Market Update – 13th September 2023.

13th September 2023

This week, data coming out of the UK was a mixed bag. A report on Tuesday revealed that unemployment and wages have risen, showing that unemployment increased by 159,000 in the last quarter, pushing the jobless rate higher to 4.3%. It’s not all bad news, however, as total pay also went up by 8.5% per year in Q3. Of course, factored into this must be that this rise was boosted by one-off payments to NHS and Civil Service workers in the summer, but even so ‘real pay’ still rose by an annual rate of 1.2%, the report said. While good news for UK residents, as wages are once again rising faster than inflation, it may prove a headache for the Bank of England, who is set to meet again this month and will decide whether to again raise interest rates.

UK GDP also declined more than economists expected, data published from the ONS on Wednesday showed. Predictions for shrinkage sat at 0.2% earlier this month after retail sales underwhelmed, but the official figure showed the economy receded by 0.5%. The region has experienced a particularly showery summer and the effects of tightening monetary policy are still lagging through the economy, causing a decline in public output that informs a large part of the figure, introducing further pressures around a stagflation environment. However, alongside recent weaker PMI data that is also said to have been pushing the UK to a slowdown in Q3, this morning we have seen manufacturing and industrial production data that has presented better than forecast, showing that there are plenty of pockets of growth positivity within the region.

Money markets are said to be betting on a further 25 basis point rate hike from the European Central Bank (ECB) this Thursday, although bonds are said to be remaining steady during the waiting period. While investors are split evenly on whether we will see another increase this week, many are expecting this to be the last of the tightening this year – something which incidentally also helped to buoy German investor sentiment in September. This week’s decision may be the hardest to forecast since July 2022, with analysts noting that the ECB is in the middle of a proverbial rock and a hard place, as ending increases too soon may look like they have given up too prematurely on their fight against inflation. Whilst the ECB always give consideration to Fed policy, they will likely remain data dependant, with their path differing from market expectations as we have seen in the past.

Still to come this week we have a raft of critical economic data. We have Chinese prime interest rate decisions, retail sales and industrial production. We have Japanese industrial production and US CPI and retail sales and the ECB’s interest rate decision.

Nicola Tune, Portfolio Specialist