Aurelia Butler

NEW YORK (Reuters) – Side-by-side declines in U.S. equity and fixed income markets are pushing investors into cash, commodities and dividend-paying stocks as geopolitical uncertainty and worries over a hawkish Federal Reserve rock asset prices. With the first quarter of 2022 winding down, the S&P 500 is down around 5% year-to-date, after falling as much as 12.5% earlier in the year. The ICE (NYSE:ICE) BofA Treasury Index, meanwhile, was recently down 5.6% this year, its worst start in history. Investors have traditionally counted on a mix of stocks and bonds to blunt declines in their portfolio, with stocks ideally rising amid economic optimism and bonds strengthening during times of uncertainty. That strategy can go awry, however, and market gyrations stemming from Russia’s invasion of Ukraine, soaring commodity prices and the Fed’s hawkish tilt have combined to make it harder to follow the playbook this time around. Though a sharp bounce in stocks has more than halved the S&P 500’s losses for the year-to-date, some investors are wary the rebound may not last and are seeking to cut their exposure. “We are in a perfect storm right now,” said Katie Nixon, chief investment officer for Northern Trust (NASDAQ:NTRS) Wealth Management. “We’ve been in periods of heightened geopolitical risk before but this one feels a little different. The negative outcomes could be much more severe and broad.” Nixon is increasing stakes in agricultural and energy companies, as well as real estate investment trusts (REITs), which have acted as an inflation hedge in the past. Investors moved $13.2 billion to cash and $2.1 billion to gold over the last week, data from BoFA Global research showed. U.S. stocks saw $3.1 billion in outflows, their largest in nine weeks. The firm’s latest survey showed fund managers’ cash positions earlier this month at their highest since March 2020 . George Young, a portfolio manager at Villere & Co, is raising his portfolio’s cash allocation to nearly 15%, well above the typical 3% of assets he normally holds. “Cash is paying literally nothing and is arguably negative because of inflation, but we’re not seeing many things that we want to buy,” he said. Recent declines have “been more painful than many prior bouts of volatility” due to the twin sell-offs in both stocks and bonds, wrote Michael Fredericks, head of income investing for BlackRock’s Multi-Asset Strategies Team, in a note Friday. He is growing more bullish on dividend-paying stocks, which trade at lower forward price to earnings valuations than the broad S&P 500, and are less sensitive to rising interest rates than growth stocks or bonds. Gains have been particularly hard to come by in the bond market, as investors recalibrate their portfolios to a Fed that appears ready to go all-out in its battle against inflation. Yields on the 10-year benchmark U.S. Treasury, which move inversely to bond prices, reached a three-year high of around 2.5% in the past week, with investors now pricing in more than 200 basis points of interest rate tightening this year. [FEDWATCH] With few attractive opportunities in U.S. debt, Anders Persson, head of global fixed income at Nuveen, has recently increased his positions in dollar-denominated emerging market bonds, in part due to the rally in commodity prices. “There is not a clean play-book for a post-pandemic Fed pivot at the same time you have a war between Ukraine and Russia,” he said. Investors will be watching U.S. non-farm payroll data next week as they gauge whether the economy is strong enough to handle the Fed’s aggressive rate-hike trajectory. To be sure, some investors believe times of overriding pessimism are ideal for buying stocks, an idea supported by ample evidence of defensive position that has accompanied the S&P 500’s recent bounce. BoFA Global Research analysts said their contrarian Bull & Bear Indicator recently gave a “buy” signal based on outflows from equity and credit and high levels of cash in investors’ portfolios. Adam Hetts, global head of portfolio construction and strategy at Janus Henderson, said the largest risk for most investors would be “overreacting to short-term moves” and jumping headfirst into commodities or gold as a hedge against inflation. Hetts is steering clients into higher-quality equities with strong cash flows such as dividend stocks, and seeing increased investor interest in hedge fund strategies that can take short positions. “We’re having a historically bad start to the year, but we’re trying to ensure that the cure isn’t worse than the disease,” he said. More

