Church House Joint Chief Investment Officer, James Mahon summarises the challenging economic and political climate but reminds investors of the opportunities this presents.

2023 is turning into a long year. Three months ago, I observed that these markets required patience - ours continues to be tried, economically and, ever more, with geo- politics. Investment opportunities really do abound now…

The Bank of England can hardly be said to be demonstrating a clear direction, their recent decision on the Base Rate was split, at least they came down on the side of not inflicting more pain. Inflation is still too high but at least the direction of travel continues to improve. The Bank expects inflation to be back down to 2% by Spring 2025, which should be at the pessimistic end of expectations, but geopolitics says to take care with predicting the future.

Central bankers are pushing the line that the best we can expect for base interest rates is a “Table Mountain” plateau until it is clear that inflation has been squeezed out of the system. The US Treasury market (the equivalent of Gilts here) took fright over the past few weeks, pushing up interest rates for longer time periods in recognition of this. This was reflected in all bond markets (increasing longer-term interest rates = falling prices for bonds). The irony here being that increasing longer-term interest rates does the central banks’ job for them, applying more constriction to economies.

Meanwhile, as the US Presidential Election looms, their politics and Government appears to be getting ever more sclerotic. The recent ‘fix’ to avert a government shutdown being followed by the sacking of House Speaker McCarthy, leaving one to wonder now what? Former President Trump appeared to be relishing his court appearances until the most recent, which may have touched a nerve, his purported ‘business acumen’ appears to be his Achilles heel (time for Nikki Haley to step up!)

Last time we talked about the unusual period that we were going through with short- term interest rates higher than long-term rates and suggested that this would not last for long. So far, this has levelled out with lower short-term rates and higher long-term (Gilts with longer time to maturity have fallen). We cannot be sure that the Bank of England (and the other central banks) have got to the end of their base rate increases but they are certainly close.

We remain firmly of the view that there has been a complete transformation in the attraction of the Gilt and fixed interest markets (we called it a generational shift). I hesitate to say, ‘buy now while stocks last!’ but the income yields that we can establish for clients now are a pleasure to behold after so many years of parsimony.

The full Quarterly Review is available here

October 2023


Important Information

The contents of this article are for information purposes only and do not constitute advice or a personal recommendation. Investors are advised to seek professional advice before entering into any investment arrangements.

Please also note the value of investments and the income you get from them may fall as well as rise, and there is no certainty that you will get back the amount of your original investment. You should also be aware that past performance may not be a reliable guide to future performance.

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