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Client Update - 5th May 2023

Taking a brief break from the markets, that are once again digesting another batch of interest rate rises in the US and Europe, and more struggling regional US banks, this weekend sees the coronation of Charles III.

The crowning of Charles III will be as close as the new King comes to receiving public acclamation in the absence of a ballot. Saturday’s coronation, and the scale of public participation outside Westminster Abbey, will be the first popular marker of King Charles’s reign. With people camping out days ahead to secure positions where the parades will pass and over 65,000 registered events taking place in celebration the support is clear. The coronation celebrations are set to provide a boost of as much as £180 million to the UK economy through pubs, bars and restaurants making the most of the festivities, according to research from Barclays Plc, probably offsetting estimated overall costs for staging the event that will kickstart his reign.

I must admit I am a staunch supporter of the majority of the Royal Family – the quirky eccentricities of them reflects quite accurately the cosmopolitan Britain that we live in today. Charles is ascending the throne aged almost 50 years older than his mother did at the start of her reign. I think Charles has navigated pitfalls relatively smoothly in his first months as King. He has provided a healing hand in relations with Europe, pulling off a successful trip to Germany. He has been more guarded about voicing his personal opinions than he was as prince, adopting a more regal persona, but still touches on subjects he cares about, such as the environment.

In one of his first moves, Charles asked that profits from wind farm deals, which would have generated a multimillion-pound surge in royal revenues in coming years, be redirected to the “wider public good”. He has showed a national figurehead can be forceful and make strong valid points without stepping outside the boundaries of impartiality. Set against this have been the ongoing difficulties within his family that continually cast a shadow over proceedings. Nonetheless, I am very much looking forward to the weekends celebrations and I hope you get a chance to enjoy them as well.

Back to the day job, and after the most aggressive monetary tightening campaign since the 1980s, the US Federal Reserve (Fed) signalled that this week’s 0.25% interest rate hike might be its last. With inflation slowing and the job market cooling down, the central bank suggested that they are no longer anticipating future increases.

Applications for US unemployment benefits rose by the most in six weeks while continuing claims fell, flagging some softening in a jobs market that remains relatively resilient. Initial unemployment claims rose by 13,000 to 242,000 in the week ended April 29th.

The speech from US Fed Chair Jerome Powell was overshadowed somewhat by further US regional banking issues, with brewing anxiety about the next financial shoe to drop making traders increase their bets on the Fed making interest-rate cuts before the year is out. The plunge in Western Alliance Bancorp and PacWest Bancorp that topped 60% at one point was a timely example.

On Wednesday PacWest Bancorp tumbled 43% even after saying core deposits have increased since March and confirming it is in talks with several potential investors. Western Alliance also pared losses, but was down 31% despite its denial that the firm is exploring strategic options including a possible sale of all or part of its business.

That all shows how investor angst remains elevated after a string of bank failures and despite Fed Chair Jerome Powell’s assurance that authorities were closer to containing the crisis. Smaller lenders are under pressure after a year of rate hikes cut into the value of their bond holdings and drove unrealized losses to an estimated $1.84 trillion.

Nonetheless, markets are holding relatively firm on the basis that we are now at the Fed pause. I for one am very much looking forward to a weekend of cheery festivities and I very much hope that the markets catch on as well. Have a lovely weekend.

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