Chancellor hopes NI cut will put voters in a positive mood

This week, Jeremy Hunt attempted to lighten the mood for voters by reducing National Insurance. The early introduction of this tax cut raises the possibility of an election in early 2024 as the Conservatives weigh up whether this is long enough for workers to feel the benefit against the potential for a rate hike if inflation stays high. The Office for Budget Responsibility’s assessment of the outlook was lukewarm at best. It expects low growth this year and next, but says inflation will take until the second quarter of 2025 to return to target.

The outlook for the UK and the US rests in part on consumer confidence and how that translates to spending. Confidence has unexpectedly improved in the UK, but remains negative and there is another energy price hike coming in January. Meanwhile US consumer confidence has weakened slightly and some data points to a slowdown in retail spending. US markets were positive in advance of the Thanksgiving holiday and investors will be looking at whether this positivity carries through to the annual retail spending bonanza that is Black Friday.

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• UK: Chancellor targets growth and productivity improvements
• US: Markets in positive mood in advance of thanksgiving
• Oil: Tension between OPEC members as oil price falls

(*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.)

 

Drop in headline inflation provides positive momentum for markets

This week David Cameron’s return from the political wilderness caught everyone by surprise. Cameron is the first former prime minister to return to government since 1970 as he takes up the role of Foreign Secretary. His appointment dominated the headlines and successfully attracted attention away from Suella Braverman’s acrimonious departure from government. But Cameron’s return doesn’t do much for the government in the longer term. It remains far behind in the polls and the recent King’s Speech had little to allow it to regain political momentum.

The positive reaction to this week’s inflation figures suggests markets are also being distracted by short-term news. Despite the big drop, UK CPI is only 0.3% below where the market had expected it to land as falling domestic energy bills take effect and, in line with the recent trend, core inflation remains sticky. The decline is welcome but does little to change the outlook. Very low unemployment and strong wage inflation means the Bank of England may be convinced to keep rates high for a while. Meanwhile, falling retail sales suggests the risk of recession is still live.

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• Inflation: Markets rise as inflation falls faster than forecast
• China: Retail spending rises, but property still in the deep freeze
• Equities: Luxury goods feeling the chill of lower demand

(*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.)

Markets look towards interest rate cuts

This week markets have taken the opportunity to catch their breath. Investors are looking for the inflection point, where it becomes clear that the next step for central banks is to begin cutting rates. Central bankers have naturally spent this week trying to calm expectations that the next move is a step down and most have been sticking to the higher-for-longer scenario. The tension between these two positions means markets remain uncertain and continue to be driven by each day’s news flow.

Elsewhere, the lack of growth in today’s GDP numbers is not great but focussing on each piece of economic data is unlikely to provide much clarity. With economic news remaining mixed, each release is as likely to reinforce existing ideas as it is to provide fresh insight. Some will see this as proof the UK remains resilient, while others will see the steady slide to recession. Markets are likely to remain volatile until a clear picture appears. Meanwhile, corporate news was dominated by the collapse of WeWork, however, as always there were pockets of good news.

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• UK: Gilts continue to rally as markets look to rate cuts
• Equities: High Street retailers shrug off tough trading conditions
• Property: Steady progress for IWG as WeWork declared bankrupt

(*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.)

Central Banks choose to wait and see as high interest rates take hold

This week we had two eagerly anticipated but equally unsurprising interest rate decisions. Both the US Federal Reserve and the Bank of England elected to keep interest rates where they are. In the UK inflation is coming down slower than hoped for and in the US economic growth is stronger than expected. Both banks are waiting for the impact of previous rate hikes to take effect and are happy to sit on their hands for now.

Despite nothing changing the market has reacted aggressively anyway. The number of “higher for longer” and “the new new-normal” blog posts, opinion pieces and research notes we’ve received in the last couple of days is astounding. Everyone it seems is starting to believe this time really is different and high rates are here to stay. With the typical delay between rates going up and the economy feeling the impact being between around 18 months, and this being month 16 since rates started rising, we feel this might be a little premature. Like the banks, we’re happy to wait and see.

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• Nick Booker: Our new Chartered Financial Planner
• Europe: Tight conditions slow EU economy
• US: Rates unchanged as American consumers continue to spend
• Equities: High costs challenge renewable industries

(*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.)

 

ECB leaves rates unchanged as economic activity slows

The European Central Bank left interest rates unchanged at 4%. The decision was widely expected and financial markets were unmoved by the decision as the ECB tries to balance the need to bring down inflation with evidence of a slowing economy. Consumer sentiment in the continent remains poor and economic output has declined due to less activity in the services sector. Although there was no change in rates at this meeting, the ECB said it is still committed to keeping rates high to ensure inflation is brought under control.

There is a similar picture in the UK although the decline in the services sector was offset by an increase in manufacturing activity. The unemployment rate in the UK increased to 4.2%, however, the Office for National Statistics has changed the way it calculates its employment data and warns the new figures are what it calls “experimental”. This leaves the Bank of England facing the same dilemma as the ECB at its interest rate meeting next week.

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• US: More volatility for bonds as consumer demand  drives surprisingly strong US growth.
• US: Uncertainty spurs more volatility for US Government Bonds
• Equities: Banks continue to benefit from higher interest rates

(*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.)