Market Update – 1st November 2023.

1st November 2023

This week is an important one on the economic calendar for the US. Illustrating that the consumer may be becoming wary with price growth – in particular that of fuel and food prices – the Consumer Confidence index fell for the third consecutive month on Tuesday, dropping from 104.3 in September to 102.6 in October. The data paints a contradictory picture in comparison to the stunning 5% GDP growth the region underwent in the third quarter, which came due to contributions from consumer spending, increased inventories, exports, residential investment and government spending. However, while within the survey many relayed anxieties about the possibility of an economic downturn that they believe may still come to fruition, economists say that the tentative agreements reached between the United Auto Workers and the Big Three (Ford, General Motors, and Stellantis) will shore up confidence amongst US citizens in time for the next review.

The data on Consumer Confidence comes in the midst of the Fed’s latest monetary policy meeting, which started yesterday, where a decision will be made on whether to proverbially stick or twist on their previous interest rate decision. Since July, the Fed has not raised rates, choosing instead to let policy lags wade their way through the economy. Although the data will not be released until around 7pm UK time today, economists are almost certain they can see a further pause on the horizon.

Over in Europe, economic consumer and business sentiment fell to 93.3 for October from a revised 93.4 in September, in line with market forecasts. The data sits alongside a fall in inflation, coming in at 2.9%, which is a two-year low and illustrates the success of the rate hikes the European Central Bank has implemented from July 2022 (before the recent pause). Cooling inflation has perhaps come at a cost, however. GDP fell by 0.1% in July to September and the region is now on the brink of a recession.

Finally, the Bank of Japan announced this week that it would be tweaking its bond yield control policy again, aiming to loosen the tight monetary policy that it has kept in place now for the past ten years. The bank weakened the 1% cap on their 10-year bond yield to allow for a rise in borrowing costs. The hope is that the latest initiative will go some way to inflation surpassing their 2% target this year. In market response, while the yen slid, Japanese stocks ended the session higher after the news was announced.

Coming up this week alongside the Fed’s interest rate decision, we have US jobless claims and PMI data and the Bank of England’s interest rate decision.

Nicola Tune, Portfolio Specialist