OTTAWA (Reuters) -The Bank of Canada is prepared to act “forcefully” with rate hikes to return inflation to target, particularly as price pressures broaden amid tight labor markets and booming demand, a deputy governor said on Friday.Sharon Kozicki, in her first speech since joining governing council last year, also said the pace and magnitude of interest rate increases, along with the start of quantitative tightening, would be actively discussed at the central bank’s April meeting.”Inflation in Canada is too high, labor markets are tight and there is considerable momentum in demand,” Kozicki said, speaking via webcast to the Federal Reserve Bank of San Francisco. “It’s important to be clear that returning inflation to the 2% target is our primary focus and unwavering commitment. We have taken action and will continue to do so to return inflation to target, and we are prepared to act forcefully,” she said.Kozicki’s words echoed statements by Governor Tiff Macklem earlier this month, who said the bank could act aggressively to tackle spiking prices and did not rule out a 50 basis point hike.The Bank of Canada lifted its policy rate to 0.5% earlier this month, up from 0.25% and its first increase in three years. Inflation, meanwhile, hit 5.7% in Canada in February and is expected to go higher.Kozicki said that while high household indebtedness, particularly mortgage debt, is a key risk, Canadians appear to be in better financial shape than at the start of the BoC’s last tightening campaign in 2017/18.That suggests a more aggressive path this time around, said economists.”That’s the central bank’s way of signaling that it thinks rates will need to rise higher this time around than the 1.75% peak policy rate seen during the previous cycle,” said Royce Mendes, head of macro strategy at Desjardins Groups, in a note.He said the repeated use of the word “forcefully” suggests a 50-basis-point move is being considered in April.Money markets, for their part, are betting the Bank of Canada will raise rates by a further 200 basis points this year. [BOCWATCH]Economists generally view that as too aggressive, considering Canada’s highly indebted households and the sharp impact aggressive tightening could have on the country’s frothy housing market. Kozicki said the central bank will “watch developments with respect to households closely as we proceed.””High indebtedness could amplify the impact of rising interest rates, and it could also worsen the impact of a future shock,” she said. The Canadian dollar was trading 0.4% higher at 1.2482 to the greenback, or 80.12 U.S. cents, its strongest level since Jan. 20. More

UK goods exports have underperformed the rest of the world in what experts said was a sign that Brexit might be limiting the country’s trade performance.The volume of UK goods exports fell 14 per cent in the three months to January compared with the same period in 2020, before the pandemic, according to the world trade monitor published on Friday by the Netherlands Bureau for Economic Policy Analysis, known as the CPB. This was in stark contrast to the global average of an 8.2 per cent rise over the same period.The data, which incorporates Office for National Statistics data for the UK, also showed that Britain compared poorly with the performance of all advanced countries where goods exports rose 5 per cent. The analysis also showed that the UK was underperforming over the long term as it was the only country tracked by the CPB where goods exports remained below the 2010 average. “While most other advanced economies have seen a strong recovery in trade, UK exports remain below pre-pandemic levels,” said Jonathan Portes, professor of economics at King’s College London. Earlier this week, the Office for Budget Responsibility warned that UK trade “lagged behind the domestic economic recovery” and had “missed out on much of the recovery in global trade . . . suggesting that Brexit may have been a factor”. As a result, the UK has become a less trade-intensive economy, which was expected to knock out 4 per cent of its productivity over the next 15 years, it added. The OBR noted that “none of the new free trade agreements or other regulatory changes announced so far would be sufficient” to have a material impact on its forecasts for UK trade. It has estimated that leaving the EU would result in the total UK imports and exports being 15 per cent lower than if Britain had remained part of the EU.Earlier in the month, Michael Saunders, external member of the Bank of England’s Monetary Policy Committee said that Brexit had “reduced the economy’s openness, in trade and labour mobility”, which lowered the extent to which capacity pressures could be eased by imports and immigration.A fortnightly ONS survey published on Thursday showed that more than half of UK businesses that had changed their supply chain had switched to more domestic sourcing since the end of the Brexit transition period in January 2021.Paul Dales, chief UK economist at Capital Economics, said the UK trade data was complicated by changes in methodologies but “the bigger picture [was] that exports [were] still struggling to recover from Brexit and the pandemic”.Gabriella Dickens, economist at Pantheon Macroeconomics, backed the OBR’s view that UK trade would remain “weak” in the medium term. “Exports growth looks set to remain sluggish,” she said, as UK exporters continued “to be slowly cut out of global supply chains, due to the extra administrative burden for EU firms of sourcing goods from Britain”. More

