top of page
Search

Client Update - 9th June 2023

  • Appleton Fox
  • Jun 9, 2023
  • 4 min read

I must begin with comment on the further deterioration of events in the Ukraine. The floodwaters from the destruction of Ukraine’s giant Kakhovka dam have undoubtedly caused further untold hardship for those living in the area, but the events have stoked further support for the current counter offensive underway. Not all of Kyiv’s allies were as categorical as Ukrainian President Volodymyr Zelenskiy in blaming Russia for the breach — at least publicly — even as they were quick to pledge more backing. “We’re not leaving,” US President Joe Biden said, underlining his commitment to supporting Ukraine’s high-stakes counteroffensive to oust Russia’s occupying forces even as opposition among Republicans grows to continuing the costly financing of the war effort. As you will no doubt be aware, Russia, which has occupied the dam and its hydroelectric plant for more than a year, denied responsibility. The counter offensive in the Ukraine may be underway, however, the destruction caused by the torrent that flooded vast swathes of land, towns and villages only adds to the challenges facing Ukraine’s military on the battlefield.


The destruction of the dam has opened up a new threat to the Zaporizhzhia nuclear plant because it supplied critical cooling water to the cores of the site’s six reactors and for the ponds where spent fuel rods are stored. We are reassured that the complex probably has enough water for many weeks and since the reactors have all been shut down for months, the fuel is no longer hot enough to catch fire.


The explosion has undoubtedly created an enormous environmental disaster that spilled at least 150 tons of machine oil into the Dnipro River. With floodwaters now inundating scores of settlements in the south, it will likely end even the remote possibility of a Ukrainian assault across the Dnipro into occupied southern regions. That should allow Russia’s commanders to focus their limited forces and attention elsewhere, while distracting Kyiv with the need to deal with the civilian effects of the disaster. We shall see.


Zelenskiy needs more than pledges of solidarity as his forces step up probing attacks against heavily dug-in Russian troops across hundreds of miles of front lines in Ukraine’s east and south. He is seeking F-16 fighter jets to help challenge Russia in the air, but so far the US has been cautious about letting its allies provide them. He also needs solid commitments rather than vague assurances from NATO leaders at their summit next month to help ensure Ukraine’s security long after the current wave of support has passed.


As I have not written for a few weeks, let’s look at how May went with regards to global markets.


Global equities finished the month in positive territory, returning 0.6%, broadly outperforming global bonds, which returned -0.7% (both in sterling terms). Gains were fuelled in part by the prospect of developments in AI (Artificial Intelligence) – or more specifically, the potential efficiencies it could bring for businesses in the future. US Chip maker, Nvidia, was one notable beneficiary, seeing its market value reach $1 trillion during the month. Not for the first time this year, the month was characterised by mixed, yet broadly robust economic data despite the uncertain outlook for the period ahead. As consumers continued to face an inflated cost of living, markets were left to grapple with any subsequent fallout from fluctuating interest rate expectations. The US Federal Reserve’s (Fed) latest ‘dot plot’ (that is the chart they use to record official projections for their key short-term interest rate) initially suggested that the latest rate hike (to 5-5.25%) on 3rd May would be the last this year, however markets are now absorbing the possibility of a “Skip” whereby the Fed assesses data after a quick pause next week and possibly raises one more time in the summer to get on top of inflation for good.


In May there was a notable divergence between market constituents. Whilst several large technology names, such as Nvidia (+36.3%), Microsoft (+7.6%) and Apple (+5.2%) provided strong returns, some of the more cyclical and traditional bellwethers, such as Nike (-17.3%) and Walt Disney (-12.6%) suffered. It might be a surprise to some, but in a way, this typified the dominance of ‘growth’ stocks over their ‘value’ counterparts, year to date. In a reversal to last year, the former has significantly outperformed so far in 2023, albeit fuelled by pockets of the market that are arguably reliant on the prospect of cheaper financing costs in the not too-distant future.


Economic data in China has started to weaken. The recovery post-lockdown has been rather more subdued than anticipated, with geopolitical tension and a slowdown in activity generally weighing on markets. There is also evidence to suggest that any recovery in the Chinese property sector – an industry that is linked to circa 35% of national GDP – is also proving more sluggish than hoped. There were sizeable declines for both the price of oil and natural gas, as well as poor returns for industrial metals, with the cool off in global demand for goods and weakening manufacturing output weighing on the prices of materials.


For those of you who made it this far, you will have probably realised that we have not yet succumbed to a vastly more intellectual AI creation writing our weekly client update. It’s still me. The AI area of the market has garnered considerable attention in the year to date, not least the effect on Nvidia’s share price. This subject will undoubtedly offer significant opportunities and innovations (but also threats) as we move forwards, but I fear I will need to keep making my own breakfast for the time being. Do have a lovely weekend.

 
 
 

Recent Posts

See All
Client Update - 21st February 2025

I did try very hard to avoid Donald Trump last week, however I am afraid this week he has forced his way back into my weekly musings. Be...

 
 
 
Client Update - 14th February 2025

The Bank of England’s (BoE) decision to cut interest rates by 0.25% last week was widely anticipated, but it still stunned some...

 
 
 
Client Update - 7th February 2025

I appreciate that by the time you read this President Trump has probably staked claim to another piece of global real estate to go with...

 
 
 

Comments


© 2021 Appleton Fox. 

Appleton Fox Wealth Management Ltd is registered in England & Wales no. 6159055 whose registered office is at St Denys House, 22 East Hill, St. Austell, Cornwall PL25 4TR.  It is also authorised and regulated by the Financial Conduct Authority no. 466149. The Financial Conduct Authority does not regulate some forms of tax, will & trust advice. The guidance and/or advice contained in this website is subject to UK regulatory regime and is therefore restricted to consumers based in the UK. The value of investments may fluctuate in price or value and you may get back less than the amount originally invested.  Past performance is not a guide to the future.  The views expressed on this website represent those of the author and do not constitute financial advice.

Privacy Policy
 

Created by JIM-Media

bottom of page