May 2022 Mid-Monthly Update


Monetary policy is about being seen to be doing something in the face of steep increases in inflation in western economies. 

Growth Fears as Monetary Policy Plays Catch-Up


Monetary policy is about being seen to be doing something in the face of steep increases in inflation in western economies.  The reality is that central banks are more concerned with tight labour markets and wage pressure than the recent rises in CPI as a result of higher energy and food prices which are equivalent to a tax on consumers’ discretionary spending.  The window to engineer a soft-landing for the US economy is shrinking.  The window to raise base rates in the UK and not effect a recession is much smaller.  The prospect of significantly slower economic activity in China is also troubling equity markets and industrial metals.  While the UK may not avoid a recession, the US and China should and the global economy too.  Food inflation will be heavily influenced by events in Ukraine which are too difficult to predict.

May ‘highlights’ to date:


  • UK GDP disappoints, the UK economy shrank 0.1% in March.
  • US CPI dipped slightly to 8.3% year-on-year in April. German inflation rose to 7.4% for the same period and China’s accelerated to 2.1% from 1.5%.
  • The Federal Reserve will persist with rate increases of 50 basis points at each of its next two meetings, Chair Jerome Powell reiterated on Thursday. The prospect of a recession will come down to factors outside the Fed’s control, he said. Meanwhile, the Senate confirmed him for another four-year term at the helm of the monetary authority.
  • Economic growth fears have unnerved risk assets until Friday. As a consequence industrial metals have become more correlated with equities in the short-term.
  • The roller coaster start to May continued into the second week, volatile swings continued day-by-day, ending on a positive note for risk assets last Friday. May has continued to deliver negative returns in most assets with the exception of the US Dollar.
  • Sterling continued its recent downward trend amid US Dollar strength. The US currency’s strength has been a feature of currency markets in 2022 as the following chart  from illustrates.


  • Eurovision

An upsurge in interest in the ‘world’s largest live music competition’ saw the best performance by the UK for over twenty years and the public vote pushing the Ukraine above the UK to take the title – a perfect outcome if you’re a Brit.  More importantly, Finland and Sweden have opted to secure the defences of NATO against their large, Eastern bullying neighbour.  Sweden has been more than capable of supplying Finland’s electricity needs after Putin ordered Finland’s supply from Russia to cut off.  Nervousness persists over what the embattled Russian President does next.

  • The Hungary Games

Europe’s attempts to wean itself of Russian energy are being held up by Hungary and its President, Victor Urban, a Putin ally and something of a rare breed.

  • Terrable

The blockchain behind the TerraUSB stablecoin stopped processing transactions for a second time in less than a day last week, with validators taking the step to “come up with a plan to reconstitute” the Terra network. The Luna cryptocurrency has sunk to practically zero. Binance announced it was suspending spot trading in the token. The fallout for the wider crypto landscape seems to have been limited for now.

  • Your Money

Recent activity at the end of April has reduced small-cap equity exposure, particularly in the UK, in favour of cash.  No material changes have been effected in May to date.

In light of economic uncertainty, cash weightings in both multi-asset funds are presently above 15%, above 10% for the T. Bailey Growth Fund and currently 10% for the T. Bailey UK Responsibly Invested Equity Fund (TB UK RIEF).  Cognisant of current inflationary pressures, commodity exposures are above 15% for Dynamic and Multi-Asset Growth funds and a little over 10% for Growth.

Nottingham-based software company, Ideagen a holding in TB UK RIEF, was the subject of an agreed takeover bid last weekend and Ideagen shares promptly rose over 40% on Monday.  Further evidence of cash rich companies taking advantage of significant sell-offs to acquire good, solid businesses to add to their offering.

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