symptomatic of ongoing market stresses, resulting in weak equity and bond markets this year.
From a currency translation viewpoint, US Dollar strength continues to benefit UK investors with allocations in US and Asian equities. A divide in performance between the two sides of the Atlantic (i.e. US vs. Europe) has been evident in equity and currency markets of late and looks set to continue as a hard winter of gas concerns awaits Europe.
Closer to home, we have seen a baptism of fire for Liz Truss and Kwasi Kwarteng, (the new Chancellor of the Exchequer) – mostly self-inflicted on their part. While some tax cuts were expected by the new Conservative government, the extent of them spooked markets, with Sterling having traded as low as $1.035 against the Dollar. This is in stark contrast to a rate of $1.21 at the end of June and demonstrates a vote of no confidence in the UK by overseas investors.
We were surprised to hear during the earliest days of the new government, that Kwasi Kwarteng sacked the Permanent Secretary to the Treasury. Kwarteng then effectively ignored the Office for Budget Responsibility to avoid scrutiny as to how the extra borrowing required to offset the huge tax cuts and funding energy subsidies proposed by his Budget, would be secured.
This dash for growth in highly unpromising market conditions has created a crisis of political and economic confidence. With Government finances already stretched in capping soaring energy bills (which, politically, could not be ignored), this significant further borrowing tipped markets into panic mode.
Truss and Kwarteng insist their strategy justification will be clarified in November, when the next formal budget is scheduled. However, the International Monetary Fund (which is ultimately responsible for helping to bail out failing nations through emergency lending) is pushing for them to act sooner. While we have had a partial easing with the Chancellor reversing the 45% tax rate cut, in aggregate this only contributes £2bn-3bn of the package. So, while a welcome reversal, this will be unlikely to alleviate investor concerns around funding of the growth package.
Meanwhile, last week the Bank of England had to intervene in the government bond market, as loss of confidence in Kwarteng and Truss had seen yields on Gilts jump significantly (the UK 10-year yield topping 4.5%). A formal bond buying programme has commenced, the antithesis of what was originally planned to help to reduce the impact of ongoing pressure on the Gilt market. This has wider ramifications in terms of mortgage affordability and stability in the UK financial system, so it looks likely further measures will have to be taken to reduce the impact of this current uncertainty.
Markets have not taken the matter in their stride and the last few days of September were generally punishing for even conservative investors, who have seen price declines in defensive areas of the market, including income orientated funds. This is because the relative attraction of the income yields on these investments is no longer at such a premium to “risk free” Gilts.
We continue to monitor the wider investment universe closely and have positioned portfolios with holdings which do offset some of the current uncertainty in UK markets. While the Bank of England bond purchasing programme, and reversal of the 45% tax cut, has helped steady the 10-year yield around 4.0% and the Sterling rate at $1.12, our positioning remains defensive. That said, we have been encouraged to note the performance of other overseas assets and absolute return hedge funds proving their worth recently. We are still focussed on the initial early signs of a reduction in the rate of US and UK inflation and have raised substantial cash balances to take advantage of this change in trend.
Important Information
Opinions constitute our judgement as of this date and are subject to change without warning Neither CS Managers Ltd, CS Investment Managers nor any connected company accepts responsibility for any direct or indirect or consequential loss suffered by you or any other person as a result of your acting, or deciding not to act, in reliance upon any information contained in this document. CS Investment Managers is a trading name of CS Managers Ltd, 43 Charlotte Square, Edinburgh EH2 4HQ. CS Managers Ltd is authorised and regulated by the Financial Conduct Authority.
8 September 2022
September 2022
New PM, same inflation problem
With the UK at long last announcing its new prime minister, the outlook for Ms. Truss could hardly be bleaker. Not only have fuel prices risen to such an extreme that 12 million households (42% of all households) will enter a state of fuel poverty, this has coincided with increased union action over stagnant public sector wage growth – at a time when economic activity is in decline. The task of balancing the government’s books with the needs of society are difficult at the best of times, but this act is all the more delicate at present.
In anticipation of an increase in unfunded spending under a difficult economic environment, currency markets have already started to discount Sterling against other major currencies. A growing chorus of the potential for Sterling-Dollar parity and rampant inflation is understandable but perhaps still in the extreme in our view. In any event, the uncertainty we are witnessing surrounding the UK economy is likely to continue. However, with a Prime Minster finally to be held to account, at least some form of reactionary policy adjustment to dampen the impact of spiralling energy prices on consumer pockets should help. As is normal with an incoming PM, we do not expect all policy pledges adhered to. The promise of dramatic tax cuts will have to be curtailed to balance increased government spending or subsidies (particularly for those in the greatest need of this) to tide the UK population over a difficult period ahead.
