Is this the real thing?
Macro & Overnight
Markets greeted the lower-than-expected US inflation data with strong rallies across all risk assets.
Several FOMC members’ dovish comments about future rate trajectories amplified things.
NASDAQ led equity markets with a 7.5% rise. US bond yields were sharply lower, the 10yr now 40 bps lower in 5 days, and the US $ index at 108 is 4.5% lower over the month.
Perhaps unsurprisingly, with such euphoria over the reduction of CPI to a historically high 7.7% annual rate, precious metals and even Bitcoin rallied, signalling raised concerns that policy easing might be premature.
As the Fed pivoters advance their case, the unresolved question is, “is this the real thing, or is this just fantasy”? Is this the turning point for risk assets, or just another bear market rally?
The FTX crypto saga continues to make headlines and provide valuable collateral for the “I told you so brigade”. It is hard to blame them. FTX founder Sam Bankman Fried has apologised for “f****ing up”, put on a suit and asked nicely if anyone has a spare $8bn to fund customer withdrawals on his centralised platform of decentralised assets. He seems to be fantasising that we are still in 2021. Even Elon Musk is currently otherwise engaged.
UK Company News
Interesting comments on growth investing from Scottish Mortgage and UK corporate restructuring from FRP Advisory on a typically quiet Friday corporate news day.
Scottish Mortgage, the UK’s most successful long-term growth investor, reported H1 results. Over ten years, Scottish Mortgage’s net asset value has increased by 528% versus a 208% increase in the FTSE All-World index. They said, “financing long-term growth companies’ development differs from what interests most investors. To understand that, you need only observe recent months’ commentary on ‘risk off’, deleveraging and the flight to safety”. The investment trust has reduced several Chinese holdings, including long-standing investments in Alibaba and Tencent. The regulatory environment in China remains challenging, and they are concerned that ongoing uncertainty will harm the risk-tolerant culture that has driven the long-term success of China’s private sector. The manager reported that “while rising interest rates and increasing friction between the United States and China create a complex environment to navigate, the long-term advantages of companies are built in periods of stress and capital shortage”.
Compared to last year, corporate advisor FRP Advisory has seen an increase in demand for confidential advisory projects and enquiries for restructuring services. Growth in the higher volume liquidations market, typically lower value and less complex, has continued, including Creditors’ Voluntary Liquidation (“CVLs”) and Compulsory Liquidations. However, the formal administration appointment market remains below pre-pandemic levels. This level is despite the long list of well-documented headwinds facing UK corporates, including recent interest rate rises, supply chain disruption, input cost inflation (i.e. wages, energy, supplies and materials), Brexit and the withdrawal of pandemic support measures. Many troubled UK corporates have avoided the need to consider and implement formal restructuring processes as they took advantage of the government-backed support measures made available during the pandemic. The Group expects that as the headwinds further impact the UK economy, the demand for the Group’s restructuring services will continue to increase. The medium-term outlook for FRP’s key markets remains positive, and it remains confident of progressing in the current year.
Halma and Seeing Machines have new CFOs.
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