Weekly Market Wrap 18/08/2023

Global markets fell as concerns around interest rates across the world remaining higher for longer and Chinese growth hit risk sentiment.

UK Market  

The UK market ended the week lower. UK CPI data was released on Wednesday, as headline inflation showed a significant slowdown (falling from 7.9% to 6.8%) whilst core inflation was flat at 6.9% when a slight drop to 6.8% had been forecast. Meanwhile, average base earnings in the UK rose by 7.8% (more than the estimated 7.4%), whilst unemployment rose to 4.2%. This mixed bag of data points gives the Bank of England a difficult decision to make, however markets are firmly pricing in a 0.25% rate hike in September whilst rates are expected to peak at 6.00% in December.

US Markets

The S&P 500 is set to fall by 2.87%, whilst the Nasdaq looks set to end the week 2.92% lower. The minutes from the latest US FOMC meeting caused investor worries this week, as concerns about persistent inflation continue to affect the committee. The minutes stated, “most participants continued to see significant upside risks to inflation, which could require further tightening of monetary policy.” The suggestion of further rate increases pushed markets lower on Wednesday and drove US government bond yields higher. Despite the market reaction, no further rate changes are priced in, with the next movement expected by the Fed to be rate cuts in 2024.

 European Markets 

The Euro Stoxx 50 is currently down 2.78% this week. Eurostat data showed Eurozone inflation fell further (5.3% from 5.5%) and Core inflation appears to have peaked, easing pressure on the ECB to raise rates. Economic growth, investment and consumption is slowing, suggesting that inflationary pressures should continue to ease.

 Fixed Income

Yields on US 10-year bonds rose 0.12% to 4.29% this week, after Fed Minutes showed officials were contemplating further interest rate increase in the US.

 Commodities

Brent crude fell by 3.80% this week to $83 per barrel, falling after concerns rose over the potential for further interest rate hikes in the US as well continued poor economic data from China dragged demand expectations lower.

 The Week Ahead

Monday – China Interest Rate

Tuesday – US Public Sector Borrowing

Wednesday – Eurozone Consumer Confidence

Thursday – US Initial Jobless Claims & Jackson Hole Symposium

Friday – US Consumer Sentiment

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