Market Commentary 18th November 2024 – from Charlie Hancock

Data from the Office for National Statistics (ONS) showed that economic growth slowed in the third quarter of the year, with the economy expanding by 0.1%, having grown by 0.5% during the previous quarter. The construction sector was a bright spot, with growth of 0.8% during the quarter, whilst the services sector stagnated.

The ONS also reported that the UK’s unemployment rate increased from 4.0% to 4.3% during the third quarter, which was a significantly larger rise than the median economist estimate of a 0.1% increase. Wage growth in the third quarter slowed to the lowest rate since June 2022, with annual pay increasing by 4.8%.

Data released last week showed that the Eurozone economy grew by 0.4% during the third quarter, which was an acceleration from the 0.2% recorded for the second quarter. Political instability in Germany continued to dominate headlines last week, with Chancellor Olaf Scholz announcing snap elections for February 2025.

Minutes from the European Central Bank (ECB)’s October policy meeting were particularly dovish, with policymakers arguing that the “disinflationary trend was getting stronger” and that rate cuts were necessary to avoid harming the Eurozone economy.

Investors paid close attention to inflation data released on Wednesday. Consumer prices rose by 2.6% year-on-year in October, with headline inflation accelerating for the first time in 7 months. The data was largely in line with economist expectations and housing costs were a significant contributor to the rise in the headline rate.

The Federal Reserve’s chair, Jerome Powell, warned against cutting rates “in a hurry” during a speech last week. Meanwhile, the Institute of International Finance stated that the US national debt could rise significantly under the Trump administration if they implement tax cuts without corresponding spending reductions.

Economic data in China painted a mixed picture. Retail sales during October rose by 4.8% year-on-year, which was a bigger than expected increase. Industrial production growth came in weaker than expected, with economists citing weakness in the automotive sector. Inflation data showed that deflationary pressures remained an issue last month, with the producer price index (PPI) declining by 2.9% year-on-year. Headline consumer prices rose by 0.3% year-on-year.

Official data in Japan showed that the economy expanded by 0.2% in the third quarter, with growth slowing from the 0.5% recorded for the second quarter. Notes from the Bank of Japan (BoJ)’s October meeting showed that policymakers felt interest rates would rise gradually over the next year to reach a level of around 1%.

Gilt traders appeared to look beyond the third quarter’s data, which showed weak growth and a rise in unemployment. Some economists highlighted that the third quarter’s pay growth remained above a level which would be consistent with the Bank of England’s 2% inflation target.

Dovish remarks from senior officials at the European Central Bank (ECB) appeared to contribute to Eurozone government bond yields falling last week.

Comments from the Fed chair, Jerome Powell, appeared to contribute to US treasury yields rising last week, with Powell warning against cutting interest rates too quickly.

GBP / EUR – Current 1.1974 Previous 1.2055

The Pound declined by 2.35% against the US Dollar, with the Dollar strengthening notably against most major currencies last week. Against the Euro, the Pound moved 0.67% lower.