Week ending 18th November 2022.

Investment markets can overcome any eventuality, however, during periods of uncertainty they can be volatile. This dynamic was clearly evident during the brief tenure of Truss and Kwarteng, who’s “mini budget” growth plans for the UK economy resulted in UK financial market upheaval. Consequently, this week’s Autumn Statement was hotly anticipated and its measured approach to, “Stability, Growth and Public Services”, which supported by OBR (Office for Budget Responsibility) forecasts, helped investor sentiment.

Communication was sufficiently clear ahead of the statement to manage expectations, as a result there were few surprises on the day. The emphasis of the statement was to support households in the short term, while improving public finances via a combination of windfall and stealth taxes, and spending cuts further down the line. Consequently, the OBR forecast is that household disposable income will fall over the short term which will weigh on economic growth, which is hardly surprising given the intended higher tax take.

Moves in the UK equity market, Sterling and bond prices were muted as they had already recovered much lost ground in recent weeks. At a corporate level, the share prices of energy producers Centrica, SSE and Drax initially sold off as the increased energy profits levy was announced, however, they closed up given the clarity they now have over the size of the levy. Shares in insurance companies Legal & General and Phoenix, also ended the week positively as the government committed to solvency reforms overhauling EU financial services regulation post Brexit.

While the near term outlook for the UK consumer remains tough, data released this week showed that sentiment had improved from the ‘”mini budget” lows. GfK consumer confidence figures for November came in better than expected, whilst retail sales also recovered somewhat in October.

Over in the US, as expected, it was confirmed following last week’s midterm elections, the Republicans have secured sufficient seats to take the lower chamber of congress (The House of Representatives) from the Democrats. Whilst it will be some time for the final majority to be confirmed, it was not quite the landslide some had expected. With the democrats retaining control of the upper chamber (The Senate) the now split government makes it harder for President Joe Biden to set the agenda, and as we have previously highlighted, this is positive for US corporates.

There are limited data releases next week, main highlights include forward looking PMI surveys in Europe and the US and minutes from the Fed and ECB’s last monetary policy meetings. Central bank policy announcements are expected from China, New Zealand, Sweden, and South Africa, all of which are expected to raise interest rates further, with the exception of China. Black Friday sales kick off the Christmas shopping period following Thanksgiving on Thursday when US markets are closed. Finally, the 2022 World Cup kicks off in Qatar this weekend, with England’s first match taking place on Monday afternoon.

The Investment Management Team

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