The wider market fear is that all this will lead to a depreciation in UK government bond valuations, which will push up discount rates and further hinder risk asset performance for UK based investments over the coming period. Meanwhile, consumer pockets (a key driver of the economy) are increasingly being pinched by inflation and this does not bode well for spending and corporate performance. We are positioned defensively with this in mind to help dampen the blow of the negative outlook. Our hope is that policy makers will find the right balance between fiscal prudence and societal support over the coming period – no easy task.
Looking further afield, the commitment by global central bankers to bring inflation under control, despite the inherent risks to the growth outlook, shook both equity and bond markets recently. We understand their concerns but, at the same time, recognise the issues are supply-side rather than demand-side driven in nature. Hiking borrowing rates is not going to help funding for the development of further shale oil fields in the US, for example, which could go some way to helping resolve the world’s dependence on Russian energy. We do wonder whether the US Federal Reserve is simply pushing the global economy towards a recession to some extent and further exacerbating current inflationary issues. However, the economic data released recently has generally been a bit better than expected, as shown by economic surprise indices, while global inflation pressures started to ease on the back of lower commodity prices. Whether this persists, however, is another matter.
All in all, the level of uncertainty about the outlook for the global economy remains elevated. This uncertainty is especially heightened in Europe. After six months of war in Ukraine there is no sign of a ceasefire, and a recession seems increasingly likely this winter as the region’s energy crisis continues to intensify. We continue to hold allocations to the energy sector as a result of this and believe that the current valuations, while having recently risen, are still depressed relative to the underlying cashflow and profits being generated. Sterling looks set to continue to struggle and, therefore, global diversification remains prudent. Finally, inflation protected cashflows from infrastructure and other assets remain a key feature in our positioning to navigate the period ahead.
It will most likely prove to be a tough winter for markets, but we continue to look to shelter investor capital from current market events as best we can. This is with a view to adjusting positioning in due course, as further valuation compression occurs over the coming period and the relative attractiveness of more economically sensitive sectors catches our interest again. The timing of this will be critical to avoid further downside risk but, when inflation begins to peak and commodity prices start to fall once again, we believe conditions will begin to form again for further broad market gains in the years ahead.
Important Information
Opinions constitute our judgement as of this date and are subject to change without warning Neither CS Managers Ltd, CS Investment Managers nor any connected company accepts responsibility for any direct or indirect or consequential loss suffered by you or any other person as a result of your acting, or deciding not to act, in reliance upon any information contained in this document. CS Investment Managers is a trading name of CS Managers Ltd, 43 Charlotte Square, Edinburgh EH2 4HQ. CS Managers Ltd is authorised and regulated by the Financial Conduct Authority.
18 August 2022
August 2022
Inflation: critical coming months
Following a month of falling bond yields and a modest stock market recovery on the hope of a fall in interest rate rise expectations, markets are once again pausing for thought as we enter August.
With Bank of England raising interest rates by 0.5% to 1.75%, its biggest rate increase since 1995, markets are poised for a further chill in financial conditions. A deviation from the current trend of rising interest rates feels unlikely at this point, despite optimism in recent weeks. We do however acknowledge that a recession will give central bankers a reason to consider just how much demand destruction, through the tightening of financial conditions, will benefit the UK economy in the current situation. This should eventually push them into lowering rates again, which would be positive for risk assets.
The case for monetary policy tightening is driven by the risk that inflation, if left unchecked, could lead to a dangerous wage and price spiral that we have not seen since the 1970s. However, the inflationary pressures do not stem from internal demand excess, as has been the case over the last four decades, but from external factors over which monetary policy setters have no control. Rate hikes will not solve the increasingly urgent food supply challenges or remedy the shortage of natural gas.
The war in Ukraine, which has led to a significant reduction in gas supplies to Europe from Russia, coupled with under-investment in US shale supply in recent years, leads us to believe that the current demand/supply imbalance in gas is not likely to be resolved any time soon. In the UK, the current gas price cap is forecasted to rise by a further 70% in October. This impacts both UK business and consumers and will likely lead to a significant contraction in consumer confidence and spending. Businesses required to use energy for various purposes from industrial production to heating pubs and restaurants, will see a significant rise in costs and resultant profit margin deterioration. It feels somewhat unlikely that the current low level of unemployment will persist, with the UK forecasting further challenges over the coming winter. All in all, none of this is good for the economy or financial markets.
