A longer term view is always essential.
Investors have seen that investment markets have increased with the ‘downs and ups’ generally since the Omicron variant was announced, but increasingly in 2022.
There are a number of reasons to explain the ‘risk off’ pull back – but to illustrate the concerns for investment markets, the sign posting of “quantitative tightening” by central banks has spooked markets, along with sectors not meeting expected earnings – so generally impacting sentiment widely.
The Bank of England have increased rates, the US Central Bank (the Fed) is expected to raise rates through a series of 5 rate rises over the course of the next year, in order to counter balance the inflationary figure of 7.5% being experienced as basket of consumer goods.
At this stage, the FED considers the high level of inflation to be transitory. There is clearly a strong “demand” need and a “supply” constraint, caused by the extraordinary economic shock caused by the Pandemic. The risks remain to the upside in relation to rate increases (that seems to be moving quickly to counter the inflationary increases).
The ECB are somewhat aligned to the FED in a hawkish outlook.
The UK’s economy has clearly rebounded strongly (the fastest growing economy in the G7), growing by 7.5% in total – despite a dip due to Omicron. This is the fastest growth in over 80 years, albeit the UK has come from a very low base. It would be logical to expect this growth would progress to corporate profits in the course of an investment cycle, so investing for the long term investors, when inflation is high, eroding buying power – with low interest remaining for years to come, is likely to be rewarded over the longer term.
UK households will feel the pinch further with National Insurance increases in the new Tax Year and energy price caps being raised – again to counter the supply constraint with energy.
Low income families may be able to receive up to £350 to help with the energy cost increases but this is unlikely to offset the increased cost to families generally.
Check out the increased cost of ‘Breakfast’ produced by Fidelity – an 80% increase!
Market surge volatility. |
