Blue chips outperform in September: the FTSE 100 Index bucked the global trend during September, posting an increase of 2.3% over the month as sterling’s weakness and higher oil prices provided a boost for blue chips. In comparison, mid-caps – represented by the FTSE 250 Index – fell by 1.8% over the month.
Sterling weakens: the pound fell to its lowest level against the US dollar since March during September, dropping as low as US$1.21 amid mounting concerns over economic growth prospects and expectations that the Bank of England (BoE) is reaching the end of its tightening cycle. After 14 consecutive rate increases, BoE policymakers voted by five to four in favour of holding the key base rate steady at 5.25%. During evidence given to the Treasury Select Committee, BoE Governor Andrew Bailey indicated that rates were close to or at their peak.
Inflation eases: the rate of consumer price inflation eased unexpectedly in August, falling for a third consecutive month from 6.8% to 6.7%, and the BoE expects inflation to “fall significantly further” in the near term. The Organisation for Economic Cooperation & Development (OECD) forecast UK inflation to average 7.2% this year – a higher level than any other G7 member country – falling to an average of 2.9% in 2024.
Housing market under pressure: UK house prices fell at an annualised rate of 5.3% in the year to August, according to mortgage lender Nationwide, representing their weakest rate since 2009. The price of an average house in the UK fell to £259,153. According to HMRC, residential property transactions fell by 9% between June and July, posting a 22% drop year on year. Mortgage approvals in the UK reached their lowest level since February during August.
Unemployment on the up: the value of retail sales rose by 4.1% during August year on year, reflecting to some extent an uptick in consumer confidence, according to the British Retail Consortium. Nevertheless, persistent inflationary pressures are likely to have masked a drop-in sales volume. Elsewhere, the UK’s labour market appears to be weakening: the rate of unemployment rose from 3.8% to 4.3% in the three months to July, while job vacancies fell below one million. Meanwhile, average earnings (excluding bonuses) rose at an annualised rate of 7.8% over the same period.
Losing momentum: global equity markets generally weakened during September, dampened by uncertainties over US monetary policy, higher oil prices, and broader concerns about the global economic outlook. The Organisation for Economic Cooperation & Development (OECD) warned that global growth is set to moderate, dampened by the impact of higher interest rates, persistently high core inflation rates, lacklustre business and consumer confidence, and a slowdown in China. Elsewhere, the Financial Stability Board (FSB) warned G20 leaders that economic growth is losing momentum against a backdrop of higher interest rates and warned of “further challenges and shocks facing the global financial system”.
Fed pauses: the rate of consumer price inflation in the US picked up from 3.2% in July to 3.7% in August, boosted by higher fuel prices. Although the US Federal Reserve (Fed) maintained its key federal funds rate at a range of 5.25% to 5.5% at its September meeting, Fed officials are expected to tighten rates again before the end of the year. At the very end of the month, US lawmakers agreed a temporary deal that will avert a federal shutdown until 17 November. The Dow Jones Industrial Average Index fell by 3.5% over September, while the technology-rich Nasdaq Index declined by 7.6%. Apple’s share price dropped sharply during the month following reports that China’s government had widened a ban on government employees from using iPhones.
ECB tightens again: the European Central Bank (ECB) raised its key interest rate to a record high of 4% during September. This was the ECB’s tenth rate increase in 14 months, but the central bank looks set to pause its tightening cycle for now. The rate of inflation in the eurozone fell from 5.2% to 4.3% year on year during September.
A weaker outlook for Europe: the European Commission revised down its forecast for economic growth in the eurozone to 0.8 % in 2023 and 1.3% in 2024, citing “multiple headwinds” including weak domestic demand, higher interest rates, and geopolitical tensions including the ongoing war in Ukraine.
Germany in the doldrums: Germany is the only economy in the euro area predicted to shrink over 2023, according to the European Commission. The Ifo Institute reported “bleak” sentiment towards Germany’s economic prospects during September; meanwhile, export activity continued to weaken and retail sales volumes declined. The Dax Index fell by 3.5% over the month.
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