Week Watch - 08/04/2024

Your 7-minute update on the markets

Stock Take

“Buy land, they’re not making it anymore,” said Mark Twain. In fact, land was about the only thing investors weren’t buying in the first quarter of 2024, as stocks, gold and cryptocurrencies all surged to record highs.

That exuberance has been founded on the belief that the global interest-rate cycle is turning. The coming quarter will prove whether that confidence is justified. Last week provided some more clues.

The holiday-shortened week began with some brighter news in China. Chinese shares soared, as new figures showed the country’s manufacturing activity expanded in March at its fastest pace in over a year, and business confidence hitting an 11-month high. The results followed a recent better-than-expected export and retail sales data, yet analysts say policymakers will need to deliver more stimulus if the economy is to hit the government's ambitious growth target of around 5%.

Figures released on Wednesday revealed that eurozone inflation fell unexpectedly last month, slowing to 2.4% from 2.6% in February as food, energy and industrial goods prices pulled down the headline figure. The news strengthened the case for the European Central Bank to start unwinding its record interest rate hikes. The central bank meets this week, but policymakers have repeatedly indicated June as the decisive meeting. Investors are betting on almost no chance of a cut this week but have fully priced in a June move.

Separate data showed unemployment in the region at a record low of 6.5%, suggesting that the job market remains robust. Policymakers pushing for a cut have argued that economic growth remains very weak, as the eurozone has been flirting with recession for six quarters now.

Yet, the main focus for investors last week was on the US, the world’s largest economy. Key US stock indices hit two-week lows on Tuesday as solid economic numbers raised doubts about whether the Federal Reserve could deliver the three rate cuts outlined in its latest forecast. New orders for US-manufactured goods rebounded more than expected in February and a key survey showed growth in the manufacturing sector for the first time since September 2022.

The recovery is good news for the economy’s growth prospects, but a rise in raw material prices risks a pick-up in goods inflation further down the line, which would have implications for the path of interest rates this year.

Mark Dowding of BlueBay Asset Management argues that markets have been too quick to write off the US economy and to assume that benign inflation would prompt an extended monetary easing cycle. “We will be meeting policymakers in Washington in the coming week, though our sense is currently that Federal Reserve Chair Powell is eager to gamble on a soft landing, in order to secure an enviable legacy. Moreover, there is a desire to start to cut rates before the election cycle gets into full swing. On this basis, we still think that the Fed may cut in July, but that we are likely to see only one or two rate cuts this year, unless the pace of economic activity cools materially.”

In contrast to the manufacturing data, figures released on Wednesday showed that growth in the US services industry slowed further in March and that services inflation continued to moderate. Higher wages in the services industry are the main driver of inflation.

But the main event for market watchers came on Friday with the release of the latest US jobs figures. Employers added more than 300,000 jobs last month, blowing past forecasts of around 200,000 and registering the biggest monthly gain in almost a year. The labour market has benefited from a rise in immigration over the past year, and also been helped by government spending in areas such as high-tech manufacturing and infrastructure.

The unemployment rate fell to 3.8% and has now remained below 4% for 26 straight months, the longest stretch since the late 1960s.

Analysts were quick to point out that the excess energy in the economy, indicated by the strong jobs growth could make it difficult for the Fed to return inflation to its 2% target. The data also pumped expectations that the Fed can take its time and delay cutting interest rates, given that a recession is nowhere in sight.

The mixed economic data saw leading US stock indices post modest declines by the end of the week, and money markets now pricing in just two rate cuts this year. The next, and key, round in the rate-cut guessing game comes with this week’s release of the latest US inflation numbers.

Wealth Check

Are you tax-ready for the new tax year? With a General Election looking increasingly likely for November, economic performance and the continued cost of living squeeze are likely to be high on the agenda.

This means that using all available tax breaks while you have them will help both your short and long-term financial security and wellbeing.

In a welcome move in his Spring budget, Chancellor Jeremy Hunt cut employee National Insurance Contributions for the second time this year.

The personal allowance – the amount of income you don’t have to pay tax on – remains at ￡12,570. The basic tax rate is still 20%, and the higher-rate threshold, at which you start paying 40%, is ￡50,270. The additional-rate tax threshold, at which you pay 45%, remains at ￡125,140. These will be frozen until 2028.

Through the Personal Savings Allowance, basic-rate taxpayers can continue to earn ￡1,000 interest on savings before paying tax in 2024/25. For higher-rate taxpayers, the allowance remains at ￡500, and for additional-rate taxpayers, it’s zero.

But there are significant changes to Dividend Tax, with the dividend allowance dropping by 50% to ￡500. If you own shares in a company, or receive dividends from funds or investment trusts, this is likely to affect you.

As of 6 April 2024, the Lifetime Allowance no longer exists. There is no limit on how much you accumulate in your pension.

Your tax-efficient ISA allowance is still ￡20,000 for 2024/25, both Stocks & Shares ISAs and Cash ISAs. But a new ISA is proposed – the British or UK Stocks and Shares ISA. At the time of writing, this is in consultation until June 2024. The Junior ISA annual allowance also remains unchanged at ￡9,000.

The Inheritance Tax (IHT) nil-rate band for 2024/25 remains at ￡325,000, frozen until 2028. The additional Residence Nil Rate Band (RNRB), where your main residence can pass to direct lineal descendants, also remains fixed at ￡175,000.

The Capital Gains Tax allowance, which is the amount you can make before you start paying tax, drops to ￡3,000 from April 2024.

The value of an investment with St. James's Place will be directly linked to the performance of the funds selected and the value may fall as well as rise. You may get back less than the amount invested.

An investment in a Stocks and Shares ISA will not provide the same security of capital associated with a Cash ISA.

The levels and bases of taxation, and reliefs from taxation, can change at any time and are generally dependent on individual circumstances.

Please note that St. James's Place does not offer Cash ISAs.

In The Picture

Last week, the UK’s Minimum Wage celebrated its 25th Anniversary. Below we look at how it’s developed over the years.

Source: gov.uk

The Last Word

"It was quite overwhelming yesterday to be honest. There were so many people here and we had so much support. I’ve tried to soak it all in and enjoy it."

Russell Cook speaking to Good Morning Britain over the weekend, having run the entire length of Africa in 352 days.

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

The information contained is correct as at the date of the article. The information contained does not constitute investment advice and is not intended to state, indicate or imply that current or past results are indicative of future results or expectations. Where the opinions of third parties are offered, these may not necessarily reflect those of St. James's Place.

Source: London Stock Exchange Group plc and its group undertakings (collectively, the “LSE Group”). ?LSE Group 2024. FTSE Russell is a trading name of certain of the LSE Group companies.

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? S&P Dow Jones LLC 2024; all rights reserved

Source: MSCI. MSCI makes no express or implied warranties or representations and shall have no liability whatsoever with respect to any MSCI data contained herein. The MSCI data may not be further redistributed or used as a basis for other indices or any securities or financial products. This report is not approved, endorsed, reviewed or produced by MSCI. None of the MSCI data is intended to constitute investment advice or a recommendation to make (or refrain from making) any kind of investment decision and may not be relied on as such.

SJP Approved 08/04/2024