Week ending 29th September 2023

The week came to an end with a subdued performance in markets. Elevated oil prices sparked concerns about Central Banks’ ability to manage inflation, and the growing likelihood of a US Government shutdown contributed to investors’ apprehensions. Investor worries about a government shutdown grew as the week progressed with House Speaker Kevin McCarthy failing to agree a deal with Republicans over discretionary funding. The threat of a shutdown inevitably causes some noise in markets as decisions typically come close to the wire. Looking at the bigger picture this is likely to be a non-event and there is hope both sides with reach an agreement which is positive for equity markets going forward.

The picture brightened a bit Friday morning when promising inflation data raised hopes that the Fed could stop raising rates. Core PCE prices in the US, excluding food and energy, increased by 0.1% month-on-month in August, below market expectations. The annual change in the core PCE price index (which excludes seasonally volatile items like food and energy)  fell to 3.9% in August, from a revised 4.3% in July and in line with forecasts.

Looking to Europe, headline inflation across the bloc came in below expectations at 4.3% in September 2023, its lowest level in 2 years and a notable fall from the 5.2% reported in August. Lower price increases in services, non-energy industrial goods, and food, alcohol & tobacco contributed to the lower figure. And despite oil prices climbing, as of late energy costs saw deeper deflation, and core inflation cooled to 4.5%. Officials have indicated this week that interest rates may need to stay at “restrictive” levels for some time to bring inflation back to the 2% target, however the latest readings are a positive step in the right direction as policymakers continue to be data dependent.

UK stocks ended the week on an optimistic note as investors took time to assess encouraging news regarding the UK’s economic growth. The Office of National Statistics revealed first-quarter growth at 0.3%, exceeding the previous estimate of 0.1%. Its estimate of second-quarter GDP growth was unchanged.

At the Berlin Global Dialogue 2023 conference, Larry Fink, the Chairman and CEO of one of the world’s largest investment institutions BlackRock, emphasized the current dire shortage of optimism in the global landscape. This sentiment aligns our own outlook, given the vast number of opportunities available in the market and the supportive policies of Central Banks, which have played a crucial role in stabilizing economies in the face of record high inflation. He also pointed to China as a prime example, noting that declining savings rates and increased consumption signal a resurgence of hope.

Furthermore, there’s a growing belief that peak interest rates may have been reached, which is a positive development for both bond and equity markets.

In the face of scaremongering headlines and market uncertainties, clients are encouraged to maintain a long-term outlook. It’s important to remember that opportunities often arise when others are fearful, and remaining invested over the long term provides investments with the time to navigate through short-term market volatility.

Keeping an eye on upcoming economic data releases, this week we have ISM US Manufacturing and Services PMI, US Non-farm Payrolls, US Retail Sales, US Factory Orders. We also have Eurozone Unemployment Rate and Eurozone Retail Sales for further insights into economic trends.

Kate Mimnagh, Portfolio Economist