March was another strong month for global equities with the MSCI World index rising by 3.4% in euro terms, bringing its total return for Q1/2024 to 11.3%.
Meanwhile, the ECB confirmed that it needs to see further disinflationary data before cutting interest rates. Again, it noted the importance of the wage inflation data that is due to be released before its meeting in June.
source: Goodbody Asset Management.
warning: The value of your investment can go up and down.
Over the past several weeks, there has been a notable convergence between the markets expectations for interest rate cuts in 2024 and the Fed’s guidance. At the beginning of the year the market was pricing in roughly six 0.25% interest rate cuts in 2024, while the US Fed implied just three 0.25% interest rate cuts.
Stronger US economic data, specifically in employment and inflation, has led the market to significantly dampen down its expectations for the coming year. Today, the market is close to agreeing with the Fed, with little over three 0.25% cuts expected, with the first beginning in either June or July.
Closer to home, the market has followed a similar path, with the ECB expected to cut less than four times, with the first cut coming in June.
Source: Bloomberg / Goodbody Asset Management.
Despite concerns of slowing economic growth, Q1/2023 earnings season began with the major US banks posting better than anticipated results. Several of the major technology and consumer discretionary names, including Microsoft and Alphabet, also reported better than expected results, leading their respective share prices to rise.
On the economic data front, US and European headline inflation data declined to 5.0% and 6.9% respectively. However, core inflation in both regions remained stubbornly high. The continued crises in US regional banks led the market to revise its expectation for interest rates lower with the Fed now forecast to deliver its final hike of 0.25% in May.
source: Goodbody
The market has begun to interpret the reducing inflation levels to mean central banks can begin to cut interest rates. In the US, there is an expectation that interest rates will peak at around 4.9%. In the eurozone, the equivalent number is about 3.5%.
The opening days of February saw the US Fed increase interest rates by 0.25%, while the ECB and Bank of England raised rates by 0.5%. The US Fed Chairman indicated at his February press conference that the “disinflation process has started” indicating that the increased interest rates were having the desired effect.
What’s noteworthy is that the market now expects the US Fed to start cutting interest rates in the second half of the year (and by something like 0.5%) and there’s a small possibility of the ECB doing likewise late in the year. However, Central banks disagree.
Despite the recognition of progress on inflation, the US Fed continues to push back against lowering rates too soon, indicating that more increases will be needed to reach 2% inflation levels.
To judge by the comments from ECB President in which she has overtly stated the market has it wrong, there remains considerable tension between how the market views EU interest rates and how the ECB view the matter.
Source: Bloomberg 01.02.23 (post Fed & pre ECB announcement).
Warning: Past performance is not a reliable guide to future performance
The Finance Act of 2022 introduced a number of taxation changes to pension contributions, as detailed below:
So, if your company has surplus a cash flow, rather than let it sit in a bank account earning nothing, invest it in a PRSA, claim tax relief and benefit from a pension at retirement!
*subject to revenue rules. Max funding limit of €2m applies. Values can fall as well as rise. If you invest in these funds you may lose some or all of your investment.
The annual Deloitte Football Money League report was published yesterday. Total revenue for the top 20 highest revenue generating soccer clubs in 2021/22 stood at €9.2bn, +13% y/y and only marginally below pre-pandemic levels. Manchester City retained its position at the top of the Money League and for the second time the club generated the highest revenue in world football. As a reminder City only broke into the top five in 2015/16. Unlike the legacy top English teams – Liverpool and Manchester United, who’s matchday income contributes 16% and 18% of total revenue, City’s revenue is largely commercial in nature representing 91% of total revenue. Interestingly, Premier League teams dominated the top of the charts with 11 of 20 top clubs coming from England. The cumulative revenue base of these clubs was €4.9bn, +19% y/y.
Source: Deloitte Football Money League 2023
Key Points from the Budget 2023 Speech:
However, it is possible that other taxation changes not announced in the Budget and not outlined above could be introduced in the Finance Bill 2022 when it is published around the end of October.
source: Brokers Ireland
In these difficult times of soaring inflation, interest rate hikes and volatility on financial markets effecting pension and investment funds, it’s all too easy to get caught up in headlines and to forget about businesses. Some of the stats surrounding everyday companies, when you actually sit back and think about them, are nothing short of incredible. For example, Dollar General, the largest discount retailer in the US, opens 3 new stores every day. Think of the logistics and execution required to make that work. 3 new stores a day ….. BE POSITIVE !
Source: Dollar General SEC Filings
From July, 2022, the ECB will increase interest rates by 0.25%, in order to try and combat current hyper inflation. However, this initial increase will have little or no impact on rising prices. It will certainly take further rate hikes over 2022 & into 2023 to slow down the rate of inflation.
What should I do with my mortgage?
If you are on a variable mortgage or coming to the end of a fixed rate term, it could be worth your while to contact your lender to consider switching to a fixed rate mortgage, as there will be a further rate hike in September of probably, 0.5%, with further rate hikes in the fourth quarter of 2022 and into 2023.
Our advice …. ACT NOW!
Prior to Covid, semiconductors were a relatively unknown industry in the context of everyday conversation. Covid-induced shortages and the knock-on impact that a lack of semiconductors have had in the supply of pretty much everything has shone a bright light on this once under-the-radar industry.
Some of the statistics surrounding the semiconductor industry are absolutely fascinating. For example, a modern chip factory costs $10-20 billion to build and takes 3-4 years to complete. These facilities are equipped with automated systems that allow companies to operate 24 hours a day, 7 days a week, 365 days a year. However, once a facility is up and running, it still takes 3 months on average to make a single chip given that the industry relies on tens of thousands of global suppliers for key inputs.
Billions of dollars in capital investment, high and continuous R&D requirements, almost unfathomable complexity, and we think you would be forgiven for being shocked that the average selling price of a semiconductor is a mere $0.48 (that’s 48 cents, not 48 dollars!).
Semiconductors are essential components in pretty much all electrical goods. These chips may cost next to nothing in isolation, but the absence of a 48 cent piece of silicon means the final product cannot be sold. Semiconductors are a great illustration of a small but incredibly important part of a bigger thing.
Data Source: Bank of America “Semiconductor Primer 2022” & Goodbody Asset Management