The Adviser Online October 2024 | Page 24

TWO THINGS – ONE HAPPENING NOW AND ONE COMING SOON

Neil Birrell , Premier Miton ’ s CIO and lead manager of the Premier Miton Diversified Fund range , predicts there could be more volatility in financial markets in the short term . And wonders if the upcoming Budget might keep UK equity investors at bay .
Neil Birrell CIO and Lead manager Premier Miton Diversified Fund range
Welcome to the Inflection Zone
When I turned on Sky news at 6.15am on the day of writing this , Friday 6 September , the news story running was about the US non-farm payrolls for August being announced later in the day . It is the best monthly guide to the jobs market in the US and therefore the strength of the economy . A strong jobs market indicates a strong economy .
You may remember a disappointing number for July was announced at the start of August . That was part of the reason for the sharp fall in stock ( equity ) markets .
We are at a point ( or rather phase ) in the global economic cycle when investors are very sensitive to economic data and central bank policy on interest rates . This is sometimes called an inflection point , but it is never a single point – it always takes a period of time to work through .
In essence inflation is under control ( or looks to be ) and economies are slowing , both of which are a function of higher interest rates . As a result , it is expected that interest rates will fall , and it is already happening in many regions . This is to avoid the risk of economies slowing too much and heading into recession . It is a balancing act that central banks need to achieve , and it ’ s a difficult one . Recessions are damaging to economies and mean the profitability of many companies suffer , which is generally bad for equity markets .
So , we are scrutinising every release of economic data in every region for clues . The major fear is that interest rates are kept too high for too long , or don ’ t fall fast enough . We saw in August what can happen to markets . Equity markets in the US and Europe are lower again as the non-farm payroll number wasn ’ t as good as hoped . We also had Eurozone economic growth data which wasn ’ t so good . On 11 September the US inflation rate will be announced , on 12 September we will find out if interest rates in the region will be cut again , and the following week we will hear if interest rates in the US and UK will change .
Believe me , there are many , many other “ key ” data releases as well . One of them or a group of them could cause more market volatility while we go through the “ Inflection Zone ”. I think we will be in the “ Zone ” until there is more certainty that interest rates are falling steadily , which could be the rest of this year .
However , the longer term looks to be set fair and long-term investors should not overly worry about the short term . Also , volatility in share prices does provide opportunity for the active investor .
Just when I was getting excited …
The Budget has been a big feature on the UK political calendar for as long as I can remember . There are TV crews and photographers outside No . 11 Downing Street , bets made on how long the speech will last and parliamentary rules allow Chancellors to drink alcohol as they set out their spending agenda . All very quaint ,
24 | The Adviser Online