Weekly Market Wrap 08/09/2023

The pressure on the UK housing markets shows no signs of slowing, whilst data on the German economy continues to paint a poor picture for Europe’s biggest economy. Forecasters are divided over what decision the European Central Bank will make next week, whilst investors look to key US inflation data for clues.

UK Market  

The UK market ended the week lower. The UK housing market continues to suffer from higher borrowing costs, as the Halifax house price index fell by 1.9% in August, significantly more than the 0.3% fall that was expected. The index estimates that UK house prices have fallen 4.60% in the last 12 months, whilst the BBA mortgage rate has risen to 7.85% for August. According to an industry survey, hiring via recruitment agencies slowed at the fasted pace in 3 years, as employers grow concerned over the future of the UK economy. This significant drop in hiring has slightly boosted investor hopes that the Bank of England could resist the urge to raise rates at their next meeting, however markets are still firmly pricing in a 0.25% hike.

US Markets

The S&P 500 is currently 1.43% lower this week, whilst the Nasdaq is set to end the week 1.50% lower. US markets fell this week, ahead of next week’s CPI release which will give investors a large clue as to where the Fed could take monetary policy in the coming months. Lower than expected initial jobless claims (216k vs 234k est) and higher than anticipated factory orders (-2.1% vs -2.5% est) painted a picture of a strengthening US economy, one that market participants feared could lead the Fed to hike rates one final time.

European Markets 

The Euro Stoxx 50 is currently down 0.70% this week, ahead of next week’s key rate decision from the European Central Bank. Economists are split ahead of the central bank’s decision, a majority expect rates to be held at the current level, whilst 40% of forecasters believe that a final 0.25% hike will be delivered. Germany’s economic growth forecast for 2023 has been downgraded, with a 0.4% contraction now forecast for the year, down from the previous estimate of a 0.2% slowdown. This announcement follows German CPI data which showed inflation was flat YoY at 6.1% as well as a larger than anticipated fall in German industrial orders.

Fixed Income

Yields on US 10-year bonds rose this week by 0.08% to 4.26% this week, as investors awaited comments from Fed officials ahead of the next interest rate decision meeting. John Williams, Federal Reserve Bank of New York President reiterated that the Fed would continue to be data dependant in its decisions.

Commodities

Brent crude gained once again this week, rising 2.18% to $90 per barrel, after Saudi Arabia and Russia both extended their voluntary cuts to supply.

The Week Ahead

Monday –  

Tuesday – UK Unemployment

Wednesday – US CPI

Thursday – US Retail Sales, PPI, and Initial Jobless Claims

Friday – China Retail Sales

*x% up/down to price as of last week’s close