Market Update – 20th September 2023.

Amidst the threat of a Government shutdown, this week investors listened closely to an interview with US Treasury Secretary Janet Yellen about the outlook for America’s economy. On Monday, Yellen reiterated the resilience of the US, stating that it would be able absorb risks of events such as more Auto Workers strikes and the resuming of student loans. Not only this, she also said that the economy is making significant progress by reducing inflation while managing a labour market that is cooling in a ‘healthy way’ i.e. without any substantial lay-offs, and thus stressed the need to keep the US Government open past 30 September.

This morning, the latest UK inflation report for August 2023 revealed a surprise fall in the headline inflation rate to 6.7%, despite a spike in fuel prices. Economists had expected inflation to rise slightly from 6.8% reported in July to 7% following oil output cuts last month. However, inflation has demonstrated a sustained fall over the last six months, following 14 consecutive interest rate hikes from the Bank of England (BoE). Positively, core inflation which is more closely watched by policymakers and less volatile elements like energy and food also fell 6.2% on-year in August 2023, marking a sharp decline from 6.9% in July. Though the unexpected decline is encouraging, inflation remains way above the BoE’s target rate of 2% and the Bank may look to raise rates again this Thursday (21 September) by a quarter of a percentage point to 5.50%.

The Chinese people are again starting to show signs of confidence in their economy. This week, a report by IPK travel consultancy showed that demand for foreign travel amongst the Chinese people has hit its highest level in 2 years, with 80% of those surveyed planning a trip out of the country within the next 12 months. The news comes with waves of positivity for the Chinese economy, which has been slow to regain traction post pandemic, certainly laying the groundwork work for a run of economic growth in 2024.

Later today. the Fed in the US will announce the latest interest rate decision. Data-dependent policymakers have been evaluating the strength of the labour market and other key economic indicators over their two-day meeting. Markets are largely expecting them to hold interest rates.

Still to come this week, we have word from European Central Bank President Christine Lagarde, UK Retail Sales and manufacturing and services PMI data as well as US manufacturing and services PMI data.

Nicola Tune, Portfolio Specialist 

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