While the media has been focused on the outcome of the debt negotiations in the US, investors appear to be more concerned with economic data similar to that published by the US Department of Labour showing that the labour market in the US remains relatively robust.  While this shows business is in good health it could potentially result in upward pressure on wages and present an opportunity for the Federal Reserve to consider additional interest rate hikes to address inflation.

In recent weeks, several other major economies have reported upside CPI surprises, either in the headline or core reading. In the Eurozone, the April CPI ticked up to 7.0% year-on-year and Canada’s April headline CPI ticked up to 4.4%.  In the U.K., the April consumer price index was an unpleasant surprise for Bank of England policymakers with headline CPI, although slowing from 10.1% year-on-year in March to 8.7% in April, was still well above the 8.2% consensus forecast.

Similar to the US, the U.K. labour market has remained quite resilient with the unemployment rate at 3.9% for the first quarter.  However, wage growth as measured by average weekly earnings excluding bonuses was elevated, increasing during the first quarter by 6.7% year-on-year.  This fuelled market expectations of further interest rate rises as inflation in the UK is now about double the equivalent US rate and significantly above that of the Eurozone.  The expectation is that the Bank of England will have to raise interest rates aggressively beyond their current level of 4.5%.

All of these macro factors weighed on the market with the result that world equity markets were once again under pressure with the MSCI declining by 1.3%.  The US however, managed a marginal improvement with the S&P500 up by 0.3% while AI frenzy drove the NASDAQ up by 5.8%. In the UK, which does not have the same exposure to this emerging technology, most of the indices were down.  The FTSE 100 declining by 5.4% over the month and the broader FTSE 250 Index down by 3.6% while smaller company valuations fared poorly with the AIM All-Share Index down by 5.7%.  The Small Cap Index was down by only 1.7% while the Fledgling Index fared the best, up by 1.1%. The Athelney portfolio, while also declining, was only down by 1.3% during the month and, after providing for ongoing expenses, the NAV was down by 2.1%.

During the month we continued to reduce our exposure to the property sector, selling down some of our holding in Londonmetric and Rightmove and using the cash to increase our exposure to Spirax-Sarco Engineering and adding Cake Box to the portfolio.  Our cash holding at month end comprised 2.6% of the portfolio.