Introduction
Global markets were relatively volatile during the first half of September, with most regional indices ending the period lower. Persistent concerns over inflation, rising global interest rates and recession continued to weigh on investor sentiment. The European Central Bank raised interest rates by a record 0.75%, whilst comments from the US Federal Reserve reiterated its strong commitment to combatting inflation. US markets in particular suffered sharp falls at the end of the period after data showed US inflation rose faster than expected.
Economic Update
The UK economy expanded by less than expected in July, increasing fears that it may already been near or in recession. The Office for National Statistics (ONS) said the economy grew 0.2% in July, below the forecasted 0.4% gain. A sharp increase in energy tariffs weighed on demand for electricity, whilst a jump in the cost of materials hurt the construction sector. The service sector grew, helped by the UK hosting the Women’s Euro Championship.
UK inflation, as measured by the Consumer Price Index (CPI), unexpectedly fell in August, the first decline since September 2021. The CPI fell from July’s 40-year high of 10.1% to 9.9% in August, below the forecasted small increase to 10.2%. The fall in inflation was driven by a sharp decline in fuel prices, which dropped by 6.8% in August, the largest monthly fall since April 2020. However, food prices rose at their quickest pace since 2008, driven by higher costs for milk, cheese and eggs.
British unemployment unexpectedly fell in the three months to July to its lowest level since 1974, although this may have been partly due to a rise in the number of people who are no longer looking for work and are not counted in the figure. The unemployment rate fell from 3.8% to 3.6%, below the forecasted unchanged reading. The ONS said growth in regular pay excluding bonuses rose by 5.2%, the highest rate since the three months to August 2021 but taking into account inflation it fell by 2.8%. Employee’s total pay, which includes bonuses, increased by 5.5% but in real terms after allowing for inflation it fell by 2.6%.
US employment growth was stronger than expected in August, although there was an easing in the pace of wage growth. The Labor Department’s closely watched employment report showed nonfarm payrolls added 315,000 jobs in August, ahead of the forecasted 300,000 increase with employment now 240,000 jobs above its pre-pandemic level. US consumer prices unexpectedly rose in August, whilst underlying inflation was also higher amid increasing costs for rents and healthcare. The Labor Department said the CPI rose 0.1% in August, which was ahead of the forecasted 0.1% fall, whilst the CPI increased 8.3% over the twelve-month period, above the expected 8.1% gain. The European Central Bank raised its key interest rates by 0.75% from 0% to 0.75%, whilst promising further increases as it prioritises the fight against inflation despite a potential winter recession and possible gas rationing.
Market Update
UK indices finished the 1 to 15 September period lower, with the FTSE 100 outperforming the FTSE 250 as it suffered only a nominal loss. UK indices endured volatile periods, as investors saw the death of Queen Elizabeth II, together with a new Prime Minister, whose plans include a significant increase in borrowing as the government looks to combat soaring energy prices. The FTSE 100 was supported by its large exposure to energy and mining stocks, but sterling suffered the brunt of the concerns over the economy as it fell to its lowest level in 35 years versus the US dollar. US markets finished lower due to the sell-off at the end of period as a result of a higher than expected inflation reading, but European indices edged higher. Asian and Global Emerging Markets underperformed developed markets as they suffered losses, with Chinese and Hong Kong indices among the notable fallers. Fixed income assets also finished lower, with gilts underperforming corporate bonds as sterling weakened and concerns continued over the outlook for the UK economy.
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.
CA8555 Exp:09/2023
[ Date Posted: 21/09/2022 12:59:19 ]
