Welcome to the latest edition of our monthly market roundups.
With inflation coming in higher than expected in both the UK and the US, hopes of interest rate cuts in both regions have been pushed back to later this year. While the prospect of “higher for longer” rates caused the US market to fall in April, the drop in the value of sterling caused the export-heavy UK market to outperform versus other major markets.
In our ‘Off the beaten track’ section, find out about the podcast host who also manages a $1.6 trillion investment fund, how you can make $70,000 a year selling restaurant reservations, and how you can accidentally run for president of Iceland.
Inflation higher than expected
Headline UK inflation rose at an annual rate of 3.2%, it was announced in April, down from 3.4% in the previous month. While a slowing in the rate of inflation is usually welcome news, the figure was higher than the 3.1% forecast by economists. This made the market more doubtful about the speed of future interest rate cuts, even though the rate of price increases fell below the US for the first time in two years, and is the lowest rate the UK has seen in two and a half years.
The fall in inflation was predominantly driven by a fall in food prices, although high fuel costs, likely a reflection of a sharp rise in international oil prices due to tensions in the Middle East, caused the upwards pressure.
Core inflation, which removes volatile food and energy price movements, fell from 4.5% to 4.2%, but again analysts had expected a larger decline to 4.1%.
In the US, inflation rose to 3.5%, which was similarly higher than the 3.4% expected. Core inflation also exceeded expectations due to price pressures in services sectors such as healthcare and car insurance. The news caused selloffs in both stocks and bonds, and signalled that the Fed may not end up cutting rates as soon as the market had predicted.
Until the inflation news, the market was pricing in 3 rate cuts in the US for 2024, which reduced to 2 cuts after the announcement. The market now sees cuts starting in September rather than June. This is a stark contrast to the start of the year, where the market was pricing in six cuts, highlighting that inflation has been stickier than expected, but also how difficult it is for the market to accurately predict the movements for interest rates.
Interest rates unchanged
While there were no central bank meetings held during April, the inflation data caused the market to push back expectations of UK interest rate cuts from June to August this year (although, as noted above, these estimates can prove unreliable). At the end of March the predicted rate for the end of the year was 4.6%, which has now risen to 4.8%.
Following April’s inflation figures, Bank of England governor Andrew Bailey reiterated that the question was how much evidence was needed of falling inflation before cutting interest rates.
UK equities outperform
After a strong surge in March, regional equity performances were mixed during April.
Despite having had a strong run so far this year, the US market fell by 3% in sterling terms following the higher-than-expected inflation figures, which forced the market to reassess the pace of expected rate cuts from the Federal Reserve.
Emerging markets, however, performed better, up 1.7% as investors started to chase lower-valued Hong Kong-listed shares. Fund flows moved away from other Asia-Pacific markets such as Japan and India during the month, whose currencies are under pressure from a stronger dollar.
The UK market was the best performer of all major regions during April, rising 2.8% and reaching a record closing high during the month of 8,023.9.
The UK’s performance was largely due to the expectation that the UK will cut interest rates faster than in the US, weakening sterling and boosting the value of the export-heavy FTSE 100. The index’s constituent companies earn the majority of their revenues in foreign currency and therefore benefit from a weaker exchange rate. Crude oil prices, which climbed higher than $90 a barrel this month for the first time since October, also helped the UK market’s performance, as they buoyed the large oil companies which are large constituents of the FTSE.
Yields jump
Short-term UK bond yields rose in April, as these yields tend to follow movements in interest rate expectations. The stronger-than-expected inflation data strengthened the “higher for longer” interest rate narrative, and pushed back expectations for rate cuts, which caused yields to rise over the month from 4.2% to 4.5%.
Longer-term yields, which tend to be more sensitive to expected long-term inflation rates, followed suit, rising from 3.9% at the start of the month to finish at 4.3%.
Sterling slides
The first 3 weeks of April saw sterling drop significantly versus the US dollar, caused by the prospect of larger interest rate differences between the two regions, falling from a rate of $1.26 to $1.23. The final week of the month saw some recovery, though, with sterling managing to claw back some ground and finish the month at a rate of $1.25.
Versus the Euro, sterling strengthened slightly over the month, finishing at a rate of €1.17.
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Off the beaten track
The podcast host who also manages a $1.6 trillion investment fund
Darren Woods, chief executive of Exxon Mobil, fancies himself a grillmaster. His favourite cut of meat? The rib-eye steak. James Gorman, the chairman and recently departed CEO of Morgan Stanley, used to regularly get physically sick from the stress of the job. And Daniel Ek, who co-founded Spotify, is deeply conflicted about the enormous wealth he has achieved.
The show, called “In Good Company,” is the brainchild of Nicolai Tangen, a 57-year-old native Norwegian and former London hedge-fund manager who in 2020 was named CEO of Norges Bank Investment Management. That is the arm of the Norwegian central bank operating what is known as the oil fund, enriched by the nation’s vast oil and gas revenues.
The fund has never been bigger than it is this year, at around $1.6 trillion. But Tangen felt the fund—and the people running it—could be better understood by the public.
How to accidentally run for president of Iceland
Many people are seriously vying for President of Iceland. Some of them have undoubtedly signed up as a joke. And at least 11 of them accidentally registered and had no idea that they were collecting endorsements for their candidacy.
How could so many people accidentally start a campaign for President of Iceland? It turns out, the answer largely has to do with website design.
How table scalpers have turned the restaurant reservation system inside out
Alex Eisler, a sophomore at Brown University who studies applied maths and computer science, regularly uses fake phone numbers and e-mail addresses to make reservations. His recent sales on Appointment Trader, where his screen name is GloriousSeed75, include a lunch table at Maison Close, which he sold for $855, and a reservation at Carbone, the Village red-sauce place frequented by the Rolex-and-Hermès crowd, which fetched $1,050. Last year, he made $70,000 reselling reservations.