There is also the matter of a struggling global supply chain, exacerbated by the pressure of China’s zero-Covid tolerance policy and the war in Ukraine. Key shipping ports are no longer as constrained as they were, but the situation is not fully resolved in either geography and is still in a state of flux and impacting the rest of the globe.
With this in mind, our client portfolios are defensively positioned at present. We believe that this is the correct conservative approach in light of the deteriorating economic and monetary environment. The green shoots we continue to look out for include a change in tone from central bankers, a deterioration in inflation forecasts, energy price pressures to recede and, ultimately, conditions which would support a sustainable recovery in consumer confidence. None of these have occurred as of yet, but we are confident that they will, and we will be ready to react accordingly and deploy the current higher than average cash positions held across portfolios. The catalyst will be the first sign of reduction in the rate of increase in inflation rather than the actual peak.
Important Information
Opinions constitute our judgement as of this date and are subject to change without warning Neither CS Managers Ltd, CS Investment Managers nor any connected company accepts responsibility for any direct or indirect or consequential loss suffered by you or any other person as a result of your acting, or deciding not to act, in reliance upon any information contained in this document. CS Investment Managers is a trading name of CS Managers Ltd, 43 Charlotte Square, Edinburgh EH2 4HQ. CS Managers Ltd is authorised and regulated by the Financial Conduct Authority.
21 July 2022
July 2022
Investing in times of rising inflation
We are all adjusting to weak market conditions and, with the S&P 500 dropping through the 20% downside level in 2022, there are more calls that this is now a serious bear market. Our problem is that the rescue elements of past falls are absent at present. Instead of easing monetary conditions the US Federal Reserve, has embarked on a policy of Quantitative Tightening just when real interest rates are negative and the Fed is promising sharp rises to correct this.
The fear and uncertainty surrounding the current market environment has been well demonstrated year to date by a persistently elevated level in the “fear index” i.e. the VIX. This is a measure of forward-looking volatility expectations and has been higher than recent historic averages, ever since the Russian invasion of Ukraine.
Macroeconomic pressures continue to trouble investors and include (but are not limited to) the Ukraine induced shortage of grain and sanctions on Russia, which have caused a sharp tightening of energy prices at a time when supply was already falling short relative to demand. ESG/sustainable investment influences on energy projects has resulted in falling capital expenditure for new projects and sums now required to bring further supply on stream are substantial. This is the case even in the US, where the relative costs for shale are a fraction of that to extract North Sea oil.
Previous optimism by the US Fed calling inflation pressures “transitory” are now seen as unrealistic and this places huge pressure on the authorities to sharply increase interest rates. The amount that the market will pay for equities is heavily influenced by prime bond yields,. If interest rates should rise to 5%, growth stocks will be particularly affected as a PE ratio of c.20x will be about as much as the market would normally pay. This implies that further weakness in equities is likely as this is a possible ceiling for stocks of the highest quality.
The economic factors mentioned above are likely, in a period of high employment, to result in demands for higher wages. This is a critical factor, as this stage of the cycle tends to result in a rising cycle of higher payments, which only slows when higher interest rates result in rising unemployment. The alarming thought is that there seems to be little scope in any significant area to ease these pressures and protect current equity and bond valuations.
In anticipation of these events developing, we have reduced allocations to equities across portfolios and increased cash positions in order to provide some “dry powder” to deploy into any pockets of value which we encounter over the coming period. In addition, the equity allocations which remain are largely invested in value stocks which should be better placed to reduce any potential further market drawdowns over the coming period. Meanwhile, we have also moved to a significant underweight position in fixed income across portfolios in favour of alternative assets such as infrastructure and property. These asset classes stand a better chance of preserving the real value of your capital in an inflationary and rising interest rate environment (such as the one we are in now), relative to fixed income and this has helped to reduce volatility so far in 2022.
Looking ahead, we continue to look to get on the front foot and are continuously searching for areas of the market which hold promise to swim against the current tide. While the growing consensus view is for inflation to peak later this year and a potential market recovery to ensue, we remain in tricky conditions and continue to manage portfolios carefully. However, history does show that markets anticipate future growth . Financial projections by the Monetary Policy Committee anticipate inflation dropping to low a low single figure in 2024 and we need to be alert to this, as it would be favourable to equity markets.
