Market Update – 15th November 2023.

15th November 2023

This week, a slew of economic data has given investors much to think on. In the UK, the unemployment rate stayed unchanged for the three months leading up to September at 4.2%, in line with market forecasts. This illustrates a notable slack in the labour market that will no doubt please the Bank of England, as evidence that their rate increases are curtailing the type of economic activity that drives up inflation. However, we must remember that not only are vacancies still hovering above pre-Covid levels, but real pay is moving at the fastest pace it has been for 2 years. Excluding bonuses, in Q3, earnings were 7.7% higher than last year. Although the figure has slowed from 7.9% last month, the headline figure will be watched closely by policymakers to monitor possible inflationary pressures in the economy going forward, with a view to resuming hikes if necessary.

UK Prime Minister, Rishi Sunak’s, pledge to halve inflation by the end of the year has been met early. This morning, the latest CPI report showed headline UK inflation fell sharply in October 2023 to 4.6% – down from 6.7% in the previous month. The sharp fall can be attributed to the lower energy price cap imposed on households at the start of October. Core inflation, which strips out volatile food and energy prices, came in lower at 5.7% – down from 6.1% in September. The FTSE 100 surged this morning following the data release, which was music to investors’ ears, adding to hopes that peak interest rates have been reached with substantial falls in inflation.

In the US, the Consumer Price Index, hotly anticipated by investors, came in at a surprising figure of 3.2%, lower than economists’ expectations of 3.3% and a jump down from September’s reading of 3.7%. Core inflation, which excludes volatile elements like food and energy prices, rose only 4% last month which is the smallest increase in 2 years and sparked a rally across global markets. We have been reiterating for some time now that we may be close to peak interest rates and this data only further confirms our thoughts. However, hawkish statements from the likes of Fed Chair, Jerome Powell, last week hit home that the Fed will first and foremost remain data dependent in their battle with inflation and won’t hesitate to hike again if necessary. As the market tends to view any pause in monetary policy as a sign of sure rate cuts, and any hike as a tightening cycle, the Investment Management team will work hard to monitor the situation and capitalise on any opportunities this presents.

The Chinese consumer may finally be getting their confidence back, new data revealed this week. Retail sales up ticked 7.6% year-on-year in October 2023, the highest reading of growth since May. Although this doesn’t change the region’s forecast of 5.6% growth this year, it’s undoubtedly showing that the region is picking up the slack that it previously left behind during Covid times.

Still to come this week we have President Biden and President Jinping meeting today, US and UK retail sales, and US and Eurozone industrial production.

Nicola Tune, Portfolio Specialist