- Weekly update
- 5 minute read
A good week for
- Equities, led higher by the US (+3.7% in sterling terms)
- Oil gained +4.8% in US dollar terms
A bad week for
- Emerging markets lagged developed market regions, rising +0.7% in sterling terms
- Sterling weakened modestly versus the yen
Chinese policymakers finally announced more support for China’s property sector last week. Property companies have faced difficulties since tighter restrictions were imposed on the sector in 2021, precipitating the failure of Chinese property giant Evergrande. At a Politburo meeting at the end of July, officials pledged to support growth and spoke in support of the property sector. However, until last week, support had been limited to interest rate cuts, and even those had been smaller than expected. On Thursday, the People’s Bank of China announced nationwide mortgage easing measures for both first and second homes. These measures included cutting the minimum deposit ratio to 20%; a 0.4 percentage point cut to the floor rate for new mortgages on second homes, and additional cuts to mortgage rates on first homes. Further stimulus is expected, particularly with regards to supporting infrastructure spending.
Last week’s US labour market data confirmed that US employment is easing. While August payrolls were stronger than expected, with employers adding 187,000 jobs according to the Bureau of Labor Statistics, July’s print was revised down significantly from 187k to 157k. Unemployment also rose to 3.8%, ahead of 3.5% in July, although this was primarily due to a rise in the labour force participation rate to 62.8%. However, underemployment, which measures the percentage of marginally attached workers in the labour market, also rose to 7.1% from 6.7%. Wage growth slowed from 0.4% to 0.2% month-on-month, and from 4.4% to 4.3% year-on-year. All in all, an easing in labour demand will be welcome to the Federal Reserve (Fed), with a modest rise in unemployment presenting a lesser risk of a recession. This increases the Fed’s chances of delivering a “soft landing”. However, US statistics may become harder to interpret, due to strikes and a possible government shutdown.
The UK economy grew by more than previously thought in recent years according to new statistics. The Office for National Statistics (ONS) released revised GDP data, which saw growth revised up in 2020 and 2021. Annual volume GDP growth in 2021 was revised up 1.1 percentage points to an 8.7% increase, while GDP is now thought to have fallen by 10.4% in 2020, compared to 11% before the revision. The revisions mean that UK GDP is now estimated to have been 0.6% above pre-pandemic levels in the fourth quarter of 2021, as opposed to 1.2% below. Much of the revision is down to new data sources and methodology for reconciling GDP data. The largest contribution to the revision in 2021 is from wholesale and retail trade, which contributed 1.9 percentage points to the upward revision. The new methodology estimated distributor trading margins to be higher than previously thought. Healthcare was another positive contributor, with a rebound in healthcare activity evident in 2021, as social restrictions eased.
UK Money and Credit statistics revealed a slump in mortgage approvals. Approvals dropped to 49,400 in July, from 54,700 in June. Net mortgage lending was also subdued, at £0.2bn in July, compared with the 2022 average of £5.1bn. Recent price index data confirms that the housing market is experiencing softness, likely as a result of higher mortgage costs. However, given the large proportion of fixed rate mortgages, it is likely to take longer for the full impact of higher interest rates to feed into the economy.
Inflation data showed Eurozone inflation to be stable at 5.3% in August, while core inflation also slowed to 5.3%. The reading was likely more benign than markets had expected, given stronger prints for Germany and France earlier in the week. On a monthly basis, headline inflation rose 0.6%, and the core basket rose 0.3%. On an annual basis, the strength in headline CPI reflects stronger energy inflation, with base effects and stronger prices today both playing a role. Nonetheless, CPI is expected to continue falling this year toward 3.2% by year end. The European Central Bank (ECB) is expected to execute only modest further interest rate hikes, with a “hold” possible in September.
The information contained in this article is believed to be correct but cannot be guaranteed. Past performance is not a reliable indicator of future results. The value of investments and the income from them may fall as well as rise and is not guaranteed. An investor may not get back the original amount invested. Opinions constitute our judgment as at the date shown and are subject to change without notice. This article is not intended as an offer or solicitation to buy or sell securities, nor does it constitute a personal recommendation. Where links to third party websites are provided, Close Brothers Asset Management accepts no responsibility for the content of such websites nor the services, products or items offered through such websites.