We would strongly encourage anyone who is concerned about their portfolios, or who has had a change in risk appetite to contact us, in order to discuss the current environment and how we are looking to help protect your capital at present and grow your position over the long term.
STOP PRESS: Boris Johnson resignation
Markets like certainty; initial reaction should be good for Sterling.
The US Fed seems determined to make up for lost time with interest rate rises; these factors should lead to helping contain inflation. We feel this is the key indicator to watch at present and should help bring forward a decent based period for equity markets.
Important Information
Opinions constitute our judgement as of this date and are subject to change without warning Neither CS Managers Ltd, CS Investment Managers nor any connected company accepts responsibility for any direct or indirect or consequential loss suffered by you or any other person as a result of your acting, or deciding not to act, in reliance upon any information contained in this document. CS Investment Managers is a trading name of CS Managers Ltd, 43 Charlotte Square, Edinburgh EH2 4HQ. CS Managers Ltd is authorised and regulated by the Financial Conduct Authority.
27 May 2022
June 2022
The Storm before the Calm
Events seem to be conspiring to unsettle investor confidence, which leads us to increase emphasis on protecting value as much as seeking to increase it. Inflation is rising and, unless curbed soon, will lead to sharp increases in interest rates. Both factors look set to prompt increased wage demands at a time of full employment. This combination is already proving toxic in technology markets with prices falling and funds hard to secure. Russia is suddenly advancing in Ukraine and George Soros warns in the Daily Telegraph that Ukraine could be the start of a Third World War. The Financial Times adds to the cheer by indicating that technology stocks in the US are now in a traditional bear market.
We are now basing strategy on a tough couple of years where an underlying priority will be securing solid income to tide investors over any period of market volatility. Long term interest rates seem likely to increase, and the usual effect of authorities increasing short term interest rates in response is to tip economies into recession, to bring inflation under control. This places a premium on stocks that are liquid, have strong cashflow, which in turn permits rising dividends. In bond and credit markets the safest places are in short duration or early maturity dates; cash becomes more attractive as well.
There is talk of a possible pause in the US of increasing interest rates as sharply as recently indicated, in the early autumn. However, continuing pressure on energy and cereal crops suggest this hope might be short lived, and we face even harsher interest rate increases slightly later. We hope to use this period to storm proof your portfolio as much as possible and leave it in a strong position when these crises abate.
The UK is usually the poor relation of global markets with the FTSE 100 not much higher than in 2000 when markets peaked. Large capitalisation stocks have often been overshadowed by faster growing new and smaller companies with investors willing to wait until they developed and matured. Now companies suffer sharp valuation declines and sometimes worse as additional funding comes at much lower levels, or not at all.
Much is changing on a global basis, and Soros now criticises the previously well-regarded Angela Merkel for leaving Germany hostage to Russian gas, and to China for their major export market. In the short term we will have to be patient on the ESG (Environmental, Social & Governance) front as wind power cannot propel cargo ships and solar panels cannot put planes in the sky. The understandable pressure to protect the planet has come at significant cost to security. As income generating companies in, say, the energy sector have been discarded (so that it only represented 2% of the main index at the low point) opportunities have been created for investment managers prepared to use the full palette of investment choice.
Important Information
Opinions constitute our judgement as of this date and are subject to change without warning Neither CS Managers Ltd, CS Investment Managers nor any connected company accepts responsibility for any direct or indirect or consequential loss suffered by you or any other person as a result of your acting, or deciding not to act, in reliance upon any information contained in this document. CS Investment Managers is a trading name of CS Managers Ltd, 43 Charlotte Square, Edinburgh EH2 4HQ. CS Managers Ltd is authorised and regulated by the Financial Conduct Authority.
3 May 2022
May 2022
Coincident Factors
The Russian invasion of Ukraine has been the exception to the generally modest impact that geopolitical events have had on global markets. As such, it has had a catalytic effect on underlying trends that had previously seemed containable. The traditional remedy since the financial meltdown in 2008/9 in the US has been to decrease interest rates and increase money supply. Both strategies have been taken, broadly, to extremes. At the same time, Covid has disrupted supply chains, compounded in the UK by the difficulties of Brexit.
