Weekly Market Commentary 11th April 2023 from Will Binks

Halifax released their monthly house price index which indicated that house prices rose by 1.6% year-on-year in March 2023, its weakest rate of annual growth since October 2019. The data does suggest some stability within the housing market as mortgage rates ease, but a slowdown in activity is expected later this year.

A Purchasing Managers’ Index (PMI) for the service sector in the United Kingdom came in slightly lower than expected for March, but still indicated that the area is in expansionary territory. The construction industry saw further declines, with housing activity contracting at its fastest rate since May 2020 following rising borrowing costs and a slowdown in new house builds.

Germany’s exports increased 4% in the month of February, taking the nation’s exports to a record high level. Their trade surplus is now sitting at its highest since July 2021, with the steady recovery of the Chinese economy appearing to have a positive knock on impact on Germany.

A closely watched Purchasing Managers’ Index (PMI) for the manufacturing sector in the Euro Area pointed towards its sharpest decline since November 2022, as factory orders declined and business confidence fell to a three month low. Elsewhere, a services PMI pointed towards the strongest growth since May 2022 as new business volume rose for a third consecutive month.

The United States Services sector saw a rise in activity, whilst the Manufacturing sector continues to contract according to a Purchasing Managers’ Index. The service sector saw stronger growth as domestic demand continues to increase. Manufacturers saw an increase in input costs, but this was quickly reflected by a larger increase in output charges.

Official data released in the US from the Department of Labor showed that 236,000 new jobs were created in March, down from the 311,000 created in February. Data released showed there were 228,000 new applications for unemployment aid In the week to April 1^st, more than the 200,000 expected.

Official data showed the Chinese Consumer Price Index (CPI) slowed to a rise of 0.7% year-on-year in March 2023, lower than the expected 1.0% and its slowest pace since September 2021. Core inflation, which strips out food and energy prices, also came in at 0.7%.

A Consumer Confidence Index in Japan increased to its highest reading since May 2022 and pointed towards improving economic sentiment in Japanese households. Japan also saw a further improvement within the services and manufacturing sector according to a recent Purchasing Managers’ Index reading, although manufacturing still contracted marginally.

The UK Gilt Yield declined following the previous week’s increase and appeared to stabilise around 3.41% as investors anticipated a further interest rate increase. The Bank of England’s Chief Economist, Huw Pill, said they still could not be sure if interest rates have been increased enough to tame inflation.

Klaas Knot, a European Central Bank (ECB) member stated last week that it was unclear if the base interest rate needs to rise by 0.50% in May, or if a 0.25% increase will be viable.

Investors predominately anticipate a further 0.25% to the base rate by the Federal Reserve in May as data continues to point towards a tight labour market.

GBP / EUR – Current 1.1384  Previous 1.1374

The Pound gained 0.64% against the US Dollar last week, the Dollar weakened against most major currencies as investors digested data on labour markets. Against the Euro, the Pound continued to remain fairly stable, moving up by 0.09%.