Market Update – 16th November 2022.

17th November 2022

The UK’s annual inflation rate jumped to 11.1% in October of 2022 from 10.1% in September, higher than market forecasts of 10.7%. The government’s energy price cap guarantee was introduced last month to help hold inflation back as higher energy prices continue to rise.

However, The Office of National Statistics (ONS) stated that without the government’s introduction of the energy price cap guarantee last month, inflation would be notably higher at around 13.8%.

The UK’s Chancellor of the Exchequer, Jeremy Hunt has said tackling inflation is his ‘absolute priority’ as he prepares to give his Autumn Statement on Thursday (17th November). So, what are people expecting from the budget? Well whilst nothing has been confirmed by the Treasury, the chancellor is thought to be announcing new tax rises and spending cuts worth about £54 billion. The treasury has also been discussing “stealth taxes” which would look at freezing income tax and national insurance thresholds to tackle the black hole in Britain’s finances.

The UK unemployment rate rose slightly to 3.6% in the three months to September, just above economists’ expectations of 3.5%, which is beneficial for inflationary pressure. The ONS said “the proportion of people neither working nor looking for work has risen again. This shift has largely been caused by older workers leaving the labour market altogether, but in the most recent quarter, the main contribution has actually come from younger groups”.

Eurozone industrial production rose by more than expected, rising by 0.9% on month in September, the highest monthly increases were registered in Ireland (+11.9%) and Belgium (+7.1%). Both Eurozone GDP and employment grew by 0.2% in Q3 in line with estimates. In the midst of high inflation and Europe’s ongoing energy crisis, the Eurozone has managed to maintain expansion, albeit weak for 6 consecutive quarters.

US stocks rallied on Tuesday as producer purchasing index (PPI) data revealed wholesale prices rose by 0.2% in October, below market forecasts of 0.4%. The data provided further evidence that US inflation is beginning to soften. The report follows US CPI data released last week which also came in below market forecasts, the smaller-than-expected increases bolstered expectations that the Fed will opt for smaller interest rate rises going forward.

The meeting between President Joe Biden and Chinese leader Xi Jinping added to investor optimism on Monday. Both leaders appeared to break the tension and echoed each other in expressing the need for their respective countries to work together on urgent global issues. As the reopening story continues, markets reacted positively to this news over the past week, the Hang Seng index was up 11.6% over the course of a week and has gained in excess of 5% since Monday (14th November).

China sustained its mixed recovery in October, industrial production continued to expand, growing by 5% on the year – just missing expectations of 5.2%. Both technology and auto manufacturing posted strong growth on year, jumping by 10.6% and 18.7% respectively.

Chinese retail sales fell for the first time in 5 months declining by 0.5% in October as Covid-19 cases crept up. However, since then we have seen China ease some Covid restrictions and with some regions now starting to scale back Covid-19 testing, the country looks to ensure a steady path to reopening.

Still to come this week we have US & UK retail sales, US industrial production and housing data, Eurozone, Japanese CPI and Japanese trade data.

Kate Mimnagh, Portfolio Economist