Market Commentary 2nd October 2023 – from Charlie Hancock

Data from the Bank of England (BoE) showed that the number of new mortgage approvals declined in August, with activity in the property market continuing to slow. Other data from HMRC showed that the number of sales in August were 16% lower than the number which took place in August 2022. Knight Frank, a real estate consultancy firm, stated that they expect UK house prices to fall by 7% in 2023 and a further 4% in 2024.

Revised Gross Domestic Product (GDP) data showed that the UK economy expanded by more than expected during the first quarter of 2023, with growth of 0.3% vs the previous estimate of 0.1%. The Office for National Statistics (ONS) left the growth figure of 0.2% for the second quarter unchanged. Th median economist estimate for the third quarter points to a period of stagnation with expected GDP growth of 0%.

Eurozone consumer price inflation slowed to the weakest pace recorded since October 2021 in September, with consumer prices rising by 4.3% year-on-year. This was below the median economist estimate of 4.5%. The core measure of inflation, which excludes food and energy, slowed to 4.5% from the 5.3% recorded for August.

Investor sentiment appeared to be impacted by comments from senior European Central Bank (ECB) officials last week. The central bank’s president, Christine Lagarde, reiterated that they are committed to keeping monetary policy tight for an “extended period” to bring inflation back to their 2% target. Another senior ECB official, Frank Elderson, told the media that rates may not have peaked yet and future policy decisions will depend on incoming data.

Investors paid close attention to updated data for the core personal consumption expenditures (PCE) index, which is a measure of inflation closely monitored by the Federal Reserve. Inflation as measured by the PCE rose by 3.9% in August. The month-on-month increase in the PCE index came in at 0.1%, which was the smallest increase since December 2020.

A closely watched consumer confidence index declined by more than expected in September, with student loan repayments, which have been paused since 2020, recommencing from 1^st October. A survey carried out by investment bank Jefferies Group showed that 9/10 people with student loans felt they would be unable to continue meeting their current level of expenditure once repayments recommence.

Developments in the Chinese real estate sector continued to make headlines, with the chairman of developer Evergrande placed under police control after he was accused of “illegal crimes”. Two former Evergrande executives were also reportedly detained as part of the investigation. An independent survey showed some signs of price increases in the Chinese economy during September, which alleviated some of the concerns around China entering a prolonged period of deflation. Tensions between the European Union (EU) and China remained elevated, with the EU’s chief trade official stating that China’s stance on the war in Ukraine is damaging its image with businesses.

The Japanese Prime Minister, Fumio Kishida, announced that a new stimulus plan is being developed which will include measures to ease inflationary pressures and boost wages.  The plans also reportedly aim to address the declining birth rate in Japan. Kishida commented on recent movements in currency markets and appeared to discourage speculation on the yen, stating that “it’s important for currencies to move stably reflecting fundamentals”.

GBP / EUR – Current 1.1538 Previous 1.1499

The Pound moved 0.34% lower against the US Dollar last week. The greenback strengthened against most major currencies, as traders speculated that the US economy will withstand current levels of interest rates better than other developed nations. Against the Euro, the Pound gained 0.34%.