The impact on Ukraine, in addition to human misery for so many, has been to severely restrict the supply of grain from one of the largest exporters. Similar pressure has been felt in the energy market, where the threat of restricted gas supply has sent prices soaring.
In aggregate, tighter monetary conditions, rising inflation and tougher trading conditions are likely to result in narrower margins for the majority of companies. Our task is to find the minority that thrive in these conditions. We will look to include companies that benefit from rising commodity prices, rising interest rates and rising inflation. We have seen in past cycles the emphasis that investors put on immediate returns in these conditions, including some element of yield, strong cashflow with little balance sheet debt and valuations that do not require multiple years of growth to justify current lofty ratings.
As an example of changing trends, it is interesting to note that the previously buoyant rating of NASDAQ has dropped sharply since November, and the apparently more sedate Berkshire Hathaway holding run by Warren Buffet has caught up with it. This seems a clear indicator that in a rising interest rate environment, investors will pay more for immediate certainty and income, and less for long term growth prospects that require a higher valuation discount, as the more distant growth will be curtailed in real terms by inflation.
As we move from an era of Quantitative Easing to Quantitative Tightening, resulting in higher interest rates, this dictates that we need to re-deploy funds to protect your portfolio by seeking out beneficiaries of such changes. The factor that is likely to create some market confusion in the interim is that the year-on-year inflation rate will hopefully slow as we grow accustomed to higher food and energy costs. However, real incomes will have fallen and corrective action has not yet been taken to correct this. The damage that can be caused by ignoring inflation can be seen in Turkey where the central bank was overruled on interest rates, and less than a year later inflation surged to 30%. US and UK authorities are talking about tough action, but already they may be behind events which require prudent action now.
Important Information
Opinions constitute our judgement as of this date and are subject to change without warning Neither CS Managers Ltd, CS Investment Managers nor any connected company accepts responsibility for any direct or indirect or consequential loss suffered by you or any other person as a result of your acting, or deciding not to act, in reliance upon any information contained in this document. CS Investment Managers is a trading name of CS Managers Ltd, 43 Charlotte Square, Edinburgh EH2 4HQ. CS Managers Ltd is authorised and regulated by the Financial Conduct Authority.
8 April 2022
April 2022
The Winds of Change…
Since our last publication of View from the Square, the wider market outlook has changed dramatically. While a humanitarian tragedy continues to unfold in Ukraine, markets have proved to be somewhat resilient in the face of mounting macro-economic concerns. To put it candidly – traders have been insensitive to both the humanitarian and macro-economic issues unfolding. We disagree with this viewpoint on a one to two year view, despite the “music still playing” and markets recovering in recent weeks from their earlier selloff. For now, we continue to benefit from these trends, but we are positioned more conservatively than previously given the longer-term implications at play.
Just yesterday, the US government bond yield curve started to invert – a signal whereby the yields on shorter dated bonds begin to exceed those of longer dated maturities (in this case, the US 2-year government bond yield has risen above that of the 10-year yield). This has historically proved to be a fairly reliable indicator of an impending recessionary environment. While several of our peers and a chorus of economists are suggesting that “this time is different” (a phrase we generally approach with extreme caution) as the inversion is being driven largely by shorter term expectations rather than a much longer-term decline in growth and/or inflation assumptions, the outlook is far from as healthy as it once was.
Consumers are being hit by a number of key inflation factors, ranging from energy prices to commonly purchased goods in their supermarket baskets. The fundamental driver of this is not just a rise in energy prices, but also weakened global supply chains. The latter is a combination of the Covid pandemic and the ongoing deglobalisation trend we are witnessing from the Russian war on Ukraine, in addition to geopolitics surrounding technology nationalism and the redrawing of supply chains. The recent announcement of Intel’s $88bn European expansion is just one such example of this, as large companies begin to “wise up” to these trends and look to protect their access to key markets – we suspect that others will be less prepared and caught out by this trend over the coming period, which would likely continue to erode consumer confidence.
Important Information
Opinions constitute our judgement as of this date and are subject to change without warning Neither CS Managers Ltd, CS Investment Managers nor any connected company accepts responsibility for any direct or indirect or consequential loss suffered by you or any other person as a result of your acting, or deciding not to act, in reliance upon any information contained in this document. CS Investment Managers is a trading name of CS Managers Ltd, 43 Charlotte Square, Edinburgh EH2 4HQ. CS Managers Ltd is authorised and regulated by the Financial Conduct Authority.