Financial Markets

Considering the amount of information surrounding last week’s ‘budget week’ – we thought we would start our Financial Market news with a lighter point.

A ‘turkey’ – in financial slang describes an investment that turns out to be much worse than predicted or expected. A turkey is also given (and eaten) during the ‘Thanksgiving Holidays’ and stems from the world of finance – to be enjoyed with family and friends. I think we all know what Turkey we’d prefer!

 

Investment Balance

An article in ‘Investment week’ out today shows that a survey produced by Legg Mason concludes that a third (32%) of the UK’s leading wealth managers are holding cash across clients’ portfolios to protect against an expectation of a correction.

Psychology is a funny thing when it comes to markets….  In the current market, where sentiment has driven markets forward, lowering volatility to date, comments made by the Chancellor Philip Hammond could certainly discourage investments. When he says that the economy is ‘in a pickle’, this should be listened to by the markets and investors generally. Could this be a cunning plan to further justify the delay of the ‘balancing of the books’ and maintain prudence and financial tightness?

The revision downwards of the growth forecast by the Office of Budget Responsibility (OBR) from 2% to 1.5% would suggest that growth will be more difficult to produce. Therefore, we must all be mindful of this statement.

Asset Manager, Neil Woodford, commented last week that he disagreed with the OBR forecast as they had incorrectly forecast growth previously.  Woodford is generally expecting growth to be around 2%.

 

Yellen’s final Fed Testimony

Wednesday the 29th November sees current Federal Reserve Chair, Janet Yellen’s final testimony.

Fiscal spending is the focus. Corporations are battling to protect pricing power so could the future produce lower returns on this basis?

Tax cuts are also in focus, so how the new Fed Chair – Powell, develops his new era of leadership will be interesting. Although the tax cuts are hoped to stimulate the economy based upon the Phillips Curve theory.

The Phillips curve is a single-equation empirical model, named after William Phillips, describing a historical inverse relationship between rates of unemployment and corresponding rates of inflation that result within an economy.

 

Quantum Entanglement

The current markets are ‘connected’ and are driven by policy. However, there are some sectors that require ‘remote viewing’ abilities to understand them. One of those being cryptocurrencies.

 

Cryptocurrencies – Bitcoin

At the time of writing, Bitcoin had surged past $9,700 – it was $3,000 in September!  (Bitcoin could potentially be at $11,000 next week and $3,000 the following week if this upward increase continues).

The cryptocurrency now makes up half the value of all cryptocurrencies and has increased by 45% over the past 2 weeks or so.

The potential for this bubble to burst increases further as the price rises, especially when liquidity support is minimal. We know from history that when a bubble bursts the losses can be 80% of the pre-bursting price!  Nevertheless, the investment markets are paying attention to the area, which in turn is driving up the price.

Bitcoin and other cryptocurrencies are likely to give holders a white-knuckle ride soon, so watch this space.

 

Structured Products

Many of you will be aware that Structured Products are a ‘Contract of investment’. This means the underlying contract details need to be fully understood by the purchaser of the contract if purchased non-advised (and obviously by the adviser if advising investors).

Given that the outcomes for asset classes are expected to change (2009 was the best time ever to buy bonds/fixed income, we may be moving to a much tougher time for this sector of investment) now is the time to rethink an overall investment strategy.

The inclusion of suitable Structured Products and Structured Deposit plans would form part of this thinking, be it for growth (Accumulation) or Income (Decumulation).  We will be providing more information in relation to this thinking in due course.

 

MIFID II – ‘Markets in Financial Instruments Directive II’

We are presently putting together an ‘easy to follow’ overview of the wide-ranging objectives and benefits to consumers, along with the implications to manufacturers, distributors/advisers and consumers alike. We will provide an overview in relation to this specific issue in due course.

We can confirm that we have developed and expanded our business model to comply with the MIFID II regulations and reporting rules and will accordingly comply.

We are currently seeking clarity from product manufacturers in respect of the confirmation of their ‘Target Market’ so we are aligned to the intended audience.  We will ensure that we produce a ‘who the product is suitable for’ on our website so that non-advised, transactional consumers, can understand the intended consumer audience.  This must not be confused with ‘advice in respect of the suitability of a product’s needs to meet objectives of a consumer’ – provided by a qualified, regulated financial adviser, where the consumer of financial products has the protection provided by the regulatory financial process – which is the ‘know your customer process’, including risk profiling and advice on the suitability of a solution to meet one’s needs.

If you have any questions of a financial nature, please do not hesitate to get in touch – we will be happy to help.


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