NEW YORK/LONDON (Reuters) – The International Monetary Fund’s executive board on Friday approved a $45 billion program for Argentina after more than a year of negotiations, two sources with direct knowledge said, allowing the South American grains exporter to avoid a costly default with the Washington-based lender.The agreement, which follows a staff-level agreement earlier in March, marks the 22nd IMF program for Argentina since it joined the Fund in 1956. It replaces a failed $57 billion program from 2018, the largest in the Fund’s history, for which Argentina still owes over $40 billion. More

The US has threatened to impose sanctions on individuals and companies outside Russia that are helping it circumvent western penalties imposed due to the war in Ukraine, in what would be a significant escalation of its efforts to financially isolate Moscow.Jake Sullivan, the US national security adviser, said Washington was ready to widen its net of economic and financial punishment around the world to include “secondary” sanctions. He was speaking to reporters on Air Force One as President Joe Biden travelled from Belgium to Poland on Friday.“We have a number of tools to ensure compliance, and one of those tools is the designation of individuals or entities in third-party jurisdictions who are not complying with US sanctions or are undertaking systematic efforts to weaken or evade them,” Sullivan said.He added: “We are prepared to use them if it becomes necessary.”Sullivan’s remarks come as the US and its allies are growing concerned that Russia will try to bypass the financial isolation imposed by the west by finding alternative sources of foreign currency and business deals to prop up their economy and the rouble.

The imposition of secondary sanctions would undercut any such efforts, but would potentially increase the negative spillover on the global economy, forcing companies and investors around the world to choose between doing business with the west or with Russia. Asked about the idea of secondary sanctions after a summit on Friday, European Commission president Ursula von der Leyen said the allies were now looking “deep” into the sanctions regime to identify any loopholes or efforts made by Russia to get around the penalties. They would then do everything within their own system to “close the loopholes and make circumvention impossible”. Sullivan’s threat to wield such sanctions comes amid an intense debate between the US and its European allies about how to handle China’s position on the Ukraine war. Some fear that Beijing may aid Russia both militarily and economically, including as a back door for sanctions evasion.

The US has warned Beijing that it will face “consequences” if it were to help Russia, but it has not specified the measures it would adopt. US and European leaders have been trying to co-ordinate their approach to Beijing in advance of an EU-China summit in early April. Speaking on CNBC on Friday, Treasury secretary Janet Yellen said it was premature to impose sanctions on China. “I don’t think that that’s necessary or appropriate at this point. We as senior administration officials are talking privately and quietly with China to make sure that they understand our position,” she added. “We would be very concerned if they were to supply weapons to Russia, or to try to evade the sanctions that we’ve put in place on the Russian financial system and the central bank. We don’t see that happening at this point.” Next week, Wally Adeyemo, the deputy US Treasury secretary, is heading to European countries including the UK, Belgium, France and Germany, to co-ordinate sanctions policy in connection with the Ukraine war. European countries have traditionally resisted the imposition of secondary sanctions by the US, most notably in the case of US measures related to Iran. Additional reporting by Sam Fleming in Brussels More

Rising food prices are ringing alarm bells for households all over the world. UK food banks say they have never been busier. Supermarkets in Italy have reported panic buying. And in Iraq there have been bread price protests.Food costs were increasing even before the Ukraine war, driven by higher energy prices, transport bottlenecks and, in some countries, farm labour shortages. Now Russia’s invasion has triggered further rises and concerns about prolonged disruption in agriculture-rich Ukraine.Does this mean that it is a good time to invest in farm commodities? Especially as equity valuations remain high, despite the turmoil caused by the war, and rising inflation is putting pressure on bonds?It’s true that commodities have proved a decent investment at times of high inflation in the past. But you have to choose carefully as these can be volatile markets where prices can fall as fast as they rise.It’s no surprise that wheat prices are up more than 40 per cent since the start of the year, when Russia and Ukraine together supply some 30 per cent of world exports.

