Introduction
The second half of November saw global equity markets finish broadly higher, with most developed and emerging markets ending the period with gains. Investor sentiment was driven throughout the period by hopes over whether there could be an easing in the US Federal Reserve’s (Fed) aggressive pace of interest rate rises. Whilst much of the period saw little indication of this, these hopes were boosted at the end of the month by comments from the Fed’s Chair Jerome Powell, who said the pace could be slowed as soon as December. Stricter zero-Covid restrictions in China also weighed on sentiment throughout much of the period, including the news of protests towards the end of the month.
Economic Update
The annual rate of UK inflation, as measured by the Consumer Price Index (CPI), rose in October to its highest level since 1981. The Office for National Statistics (ONS) said that CPI rose 11.1% in the 12 months to October, the most since October 1981 and above both the 10.1% increase in September and the forecasted 10.7%. Prices of food and non-alcoholic beverages rose at their fastest rate since 1977, with the cost of milk increasing by almost 50% in the past year. Energy and fuel costs also rose sharply and remain a key driver of inflation.
Private sector survey data showed that activity has now contracted for four consecutive months, with a number of companies seeing downturns referencing cutbacks in non-essential spending due to rising costs and weaker economic conditions. British retail sales posted a partial recovery from the decline in September, where shops had been closed for the funeral of Queen Elizabeth, but they remained below their pre-pandemic level. Retail sales volumes rose 0.6% in October, ahead of both the forecasted 0.3% gain and the 1.5% fall in September. October saw a rebound in petrol and diesel sales, whilst volumes at non-food stores also rose, though both were still well below February 2020 levels. However, the recovery didn’t extend to food stores, which saw sales fall. Non-store shops, which are mostly online retailers, saw sales increase 1.8% whilst they remain around a fifth higher than pre-pandemic levels.
British government borrowing, which is the difference between spending and tax income, was less than expected in October although it is expected to rise sharply over the coming months due to the impact of the energy cost support measures and a slowing economy. The ONS said public sector borrowing excluding state-owned banks was £13.5 billion, well below the forecasted £22 billion reading, which was higher due to the expectation that the figure would include large first payments under the energy bill support scheme.
US economic growth in the third quarter was revised higher from an annualised rate of 2.6% to 2.9%, which was ahead of the forecasted smaller increase to 2.7% and follows the 0.6% contraction in the second quarter. The upward revision was driven by upgrades to growth in consumer and business spending as well as lower imports, which offset the impact from a slower pace of inventory accumulation.
Eurostat’s preliminary estimate of inflation in the Eurozone showed prices falling in November for the first time in 17 months. Consumer price growth in the 19 countries sharing the euro fell from 10.6% to 10%, well below the forecasted smaller fall to 10.4%. An easing in the pace of energy price increases was the main driver of the slowdown in inflation, but prices for food, alcohol and tobacco continued to rise at a faster rate.
Market Update
There was mixed performance from UK indices in the period 15 to 30 November, with the large cap FTSE 100 recording a good gain but there was a loss for the mid-cap FTSE 250. Oil & gas and commodity-linked stocks were among the key drivers of positive returns from the FTSE 100, whilst concerns over the domestic economic situation weighed on the FTSE 250 to a greater extent.
US markets started the period with losses, with a dire holiday sales outlook from Target Corp not helping sentiment. Much of the period saw little evidence of the US Federal Reserve (Fed) moving to a less aggressive monetary policy but comments at the end of month from the Fed Chair that a slowdown could come in December helped US indices rebound strongly to finish the period higher. Despite concerns over a recession and higher interest rates, European markets finished higher with a lower than expected inflation reading bolstering hopes over smaller rate rises by the European Central Bank.
A spike in Covid-19 cases and further lockdowns in China weighed on Asian and Global Emerging Markets in the first half of the period. However, hopes that the measures could be eased helped fuel a strong rally towards the end of November, resulting in gains for the broad Asian and Global Emerging Markets indices.
Fixed income markets recorded gains, with sterling corporate bonds outperforming UK government bonds.
We generally recommend that you hold investments for the medium to long-term, which we would view as being for five years or more. This market commentary provides an insight into the current factors that are affecting short-term global returns, but should not be viewed as a basis for making long-term investment decisions. You should consider your own investment goals and timeframes before making any such investment decisions. If you do have any concerns about where your money is invested, please contact your Origen adviser.
CA8709 Exp 11/23.
