Market Commentary 27th November 2023 – from Charlie Hancock

The chancellor, Jeremy Hunt, delivered his autumn budget speech on Wednesday. The announcements included a cut in employee National Insurance and incentives for businesses to make long term investments. Hunt stated that the government had delivered on their promise to halve the rate of inflation and explained that their attention will now be on growing the economy.

The Office for Budget Responsibility (OBR) published their latest forecasts, which predict that the UK economy will achieve minimal growth in the coming years. Gross Domestic Product (GDP) is expected to increase by 0.7% in 2024 and 1.4% in 2025. The OBR expect that inflation will remain above the Bank of England (BoE)’s 2% target until the 2^nd half of 2025.

Economic data for the Eurozone painted a gloomy picture. A Purchasing Managers’ Index pointed to a decline in economic activity during November, which fuelled fears that the Eurozone will enter recession. Both the services and manufacturing sectors saw a decline in activity during November, albeit at a softer pace than October. Firms surveyed as part of the PMI data indicated that workforce numbers were scaled back during the month, with manufacturing jobs cut at the fastest pace since August 2020.

Key figures at the European Central Bank (ECB) continued to deliver a hawkish message. The ECB’s president, Christine Lagarde, indicated that interest rates were likely to be on hold for the next 6 months, pushing back against speculation that the ECB may cut rates in the near future. Meanwhile the governor of the Bank of France suggested that rates would be kept at current levels for the next “few quarters”.

US economic data was mixed. A closely watched PMI release indicated that the US economy continued to see mild expansion during November. The manufacturing sector remained in recessionary territory, whilst the services sector continued to experience expansionary conditions.

The headline PMI numbers painted a picture of continued growth, however, the full PMI data release showed that US employers cut back on hiring in November, with both manufacturing and services businesses cutting staff numbers amidst weakening demand. Data released earlier in the week pointed to business investment falling for the 2^nd month in a row, with durable goods orders notably weak.

Authorities in Beijing were reportedly drawing up plans last week to help troubled property developers access financial support packages from banks. The list of eligible companies reportedly contained 50 developers. The funding from banks would be designed to help shore up confidence in the sector and allow developers to complete unfinished projects which have been on hold. Economic data pointed to a weak labour market, with online job postings remaining at depressed levels and employers reportedly offering new staff lower salaries. The official unemployment rate remained steady at 5% during October.

Japanese core consumer price inflation surprised to the upside, with prices rising at 2.9% year-on-year in October. The acceleration from the 2.8% inflation rate recorded for September prompted some concerns about the Bank of Japan (BoJ)’s ongoing loose monetary policy measures, however, other economic data released during the week pointed to muted inflationary pressures. A PMI release indicated the economy stagnated in November, with relatively strong services activity offset by weakness in the manufacturing sector. Firms reported particularly soft input cost inflation, with the rate of price increases declining to their lowest level since mid-2020.

A PMI survey for the services sector, which indicated that activity moved back into expansionary territory during November, appeared to contribute Gilt yields moving higher during the week. A sign that UK wage growth may be starting to cool came from accountancy giant KPMG, who announced that pay would be frozen for around 12,000 staff.

GBP / EUR – Current 1.1518 Previous 1.1420

The Pound gained 1.20% against the US Dollar, with currency traders bullish on Sterling and the Dollar falling versus most major currencies. Against the Euro, the Pound gained 0.86%.