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Supply fears have spread across agricultural markets, with prices for corn, soyabeans and beef all well up this year.The concerns are even more acute in fertilisers, a key input, since Russia and its ally Belarus supply fully 40 per cent of global exports. CRU, a research company, calculates that prices are up by about 30 per cent, which may not sound too serious in the circumstances, until you consider they have risen threefold since early 2020. The International Food Policy Research Institute says: “The current conflict in Ukraine is likely to generate an immediate impact on global wheat market stability and, by disrupting natural gas and fertiliser markets, have negative impacts for many food producers.”Buying wheat wholesale — as you might gold — is obviously not practical for the average private investor. But the futures markets are very well developed and there are hundreds of exchange traded funds (ETFs) both for single crops, such as wheat, and for diversified baskets of agricultural commodities. BlackRock, the investment house which runs a stable of commodities funds, says that while “commodity trading can carry risk” it can offer “diversification and the potential for upside performance”.Still, before you take the plunge, look at some commodity charts to see how wild the price swings can be. How comfortable would you be on such a financial rollercoaster?For example, wheat gained 92 per cent in the five years between 2017 and 2021. But it dropped every year between 2013 and 2016, with a cumulative loss of 46 per cent. Over the decade to the end of 2021, you would have made around 15 per cent — not much of a reward for a stomach-churning ride.There is also an ethical question to consider. Throughout history, grain speculators have had a decidedly unfavourable reputation. Quite unfairly, say professional traders, who argue that financial investors give markets the liquidity needed to transmit price signals quickly. Yes, prices might spike if investors pile in, but the upswing gives farmers a bigger incentive to plant more and relieve any shortages. So at the end of the day, grains are cheaper and so is bread.After the last great grain price surge, in 2007-8, a report from the UN’s Food and Agriculture Organization found: “Available empirical evidence does not support claims that non-commercial traders have increased the volatility of grain prices.”Nevertheless, you may want to keep quiet about your grain stocks. Public prejudice runs deep. Well after the FAO published its research, leading charities, headed by Oxfam, successfully campaigned to drive some banks to close agricultural commodity funds.In any case, there are other options, notably equities. Scores of companies are active in food production, starting with some very well-known names. Nestlé, the largest by sales, is a core element of many a portfolio and fund. Other giants include PepsiCo and Unilever.Solid companies, right for uncertain times, I’m sure. But they may not give you the exposure you want to commodity markets. These groups sell products in which commodity costs are generally only a fraction of the final prices, margins and profits. Carlos Mera, head of agricommodities market research at Dutch bank Rabobank, says: “You may not see much of a change in the price of packaged bread at Waitrose, but in the Middle East prices are rising fast.”

Not surprisingly, Nestlé’s shares are barely changed since pre-crisis. They dropped when the fighting began (the company is big in Russia) but then bounced back (the Russia business is a small chunk of the whole).To get closer to the sharp end, you might consider the global grain trading companies. Chicago-based Archer Daniels Midland, which has investments worldwide, including in eastern Europe, has seen its shares rise 15 per cent since the conflict began and 26 per cent since the start of 2022. Bunge, a rival, has posted similar gains.Or how about fertiliser producers? The choice is trickier: some make fertiliser by mining and converting potash from their own reserves, so they have some protection against rising natural gas costs. But others use ammonia — a feedstock based on natural gas — and so are exposed. Nutrien, the Canadian potash giant, has seen its stock leap 37 per cent since Vladimir Putin’s tanks rolled in and 43 per cent since January 1. But shares in Yara, a Norwegian rival with gas-based feedstocks, are flat.Of course, there are numerous funds and investment trusts focused on agriculture, which will give you diversification as well as exposure, limiting your risks. For example, the MSCI Global Agriculture Producers ETF has names like Nutrien and Archer Daniels among its top three holdings, as well as US tractor maker Deere.Clearly, a lot depends on how long the Ukraine war lasts. Nobody knows, so no one can tell whether 10 per cent of this year’s Ukrainian harvest will be lost or 50 per cent. Planting is due to start in a few weeks.But high prices may persist, given all the other forces driving them up, especially energy costs. So even though the initial boost to the market has already made itself felt, there could be more to come. These are inflationary times. Stefan Wagstyl is editor of FT Money and FT Wealth. Email:[email protected]. Twitter:@stefanwagstyl More

