Trickledown Truss

Weekly update
  • Weekly update
  • 5 minute read

A good week for

  • UK bonds gained ground, led higher by corporates
  • The US dollar gained +0.7% on a trade weighted basis

A bad week for

  • Sterling weakened against major currency pairs
  • Despite sterling weakness, equities fell in GBP terms
    across the regions

UK economy

Sterling reached new lows as economic data painted a gloomy picture of the economy. Retail sales fell -1.6% in August, a decline twice as bad as economists had expected, pulling annual growth down to -5.4%. July’s GDP growth also disappointed, rising by only 0.2%, after a -0.6% fall in June. In contrast, July and August labour market data demonstrated strength, with unemployment falling further to 3.6% and wage growth accelerating. Some of the tightening in the labour market was down to a further deterioration in participation, with inactivity rising by 36,000, in part due to a rise in long term sickness. However, the vacancy rate also fell for the third month in a row, suggesting labour demand is cooling. The outlook for the UK economy will be influenced by measures due to be announced on Friday in a “mini-budget”. In addition to c. £150bn of support for household energy bills, the Treasury is expected to unveil details of support for businesses.

US economy

US inflation cooled in August but this offered little relief to markets. Headline CPI eased to 8.3% from 8.5% in July, with falling gasoline prices accounting for most of the decline. However, core inflation accelerated to 6.3%, versus 5.9% in July. This was underpinned by strength across autos, apparel and owners’ equivalent rent. This measure, which reflects how much money a property owner would have to pay in rent to be equivalent to their cost of ownership, is a large share of the CPI basket, but it is likely to fall soon, as house prices are showing greater weakness. The market interpreted the print negatively, with the acceleration in the core basket likely to be a concern for the US central bank. The US Federal Reserve are due to meet this week, with a further 0.5-0.75% rise in interest rates expected.

Chinese economy

Last week’s Chinese economic data painted a brighter picture. Both retail sales and industrial production picked up pace more than analysts expected. Retail sales accelerated to 5.4% year-on-year vs 3% in July, boosted by weak sales a year earlier and a surge in car sales after Beijing gave buyers subsidies on electric vehicles. Industrial output was also stronger, rising to 4.2% with the support of a big spike in electricity production during August’s heatwave. Looking ahead, the longer Beijing enforces its zero-Covid health code, the worse the hit to growth is likely to be.

European economy

Gas prices fell sharply last week after Ukraine recovered territory taken by Russia’s invasion. However, there is not yet a clear end to the conflict, with Russia escalating tensions. European countries have managed to fill 88% of reserve capacity, by reducing consumption and boosting supply from other sources. While the Nord Stream 1 pipeline is unlikely to resume as normal, European countries are likely to have enough energy to make it through the winter, assuming the 15% use reduction can continue, it is not especially cold, and flows from other Russian pipelines continue. However, replacing Russian gas with liquid natural gas (LNG) bought from global energy markets is expensive, making the operations of some businesses uneconomical. This is expected to weigh on growth.


One of the world’s largest cryptocurrencies successfully implemented a significant operating change, known as “The Merge.” This software upgrade was designed to reduce the negative environmental impact of the Ethereum cryptocurrency by changing how it orders and verifies transactions. Instead of using the energy-intensive “proof of work” process to add transactions to the Ethereum blockchain, it will now use a “proof of stake”. The change is expected to reduce Ethereum’s electricity usage by 99%, saving an amount almost equivalent to the annual energy consumption of New Zealand. The move could put pressure on other coins, including Bitcoin, to move to a similar process, though proponents argue that the proof of work process is more secure.


Important information
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.


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