Investments Matter- October Edition

Welcome to this month’s edition of Investments Matter, written by Paul Kenworthy , where we explore the key events shaping the financial markets. In this issue, we delve into the latest developments in the US, China, and the UK, examining their potential impact on investors. From the Federal Reserve's unexpected interest rate cut and the upcoming US presidential election to China's economic instability and the much-anticipated UK Autumn Budget, we provide insights into what these events could mean for your clients investments. Stay informed with our market analysis and expert perspectives as we navigate the evolving financial landscape.

The financial markets have performed well over the last few months, with both equities and bonds generally delivering positive returns. Below, I will discuss recent market events that may affect the markets in the coming weeks:

US Interest Rate Cut and Upcoming Election

The US Federal Reserve recently announced a 0.50% cut to its benchmark interest rate, which was higher than the expected 0.25%. This was notable as it marked the first rate cut since the start of COVID-19 lockdown measures in March 2020.

The reduction contributes significantly to the formal target for interest rates in the US. In their statement announcing the rate cuts, the Federal Open Market Committee noted:

“Recent indicators suggest that economic activity has continued to expand at a solid pace. Job gains have slowed, and the unemployment rate has moved up but remains low. Inflation has made further progress toward the Committee’s 2 percent objective but remains somewhat elevated.”

The US Presidential Election, scheduled for Tuesday, November 5th, will almost certainly impact the markets (and quite possibly interest rates) in the short and long term.

Recent reports indicate that Kamala Harris is slightly ahead in the run-up to the election, but approximately 5.50% of voters have yet to decide whom they will support.

China’s Economic Instability

Chinese equities have been extremely volatile recently. A few months ago, they were performing well following a number of economic policy announcements made by the government. However, this performance could not be sustained, and equities have now begun to decline, with some falling as much as 10%.

In response, further measures were recently announced to stabilise the economy, including cuts to the reserve requirement ratio, policy rates, mortgage rates, and liquidity injections.

In a recent market update, IBoss Asset Management observed:

“While these new announcements are positive, they are not game-changing enough to suggest a sustained turnaround. However, they do signal the leadership’s understanding of the gravity of the situation, particularly in light of growing discontent over property valuations and general economic performance.

Source: IBoss Asset Management

UK Autumn Budget

Chancellor Rachel Reeves is set to deliver the Autumn Budget—Labour’s first in 14 years—on Wednesday, October 30th. She has warned that it will involve "difficult decisions."

Some announcements have already been made. The winter fuel payment will be restricted to those receiving pension credit or other means-tested benefits, a decision that has drawn heavy criticism. Additionally, VAT will be added to private school fees from January 1st, and some private schools will lose business rates relief.

Rumours about possible budget announcements are making many investors nervous. Speculation includes potential increases in Capital Gains Tax, Inheritance Tax, and changes to pension taxation.

Many clients have been contacting their financial planners, worried that the government may reduce or even abolish the tax-free cash allowance from pensions. This has led to a significant increase in the number of people accessing their pensions prematurely.

The Financial Times reported that “a number of wealth managers told the FT they had contacted the Treasury to warn Chancellor Rachel Reeves that people were pulling their money out of their pensions early due to the ‘uncertainty.’”

Source: Financial Times

Times like this are when a financial planner can provide significant value to clients, helping to reassure them and advising against panic until official announcements are made.

We will closely monitor the Budget announcements and provide our thoughts and feedback in the coming weeks.