Rough weather ahead. That was the message from Rishi Sunak’s Spring Statement this week. While the chancellor highlighted the support he was giving to many hard-pressed households, the reality is that most people will suffer a financial battering in the coming years as the UK suffers the toughest squeeze since the aftermath of the second world war. As the Office for Budget Responsibility, the official watchdog, says, after-tax household disposable incomes in the 2022-23 financial year will see “the largest fall in a single year since records began in 1956-57”.FT Money looks at how householders and savers will be affected by the chancellor’s fiscal measures, including the headline increase in national insurance thresholds, and the bleak outlook the UK faces. As Sunak said himself the day after he presented his statement to parliament, “I acknowledge there are uncertain times ahead.”The economy is still expected to grow modestly despite the impact of the Ukraine war, the after-effects of the pandemic, Brexit and surging inflation, especially in energy and food. The OBR forecasts a 3.8 per cent rise in the 2022 calendar year — down from an earlier 6 per cent prediction — and growth of just 1.8 per cent next year as the post-Covid recovery peters out.But the hit to our pockets will be as big as in the worst recessions, as HM Revenue & Customs grabs a bigger share of our collective economic output than at any time in more than 70 years. The pain is unevenly spread. The main beneficiaries of Sunak’s tax changes are lower-paid earners, with somebody on the minimum wage — around £16,500 a year — gaining £140. But those on the median wage of £27,500 a year will lose by £360 and those on £40,000 by £800, according to the Institute for Fiscal Studies (IFS), a think-tank.Much worse, in the view of the chancellor’s critics, those not in work, including the poorest, will gain very little. They will receive nothing from the £3,000 increase in the threshold for national insurance, Sunak’s top giveaway, as this is paid only by those in work. So pensioners and people on benefits, who struggle to pay escalating energy and food bills, miss out. Those who don’t have cars won’t gain from the 5p cut in fuel duty either.Spare a thought too for young people who have recently graduated or plan to do so in the next few years. Spring Statement documents show this year’s increases in student loan repayments could raise £11bn in 2022-23. That is nearly double the £6bn he is handing out by lifting national insurance thresholds. The chancellor is giving back only about a quarter of the tax increases he announced last year, aimed at dealing with Covid and financing the NHS. Paul Johnson, IFS director, says: “He continues, despite his rhetoric, to be a chancellor presiding over a very big increase in the tax burden. What he did was not enough even to stop the expected tax burden rising yet further.”If there is a glimmer of light at the end of the tunnel, it is Sunak’s promise that some of the money could be returned to taxpayers via a penny cut in the basic income tax rate, in 2024-25, just before the likely date of the next general election.But that’s a long way off. In the meantime, inflation-fuelled increases in tax revenues mean he has an extra £50bn unspent in 2021-22. Perhaps enough to provide extra relief to households later this year, if home budgets are punished even harder than expected.Inflation makes tax thresholds biteSoaring inflation, which economists say could reach 10 per cent this year, coupled with previously announced tax rises, damps the effect of this week’s giveaways.Sunak last year froze the thresholds at which basic and higher rate taxpayers pay income tax between April 2022 to April 2026, rather than planning to increase them in line with inflation as usually happened in the past.With annual inflation hitting a 30-year high of 6.2 per cent in February and rising, the extra tax collected from the freezing of the thresholds will far outweigh the cut in income tax, according to the OBR’s analysis. As a result, many more people than first anticipated in March 2021, when the chancellor announced the move, will be drawn into paying income tax in the first place — or paying a higher rate.The OBR predicted there would be 36.1mn basic rate income taxpayers in 2025-26, up from the 33.4mn it previously estimated in March 2021, a rise of 8.3 per cent. It forecast the number of higher-rate taxpayers would also increase to 6.8mn, compared with its previous estimate of 4.8mn — 42 per cent higher than would otherwise have been the case.Meanwhile, the chancellor announced that from July, he would boost the national insurance threshold at which people start paying national insurance contributions (NICs) from £9,880 to £12,570 — the same level at which income tax starts being levied. This will mean people will pay no tax