Weekly podcast – Market overview
This week’s host, Investment Manager, Jack Bishop discusses the ups and downs of the past week with Head of Fixed Interest Research, Richard Carter, and Consumer Discretionary Analyst, Mamta Valechha. Among the topics discussed – September UK inflation data, the European Central Bank’s latest rate cut, Chinese economic growth data, UK and US retail sales data, and much more.
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Market overview – Richard Carter, Head of Fixed Interest Research
Stock benchmarks chalked up a sixth consecutive weekly gain supported by positive data releases, with the MSCI All Country World index posting a 0.5% return (19.8% YTD). Falling UK inflation figures saw bond yields pare recent gains with gilt yields falling on the week.
United States:
Small-cap stocks (1.9%) outperformed their larger-cap counterparts (0.9%) in the US last week, helped by stronger than expected consumer spending figures. US retail sales increased by 0.4% last month, marking an acceleration from the 0.1% rise in August. After spiking earlier in the month due to weather-related disruptions, initial jobless claims fell by 19k to 241k.
Tech stocks (0.8% on the week, 23.9% YTD) received a lift late in the week after strong quarterly results from Taiwan Semiconductor Manufacturing dispelled doubts that the shine was coming off the semiconductor market following a disappointing update from ASML a few days beforehand.
United Kingdom:
Falling inflation data lifted UK stocks (1.3% on the week, 11.5% YTD) and sent government bond yields lower. Mid-cap benchmarks (1.9% on the week, 10.3% YTD) outperformed and the pound ended the week little changed against the US dollar at 1.31.
Europe (ex UK):
The MSCI Europe ex UK index rose 0.2% on the week (10.6% YTD) as the European Central Bank lowered its key deposit rate to 3.25%. This is the third 25 basis point reduction in the cycle and the first time since 2011 that rate setters have announced cuts at consecutive meetings.
Inflation back below target
The UK consumer price index fell to a three-year low in September, with the 1.7% annualised rate providing encouragement for the Bank of England (BoE) to deliver further rate cuts. For the first time since April 2021 this metric came in below the central bank’s 2% target and marked a sizable drop from the 2.2% figure for the previous month.
Transport costs provided the largest downward contribution as airfares and motor fuel costs fell. Services inflation, seen by rate setters as a key measure of underling price pressures, came in at 4.9%, significantly lower than the 5.5% forecast from the BoE in August. Fading base effects in the coming months will likely see an increase in headline inflation back towards 2.5%, but the latest data is a welcome development nonetheless.
Derivatives markets reacted by pricing in a faster BoE rate cutting path, giving a roughly 75% probability for two 25 basis point reductions before year end — one at each of the two remaining scheduled meetings. The 10-year gilt yield declined 15 basis points on the week, ending at 4.06% (up 53 basis points YTD).
There was also good news on this front from continental Europe, as annual inflation was revised down to 1.7% from an initial 1.8% estimate by the European Commission.
Author
Jack Bishop
Investment Manager
Richard Carter
Head of Fixed Interest Research
Mamta Valechha
Equity Research AnalystTo listen to all the past Weekly Comment podcasts click here or subscribe via the apps below:
