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Weekly Investment Update

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Summary

Alexandra Delcea looks at the implications of the UK inflation rate dropping unexpectedly.

3 min read

In this week’s film, Alexandra Delcea covers the latest on UK inflation, the changing value of the pound and the performance of Coutts portfolios.

“Within our fixed income holdings, we prefer corporate credit to government debt and prefer credit risk to duration risk. ”
Video player requires JavaScript enabled. You can watch this video here: https://www.youtube.com/watch?v=hE5etosH0N0

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Our Key Messages This Week are:

UK inflation drops unexpectedly

UK inflation for June – as measured by the Consumer Price Index – came in at 2.6%, which was lower than the expected 2.9%. We believe this makes it less likely that the Bank of England will increase interest rates any time soon.

Following the news, 10-year government debt yields fell slightly to 1.2% from 1.3%, but remain higher than a month ago when they were about 1%.

 

Sterling strong against the dollar; weak against the euro

As we start the summer holiday season, we find sterling stronger against the dollar but weaker versus the euro. It is now trading at about $1.30 and €1.12, having started the year at around $1.23 and €1.16.

Dollar weakness is largely down to dovish comments from US Federal Reserve governor Janet Yellen and political gridlock. Meanwhile, the euro strengthened on the back of comments from European Central Bank (ECB) governor Mario Draghi at last week’s monetary policy announcement. He said that the ECB would reassess its quantitative easing programme in the autumn, suggesting the possibility of some tightening towards the end of the year.

 

Fixed income positions pay off

Within our fixed income holdings, we prefer corporate credit to government debt and prefer credit risk to duration risk. 

This positioning has paid off so far this year. For example, in our sterling portfolios our allocation to corporate credit has outperformed the UK’s government bond index by more than 2% in the investment grade market and more than 3% in the high yield space.  

Coutts Investments

With unstinting focus on client objectives and capital preservation, Coutts Investments provide high-touch investment expertise that centres on diversified solutions and a service-led approach to portfolio management. Our investment process is as disciplined as it is creative – ensuring tailored solutions with robust results.

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