or NICs on annual earnings below £12,570. Sunak said the move would help around 30mn working people, with a typical employee saving over £330 in the year from July.However, the measure needs to be weighed against Sunak’s decision to press ahead with plans to raise the NICs rate in April by 1.25 percentage points to finance health and social care.Amanda Tickel, head of tax at Deloitte, says the rise in the NICs threshold was the most expensive measure the chancellor announced on Wednesday. The measure is forecast to cost £25.9bn between 2022 and 2027. But this pales in comparison with the £86.6bn expected to be raised by the higher NICs rate over the same period.Still, the lowest earners will receive some respite from the decision to increase the threshold. The IFS found that in 2022-23 anyone earning between around £10,000 (the current NICs threshold) and £25,000 would pay less tax on their earnings.But those earning more than £25,000 would pay more, due to the combined effect of freezing income tax thresholds and increasing the NICs rate. The IFS adds that by 2025-26, “virtually all workers” will be paying more tax on their earnings than they would have paid without Sunak’s changes to rates and thresholds.“Essentially for every £4 the chancellor took off taxpayers last year, he’s saying we can have £1 back,” says Laith Khalaf, head of investment analysis at AJ Bell, citing OBR data. “Looking at the combined effect of personal tax changes announced since last year, taxpayers are still considerably out of pocket.”The chancellor is likely to have more tax measures planned for the autumn. A “tax plan” document released by the Treasury alongside the Spring Statement revealed a commitment to reviewing more than 1,000 existing tax reliefs and allowances.Tax advisers said reliefs on capital gains tax, inheritance tax and pensions tax were areas the government might probe. Andrew Barr, wealth planner at Succession Wealth, says: “Sunak is boxed in and is signalling his intentions now with the Budget and 2024 election on the horizon. Tax reform feels like it’s being lined up for the next Budget.”If nothing else, squeezing a bit more money out of these taxes would help pay for that promised basic income tax reduction.Pensioners under pressureThe cost-of-living crisis is expected to generate a £1.7bn tax haul for the Treasury as more over-55s dip into their pensions to keep their finances afloat.As rising fuel and energy prices continue to squeeze household incomes, the OBR forecast tax receipts from over-55s accessing defined contribution pensions, which are subject to income tax, to be £400mn higher in 2021-22 than the previous year.The OBR says the significant revision of the tax take from people making the most of so-called “pension freedoms” is a result of greater numbers of older workers turning to their pensions to ease financial strains of the pandemic and cost-of-living crisis.The pension reforms of 2014 gave people with defined contribution pensions the flexibility to withdraw their funds from the age of 55, subject to tax paid at their marginal rate.More over-50s have brought forward their retirement plans in the pandemic and gained early access to their pension pots, the OBR says. “The first three quarters of 2021-22 show that withdrawals are once again on course to outstrip expectations and are up almost a fifth on the same period in 2020-21”, it says. It also revises up its expected tax take from pension dippers by £800mn a year from 2022-2023, “as we assume that people will make use of earlier withdrawals to manage the rise in the cost of living this year, and that the steady state level of withdrawals will be higher than we had previously assumed”.Andrew Tully, technical director at Canada Life, a pension provider, says the OBR was setting the expectation that the cost of living crisis would be with us for “years to come” as people look to their pensions as a bank account. “This is understandable behaviour as people look to make ends meet but we need to remember that pensions are already likely to be stretched over a longer lifespan than previous generations and any withdrawals will need to be sustainable over this period,” he says.Pensioners received little in the way of good news from the chancellor, with no improvement on the 3.1 per cent increase in the state pension from next month — half the current rate of inflation. “Inevitably, there will be a rise in pensioner poverty,” says Baroness Altmann, a former pensions minister.Investment outlook subduedSunak had few surprises for investors. Money managers took Wednesday’s updated economic forecasts with a grain of salt, given that the full power of the economic shockwaves from Russia’s invasion of Ukraine have yet to be measured. “The reduction in growth forecasts and inflation predictions are probably not that reliable for this year given the uncertainty abounding, but the direction of both is clear; growth is going lower and inflation is going higher,” says Neil Birrell, chief investment officer at Premier Miton Investors. For many strategists, the statement also