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DPM in Review : March 2021

Posted 2nd April 2021

Markets in review:

Equities Index Level YTD Change
FTSE 100 6,741 4.3%
MSCI – Europe 142 7.1%
S&P 500 3,975 5.8%
Shanghai Composite (China) 3,418 -1.6%
Nikkei (Japan) 29,177  6.3%
Gold 1,735 -8.8%
Brent Oil Futures 64.57 24.7%

* Figures as at 26th March 2021

DPM in review:

  • The Bank of England kept interest rates on hold at 0.1% and maintained its asset purchase programme at £895bn. It said it does not intend to tighten monetary policy until there is clear evidence of significant progress in achieving its 2% inflation target.
  • Inflation, measured by the Consumer Price Index, rose by 0.4% in February, compared to 0.7% the previous month, and below the forecast of 0.8%.
  • The US Federal Reserve kept its dovish stance on policy. The federal reserve chairman, Jerome Powell, confirmed interest rates would likely stay at near-zero through 2023, stating the central bank will not raise rates until the US economy has fully recovered from the impact of the pandemic.
  • President Joe Biden announced a new goal of hitting 200 million COVID vaccination doses in his first 100 days in office. This is double the 100 million target he set in December. Optimism in the US is rising with supplies of vaccines on track to increase while states begin to reopen. US stock markets have reacted positively to this news with the S&P 500 and the Dow Jones hitting record highs during March.
  • Many European nations suspended the use of the AstraZeneca COVID vaccine amid fears it could cause deadly blood clots. However, the European Medicines Agency later reached a “clear scientific conclusion” that the vaccine was safe. Concerns have been growing over a third COVID-19 infection wave in Europe with France and Germany announcing the reintroduction of lockdown restrictions. A European Union summit saw leaders give their backing in principle to toughening vaccine export controls but stopped short of introducing a total export ban.
  • A 200,000-tonne mega-container ship ran aground in the Suez Canal on the 23rd March, holding up an estimated £7 billion of goods each day. The ship, the Ever Given, has now been freed and canal authorities are aiming to clear the traffic jam of around 300 vessels waiting to use the vital trade route in a matter of days.

DPM in action:

The Bank of England (BOE) has announced this month that interest rates will be held at 0.1% for the foreseeable future with the US Federal reserve also echoing these comments. It looks as if, interest rates will indeed stay lower for longer. How long this will remain the case however is the key question, and this will mainly depend on the rate of inflation.

Inflation is the rate at which the price of goods and services increase. The Bank of England targets an annual Inflation rate of 2% and the way this is managed is by raising and reducing interest rates. With the success of the UK’s vaccine roll out and large pent-up savings amounts ready to be spent domestically, prices and therefore inflation looks set to rise. If inflation begins to rise above the 2% target the BOE may be forced into action by raising interest rates to dampen demand and therefore cool the price rise.

In order to protect our clients’ portfolios against the prospect of an inflationary shock the investment committee made the decision to invest in an Inflation Linked Government Bond fund. The interest received from the bond fund is adjusted in line with the rate of inflation in order to compensate and ensure the interest received maintains its purchasing power. This is in contrast to a standard government or corporate bond fund that provides a fixed income with no rerating of interest payable despite price rises. The advantage of our Discretionary Portfolio Management service enables us to react and make changes rapidly for our clients as and when opportunities arise and to also be proactive when more defensive actions are required.

Quote of the month:

“As things stand, I can see absolutely nothing in the data to dissuade me from continuing along our roadmap to freedom, unlocking our economy and getting back to the life we love.”

Boris Johnson, Prime Minister of the UK.

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