Market Update – 4th October 2023.

4th October 2023

This week, rising bond yields have been at the forefront of investors’ minds as markets digest a so-called higher for longer interest rate environment. On Tuesday, the Fed made some hawkish statements about monetary policy, stating that it may need to remain tight for some time. Although the Fed recently paused their interest rate cycle, they maintain a data-dependent stance in relation to their battle against inflation and may look to hike again at their next meeting. This sentiment lifted 10-year treasury yields above 4.7% to a sixteen-year high and left global shares mixed in terms of performance.

Over in the US, manufacturing activity gained traction in September. For the third consecutive month PMI increased, rising to 49.0 from 47.6 – the highest reading since November 2022. In relation to PMI, figures above 50 indicate an expansion while anything below indicates a contraction, meaning that the US is technically still in contraction territory. Nevertheless, the increase indicates a degree of growth off the back of elevated production and encouraging employment data.

In the UK, a potential early indicator of upcoming inflation rates revealed on Monday that prices in British store chains rose at the slowest pace in September. A report conducted by the British Retail Consortium showed that inflation cooled from 6.9% in August to 6.2%, the lowest since September of 2022. Investors will be waiting for later this month to see whether headline CPI data continues this trend, but economists warn that high interest rates, the increasing price of oil and supply issues resulting from the Russia-Ukraine war still pose a risk to the price growth of consumer goods and services.

A different picture was painted in China however, with their PMI figure rising to 50.2 in September from 49.7 the previous month. The statistic marks yet another sign that the economy is rebounding from its slow start at the beginning of the year and that stimulus measures are starting to have a sizable impact on the economy. The news joins a raft of other promising data this quarter; retail sales and factory output grew in August while industrial firms enjoyed a jump in profits to 17.2% in August from a decline of 6.7% in July.

Eurozone unemployment rate fell to 6.4% in August from 6.5% in the previous month, indicating a tight labour market. Contributing to this, the unemployment rate in Ireland remained unchanged this month at 4.1%. This continues the region’s lowest level of joblessness since 2001.

Still to come this week we have US balance of trade and unemployment rate and Fed commentary on inflation.

Nicola Tune, Portfolio Specialist