underscored the dilemma for the government and the Bank of England between the need to support growth and household finances and the imperative not to drive inflation any higher. “A big fiscal giveaway would throw fuel on inflationary fire,” says Guy Foster, chief strategist at wealth manager Brewin Dolphin. The City’s focus remains on Threadneedle Street rather than Westminster. William Hobbs, chief investment officer for Barclays Investment Solutions, says: “The big story of the day is still the tightrope that central banks have to walk, that is getting a lot more wobbly because of the stagflationary shock that the war in Ukraine is going to deal to the UK and European economy.”But despite the clouded outlook, Hobbs urged savers to “stay as calm as possible” and not fixate on short term market movements. “The worst thing that happens for individual investors at a time like this is that their time horizons shift,” he says. Gold and commodities offer the most obvious haven for investors seeking relief from the turbulence, but the prices of these assets have already shot up. The environment should also favour inflation-linked bonds, according to Hobbs. For stock pickers, Brewin Dolphin singled out companies that hold real assets such as property or infrastructure, as well as companies with strong brands, such as luxury group LVMH, whose customers are better able to absorb higher prices. “For companies, it depends on how good they are at passing on . . . price increases,” says Anna MacDonald, fund manager at Amati Global Investors. MacDonald says the chancellor’s decision to steer clear of a windfall tax on energy companies will have come as a relief to many investors. Energy majors, including BP and Shell, are key dividend payers that feature prominently in many income-focused strategies. She says: “It would not have been helpful for people’s portfolios.”The chancellor’s signals about his priorities for the autumn Budget also received a positive review from some investors, as Sunak plots a revamp of corporate taxation and R&D programmes, with an eye to boosting productivity. Claire Madden, managing partner of Connection Capital, welcomed Sunak’s “sentiment of recognising just how powerful the private sector is in terms of fuelling growth and filling up the coffers of the Treasury”. Mortgage rates risingThe chancellor left the housing market largely untouched but the worries over rising inflation, which he echoed, are causing banks and building societies to raise the costs of mortgages for homeowners and buyers. Anyone who secured an attractive long-term fixed-rate deal in 2020 or last year, when the Bank of England base rate fell to a historic low of 0.1 per cent, has little to fear in the short term.

But those remortgaging, taking out a new mortgage or raising more money will face higher costs as lenders push up their rates. Swap rates, which banks use to guide their pricing of home loans, have been rising in recent days, pointing to hardening expectations that more Bank of England rate rises are on the way. This week, lenders including Halifax, Lloyds, Barclays, HSBC and Santander put up their tracker or variable rates by 0.25 percentage points, according to data from finance website Moneyfacts. Virgin Money raised rates on some of its fixed-rate mortgages by 0.3 percentage points, while Coventry Building Society and NatWest lifted rates by 0.3 points. Aaron Strutt, product director at broker Trinity Financial, says banks’ funding costs are on the rise. “Some lenders have told us their two-year fixed rates are lower than the cost of funding them,” he says. “There is an expectation that mortgages will get much more expensive sooner rather than later and we are already getting used to seeing more significant rises.”Rates on shorter-term mortgages have risen faster than long-term deals, leading to an unusual situation where the rates on two and five-year fixes are almost the same. Strutt points to Santander charging 2.04 per cent for its two and five-year fixes.Greener homesOne concrete measure affecting households in the chancellor’s statement was on greening our homes. Householders looking to improve the energy efficiency of their homes by installing solar panels, heat pumps or insulation will see their costs fall by 5 per cent after Sunak scrapped VAT on these works from April. Wind and water turbines will also be added to the list of “energy saving materials” benefiting from the relief. The government said it would translate into savings of £1,000 on the installation of rooftop solar panels for the “typical family”, with another £300 in annual savings expected on energy bills. Its costs to the Exchequer are modest, however, at around £60mn a year. Scott Clay, a director at specialist lender Together, says the VAT cut is a step in the right direction. However, he adds, the overall costs of installation of eco-materials remain very high. “Families and property investors alike will need to find this finance from elsewhere.”Reporting by Emma Agyemang, Josephine Cumbo, Joshua Oliver, James Pickford and Stefan Wagstyl More