But for the US government shutdown, this first paragraph should have been written 49 days ago! On Thursday – nearly seven weeks later than scheduled – key US employment data for the month of September was released. The Non-Farm Payrolls data showed 119,000 jobs were added during the month, beating expectations. However, the unemployment rate nudged up to 4.4%, while August’s jobs figure was revised lower, leading to a negative print for the month.
Staying with the US, all eyes were on the world’s largest company, Nvidia, who released their latest results on Wednesday evening. Their results seemed extremely positive, beating all forecasts and providing positive guidance going forward. At the market open yesterday, US equities rallied strongly, however, they then suffered an intra-day reversal and ended heavily in the red. It was the biggest intra-day reversal we have witnessed since April. Rumblings of an Artificial Intelligence (AI) bubble continue to brew, and weren’t helped by comments from Google CEO, Sundar Pichai, who acknowledged AI models were “prone to error” and that, while the growth in AI investment had been an “extraordinary moment”, there was some “irrationality” in the current AI boom.
Here in the UK, we are less than a week away from the Autumn Budget, and data released this week provided mixed messages around the state of the economy. It was pleasing to see inflation fall from 3.8% to 3.6%, and this should give the Bank of England (BoE) more scope to cut rates at their December meeting. Digging into inflation a little deeper, food inflation shot up to 4.9%, while sticky services inflation fell further than expected to 4.5%.
UK retail sales were released this morning and showed sales fell 1.1% on a month-on-month basis. Alongside this data, UK government borrowing for the month of October was also released and showed public sector net borrowing was higher than anticipated. They were rumours Reeves pushed back this budget to late in November in the hope that economic data would meaningfully improve – today’s data does not support that.
While equities have had a tough end to the week, it’s been pleasing to see government bonds rally, providing a level of diversification to equities. Over recent years, government bonds haven’t always exhibited this negative correlation with equities; however, in a slowing growth and falling inflation environment, we believe they once again have the potential to act as a diversifier to equities.
Alongside equities, it has been a tough week – and indeed month – for bitcoin. The cryptocurrency is now off over 30% from its high in early October.
On a more positive note, there appears to be progress towards some form of peace deal between Ukraine and Russia. US and Russian officials have drafted plans to end the war, and while Ukraine’s input into these discussions is unclear, President Zelensky has said he is ready to work with the US on “their vision” in order to end the conflict.
Volatility has returned to equity markets, with weakness across the globe this week. However, when one zooms out, the year has been extremely strong for risk assets, with many markets only just shy of all-time highs. With further rate cuts around the corner and the expectation of positive global growth and cooling inflation, there remain reasons to be positive. Our approach remains one of diversification, both at an asset class and geographical standpoint.
Andy Triggs, Head of Investments
Risk warning: With investing, your capital is at risk. The value of investments and the income from them can go down as well as up and you may not recover the amount of your initial investment. Certain investments carry a higher degree of risk than others and are, therefore, unsuitable for some investors.