Market Outlook Summer 2023

Positive equity markets have been offset by declines in bond markets as persistently high inflation has pushed central banks towards further rate hikes. US inflation continued to drop, but the pace was slower than hoped and employment remained resilient as consumer spending was robust. The US Federal Reserve indicated that further hikes in 2023 are likely and chair Jerome Powell has repeatedly said that rates will remain high for longer than markets expect. Inflation in the UK proved to be particularly sticky and markets are now positioned for rates to rise from 4.75% to 6% or higher by the end of the year.

Changing expectations for interest rates have weighed on bonds and UK government bonds declined steeply. Equity markets generally fared well. US equities have risen strongly, driven by a small number of technology stocks and relatively good economic growth has driven one of the strongest rallies in Japanese equities in recent years. UK equities lagged other developed markets as economic growth has been weak and consumer confidence remained low as inflation erodes spending power.

The expectation that the Bank of England will keep raising rates has caused sterling to rise in value against many global currencies and this has significantly reduced the gains from global equities for UK investors. Meanwhile, weaker global economic growth, particularly from China – as well as an easing of the disruption caused by Russia’s invasion of Ukraine – means oil, natural gas and many industrial metals have fallen significantly this year.

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This message is the opinion of Velarium Wealth and contains a document produced by FE Investments that we feel is relevant at the current time. This document has been prepared for general information only and is not guaranteed to be complete or accurate. It does not contain all of the information which an investor may require in order to make an investment decision.