Royal London Asset Management

Several of my journal updates in recent months have referenced the slow recovery of the UK economy, pointing out that real output was hovering around the 2019 level. This has now proved to be inaccurate.

One of the great skills of the best forecasters is to explain the past and make market moves sound perfectly logical and predictable. I say this tongue in cheek because I have been mulling the causes of the recent rise in US treasury yields. Last week, I read a flurry of notes explaining why global bond yields have gone up.

Booming Britain? Well not quite, but a pleasant surprise nonetheless. UK GDP expanded 0.5% in the month of June, well above consensus expectations. The Office for National Statistics (ONS) attributed the expansion to a recovery in activity following May's extra bank holiday.

For people who know us well, the observation that ‘credit ratings don’t tell you everything’ will come as no surprise. We certainly value the input provided by rating agencies but there is something missing.

The Royal London Asset Management Sustainable investing roadshow, will run from 30 August to 4 October 2023.

There is a small gallery on the Wirral that houses one of my favourite pictures. Painted in the mid 19th century by William Holman Hunt, a leading Pre-Raphaelite artist, it depicts ‘The Scapegoat’, an animal that carries away human sins.

Last week saw three UK by-elections in constituencies previously held by the Conservatives. Two seats were won by opposition parties, following large swings; the other was retained, against most predictions. What can be read into these results?

Hubris: it is a strange word that conveys over-confidence. In last week’s journal I talked about Aviva and its 16% fee for a consent solicitation it was seeking on one of its bonds – a great result for us. News from Thames Water was the opposite.

Events in Russia dominated headlines over the weekend. As yet it is unclear what will happen and markets have remained calm.

Central bankers sprung no surprises last week. The US Federal Reserve (Fed) left rates unchanged, maintaining their 5-5.25% range. The consensus amongst economists is that this is a skip rather than a halt.

Last week was a waiting week. The focus was on the US Federal Reserve and whether we are about to see a pause in the rate hike cycle. We will soon know.

Despite strong employment data from the US last week there are signs that a global slowdown is underway.

Well, that was quite a few days in sterling bond markets. Last week I wrote about how central banks had lost their compass and were becoming ‘data watchers.’ This week I am reflecting on a dreadful set of UK inflation data and, again, the implications for interest rates.

Inflation is a funny thing. We observe price levels in everyday life, not the rate of change in those prices.

The Bank of England (BoE) is in a bind. It anticipates that inflation is going to fall quickly during the rest of the year, but its credibility is being tested.

Who would have thought that the British pound would be the top performing major currency last quarter?

I could write about the relative stability of bond markets and the unwinding of some of the more aggressive interest rate cut calls.

It was my birthday last Monday, and I took the day off work, which I don’t usually do on my birthday but I’d planned for it and, I have to say, it made a pleasant change.