Inflation refuses to budge – Government bonds under pressure

This week neatly illustrates the problem facing the Bank of England. Inflation remains stubbornly high and wage growth continues at near record levels, but consumer confidence and spending have contracted sharply. It is usually good to treat a single month’s data with a healthy dose of scepticism, however, the monthly CPI reading is now stuck just under 7% where it has been since July. High interest rates are now having the restrictive effects intended on consumer activity, but inflation seems to have stopped reacting to the downward pressure. The bank’s choice is stark; is the priority inflation or economic growth?

In the US, the Fed has indicated that it will leave rates on hold at its next meeting, but US consumption is speeding up rather than slowing and markets have concluded the higher for longer doesn’t rule out another hike later this year. Bond markets have looked at the data and concluded that tackling inflation is and will remain the priority of central banks and this has dragged government bonds down again.

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  • Global: Inflation and strong retail sales cause bonds to slide
  • China: GDP growth bounces back
  • Equities: US tech stocks face scrutiny as Q3 earnings season begins

(*Please note, The contents of this e-shot been prepared for general information only. It does not contain all of the information which an investor may require in order to make an investment decision. If you are unsure whether this is a suitable investment you should speak to your financial adviser. This information is not guaranteed to be correct, complete, or accurate. FE Research is a division of Financial Express Investments Ltd, registration number 03110696, which is authorised and regulated by the Financial Conduct Authority (FRN 209967). For our full disclaimer please visit www.financialexpress.net/uk/disclaimer. Data Sourced from FE Analytics, and Bloomberg Finance LP.)

Recruitment firms feel the effect of cooler jobs market

The UK’s jobs market is showing further signs of weakening as recruiters PageGroup, Hays and Robert Walters all said earnings fell in the last quarter as companies become more cautious about hiring new staff. PageGroup said full year profits are expected to be slightly below its previous forecast. Robert Walters, which concentrates on professional roles, said its revenues are down 13% as candidates become more cautious about moving to a new employer. All three recruiters reported that employers are increasingly choosing to take on temporary staff due to the uncertain outlook.

Meanwhile, KPMG and the Recruitment and Employment Confederation said wages for new hires and for temporary staff are rising at the slowest rate in more than two years. Recruitment firms reaped the benefit of employers competing for staff in the post-pandemic recovery. Shares in the UK’s listed recruiters comfortably outperformed in 2021 and parts of 2022 but they have struggled for much of this year. 

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  • Global: Markets rise but investors remain cautious as war breaks out in Middle East
  • US: Less aggressive tone from the Fed lifts bonds and equities
  • Israel: War with Hamas pushes investors towards haven assets

(*Please note, The contents of this e-shot been prepared for general information only. It does not contain all of the information which an investor may require in order to make an investment decision. If you are unsure whether this is a suitable investment you should speak to your financial adviser. This information is not guaranteed to be correct, complete, or accurate. FE Research is a division of Financial Express Investments Ltd, registration number 03110696, which is authorised and regulated by the Financial Conduct Authority (FRN 209967). For our full disclaimer please visit www.financialexpress.net/uk/disclaimer. Data Sourced from FE Analytics, and Bloomberg Finance LP.)

Better inflation news in UK as food retailers expect prices to fall

Inflation down

UK retail prices are rising at their slowest in more than a year as retail price inflation fell from 4.7% to 4.4%. A big contributor to the slowdown is the rapid cooling of food prices. Food inflation fell from 11.5% in August to 9.9% in September according to the British Retail Consortium. Despite inflationary pressure from high oil prices and higher borrowing costs, retailers expect inflation to continue to slow this year.

Tesco has upgraded its forecast for annual profits after a very strong first six months of the year. The company has raised its full-year profits guidance to £2.6bn to £2.7bn, up from £2.5bn last year, as sales increased 13%. The company says it is attracting higher-end and budget shoppers by being slower to pass on cost increases to customers. The company says food inflation is expected to keep falling. Greggs has also reported that cost pressures from higher raw materials and energy are beginning to ease as it released an upbeat quarterly update which showed sales up 14%..

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  • US: Investors concerned the Fed may become more hawkish as US economy remains resilient
  • Bonds: Sell-off as investors face up to higher for longer
  • Equities: Metro Bank tries to raise cash as housing market cools

(*Please note, The contents of this e-shot been prepared for general information only. It does not contain all of the information which an investor may require in order to make an investment decision. If you are unsure whether this is a suitable investment you should speak to your financial adviser. This information is not guaranteed to be correct, complete, or accurate. FE Research is a division of Financial Express Investments Ltd, registration number 03110696, which is authorised and regulated by the Financial Conduct Authority (FRN 209967). For our full disclaimer please visit www.financialexpress.net/uk/disclaimer. Data Sourced from FE Analytics, and Bloomberg Finance LP.)

 

Inflation cools but higher energy prices complicate the outlook

Surging gas prices

This week there have been a number of small victories in the ongoing battle with global inflation. Both Spain and Germany reported prices rising slower than expected, which led to a cooler overall inflation picture for the Eurozone as a whole. There was further good news from the US, as the annual rate for Core PCE inflation, the Federal Reserve’s preferred measure of inflation, came in more or less in live with expectations as it continued its steady decline.

Elsewhere, inflation is preparing for a fightback with rising oil prices and a strong US dollar being bad omens for countries that import a lot of their energy, UK and large parts of Europe especially. While this is bad news for central banks, and indeed everyone with a gas bill, these two factors will also be bad for growth, slowing down economies further and hopefully negating the need for more rate rises designed to do the same.

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  • Currencies: US Dollar strength continues
  • Oil: Brent tipped to hit $100 as US inventories fall
  • China: Political tensions deter investment

(*Please note, The contents of this e-shot been prepared for general information only. It does not contain all of the information which an investor may require in order to make an investment decision. If you are unsure whether this is a suitable investment you should speak to your financial adviser. This information is not guaranteed to be correct, complete, or accurate. FE Research is a division of Financial Express Investments Ltd, registration number 03110696, which is authorised and regulated by the Financial Conduct Authority (FRN 209967). For our full disclaimer please visit www.financialexpress.net/uk/disclaimer. Data Sourced from FE Analytics, and Bloomberg Finance LP.)