Umbra Capital Partners

Markets have reacted meaningfully lately to the prospect of lower short term interest rates, especially in the US. Dovish comments from key policy makers on the FOMC, alongside declining inflationary pressures and softer economic data has prompted markets to price in the prospect of interest rate cuts in the first quarter of next year. We believe bonds are in a sweet spot right now against this evolving backdrop, however there are also other investment opportunities which should stand to benefit if monetary policy is eased as 2024 ensues. One of those investment ideas is gold currently. The chart below illustrates gold’s performance during past easing cycles which has also tended to correlate with recessionary periods (the grey bars). We believe gold therefore provides an implicit hedge against a deteriorating economic landscape and the potential easing in monetary policy.

The outlook for the UK consumer is starting to perk up a little. For the last 2 years, the average UK consumer has experienced a steep fall in real disposable income. The chart below highlights the degree to which average wages have been growing year-on-year relative to the rate of inflation (CPI YoY). This backdrop has encouragingly reversed lately following the marked decline in the rate of inflation. The resultant increase in real disposable income (wage growth minus the rate of inflation) has coincided with Friday’s pick-up in the UK consumer confidence survey, albeit from a very depressed level. So long as the labour market remains intact, this should buoy domestic growth over the near term in our view with domestic equities and the FTSE 250 Index particularly benefiting.

Navigating Market Shifts: Optimism Amidst Interest Rate Changes Earlier in the week we looked at how bonds have performed historically post a peak in the rate cycle. Today we look at equities, specifically the S&P500. Markets continued to be buoyed this week on the expectation that central banks have reached the peak in their tightening cycles. Numbers as at date of original report: 9/11/2023 #marketinsights #investmentopportunities #interestrates

Navigating Market Shifts: Optimism Amidst Interest Rate Changes Recent market buoyancy reflects the potential peak in the US interest rate cycle. As inflation eases and economic momentum shifts, major central banks have reached historically high interest rates. For investors eyeing risk assets, history indicates attractive returns post-peak. Check the tables below for a quick look at how bonds have historically performed. #MarketInsights #InvestmentOpportunities

Excess savings were felt to have been shielding consumers from the impact of higher rates. But data show that these have been exhausted for all but the wealthiest. Will rates now start to bite? #interestrates #inflation #investmentstrategies

Fixed income markets remain volatile, with 10Y UST falling 50bp last week with further volatility this week. We favour fixed income for investors seeking good near-term risk-adjusted returns and think the volatility can present good entry opportunities. #fixedincome #investmentmanagement

Our quarterly review is now available. Whether or not Central Banks have won the battle with inflation or, if they have, at what cost, we don’t know for sure yet. But there are several indicators that point to a cooling for economic growth and prices. How should investors position for the months and years ahead? Find out more: https://lnkd.in/ebdAmtbV #marketoutlook #economics #investmentstrategy