It has been an interesting week in markets with increased focus on the escalating tensions in the Middle East. The US was also preparing for Hurricane Milton, which hit the state of Florida on Wednesday night, severely flooding homes and businesses and leaving more than 2million people without power.
The biggest data release of the week was the announcement of US inflation for the month of September. There was less emphasis on labour market data this week due to hurricane Milton’s impact, therefore investors were keeping a closer eye on inflation and were ultimately disappointed. Headline inflation (year-on-year) was 2.4%, falling from the previous figure of 2.5% but not as far as market expectation of 2.3%. Core (excluding food and energy) inflation also came in slightly ahead of expectations. This data, alongside last week’s strong labour market data, further reduces the chances of aggressive interest rate cuts from the US Fed. Bond markets sold off on the news, with the yield on the 10-year US government bond approaching 4.1%, nearly 0.5% higher than the September lows.
In the UK there has been a lot of speculation over Labour’s first budget later this month and what policies they may or may not be able to implement. We had fresh GDP data this Friday morning and over the month of August the economy grew 0.2%. This is a win for the Labour government as economic growth has been labelled a top priority, although over the months of June and July the economy flatlined. Prime Minister Starmer will host an international investment summit next week with the hope of attracting foreign investors.
We spoke at length about China and the stimulus package put together by the Government which led to a huge rally in stocks. On Wednesday, the Shanghai composite index and CSI300 index both suffered their largest one-day losses in years as investors cashed in on profits and became concerned about the implementation of the measures. There is growing hope that there will be further announcements this weekend in regard to further stimulus in order to boost the economy and ultimately create investor confidence.
As we head towards the end of the year, the weather is certainly changing and Japanese brand Uniqlo are building their reputation as the place to shop for jumpers, gilets and fleeces. We won’t just talk fashion as on Thursday Fast Retailing, who own Uniqlo reported record net earnings for the third consecutive year, making over 3tn (£15.4bn) revenue. Founder, Mr Yanai, spoke saying he aims to make Fast Retailing the world’s largest fashion retailor as he continues to eye market share across Europe and the US, looking to overtake Inditex (Zara) and H&M.
US equities have regained their poise recently, led by the big tech firms, which have actually been underperforming the broader US market over the summer months. UK equities have been subdued, perhaps driven by budget concerns; investors may wait to see what is announced before deploying further capital to the undervalued market. The biggest headwind for portfolios this week was fixed income, which after a strong September, has had a difficult October. A combination of rising oil prices and stronger US economic data has led to interest rate cut expectations being pushed out, negatively impacting government bonds.
Nathan Amaning, Investment Analyst
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