More Grumpy Cat than Tigger

Oh, high and happy day! The summer holidays are OVER! Like many parents, I danced around the house yesterday morning, squealing with pleasure, tidying up the kitchen and finding it STILL CLEAN AN HOUR LATER! Yes, any younger readers considering children, this is what happiness will look like to you too in 20 years. I might even treat myself to planting some early spring bulbs this weekend to really seal in the old duffer merriment.

Moving to investment markets, and this week it’s been more Grumpy Cat than Tigger, with bond markets yowling at the Tigger-y Burnham.

10-year bonds (just money we lend to the UK Government in exchange for some interest) are now at their highest levels in 10 years. 5.29%, to be precise.

Why? First, Iran. War. Makes investors jittery. Makes oil pricier, so things are more expensive to make and inflationTerm used to describe how quickly the prices of goods and services is rising over a period of time. In periods of high inflation, prices are increasing rapidly, whereas low inflation means prices are increasing by only a small amount. gets stickier.

Second, stickier inflation = higher interest ratesThe amount that a lender charges someone for taking out a loan or a mortgage. It's calculated as a percentage of the amount borrowed - for example, 3%. to try to keep a lid on spending. And, if we get more interest on our cash in the bank, the Government has to pony up more to get us to lend to them (buy their bonds) instead.

And third, debt levels are globally high. We’re all borrowing a shed ton of money. Reportedly more than $353 trillion in global debt at last count. Shiny AI firms are also issuing bonds (asking us to lend them money), which adds to the volume of hungry debt beaks around the Big Money Nest.

This is not just some academic exercise. Higher bond yieldsThe return or profit on an investment, usually expressed as a percentage of the total price per year. For example, if the yield on a bond was 5%, this means an investor with £100 in that bond would get £5 in returns per year. mean higher mortgage rates and higher borrowing costs ahead. Less of the pot to spend on good stuff and more of the pot to spend on simply servicing debt. There is a reason that the Global MSCIAn acronym for Morgan Stanley Capital International, it creates global stock market indexes. Financials Index is at a 52-week high! Or put in another way, the banks are making a lot of money right now, so their shareholders are happy.

Investors are also channelling Grumpy Cat

It’s not just the bond markets feeling grumpy. Yesterday, we got our UK investor confidence data for August back and the summer positive vibes have largely disappeared. Investors are more nervous that they were in June and July. Confidence in the global and UK economy has fallen back again and more people are planning to move some investments to cash.

Geopolitics are rumbling, the assumptions for future interest rates are higher, record-high bonds mean higher assumed mortgage rates, energy bills have increased and more of you feel pessimistic about the FTSE 100Also called “Footsie”, the name for the share index made up of the largest 100 companies by market capitalisation (total value of all shares) listed on the London Stock Exchange. and global stock markets than feel positive. (Told you this was a bit Grumpy Cat!)

What does this mean investors did in August? It’s a mixed bag. Some invested more, many moved to cash and more people tried hard to diversify as over-reliance on tech stocks continued to alarm. As for future intent, 29% of all investors are planning to increase cash holdings in the next 6 months, higher than in June or July. If this is you, do check the interest rates your platform pays on cash – many of them are a bit puny and you may be better off in a money market fund. The Royal London Short-Term Money Market fund is the perennially popular choice with retail investors.

Those diversifiers have in part looked back to gold and silver markets. We’ll bring details of August’s bestsellers next week but, #spoileralert, Gold and Silver ETFs are firmly back in the Top 10.

Let’s end with some Tigger. It’s not all bad. This time last week I was slipping through the mud at a very soggy Reading Festival, surrounded by what looked like 99,999 teenagers watching Dave. And worse still, the only beer available was Budweiser. This weekend I'm in close proximity to a roof, a clean loo and there is some Gavi in the fridge. Praise be!

A final few bits to call out. Anyone still feeling charitable towards their kids after the summer may like this piece on how to start investing for your kids. And our more interested hobbyist investors can check out our update on Chinese markets. Here’s a final fact for the week which made me sit up. The debt-to-GDP ratio in China is over 300%. Ouch. Miāo wū!

Have a lovely weekend, everyone.

Holly