Market Update – 18th October 2023.

The US consumer once again displayed resilience this week as fresh data came in on Tuesday regarding retail sales, placing the US even further away from recession. Shoppers were revealed as continuing to spend 0.7% more in the month of September on outings at bars and restaurants and purchases of motor vehicles. Economists had previously forecast a lower jump in sales growth, owing to data showing that people had been using their credit cards less last month. However, this new information may give the Fed food for thought when they consider whether to hike interest rates again at their next meet up.

Strength in the US economy was also illustrated this week when industrial production ticked up past expectations. Output grew by 0.3% month on month in September, with manufacturing rising 0.4% and vehicle production rising 0.3% – stifled somewhat due to continuing strikes amongst automakers. Given that the market originally priced in no change in production, and despite the fact that manufacturing has slowed due to inflation rates dampening demand for goods, the data shows the US’ momentum is rolling on this year at an impressive pace.

The UK’s inflation rate revealed that prices continued to increase at the same pace as the preceding month. Headline inflation remained steady at 6.7% in September, matching August’s rate. The cost of petrol and diesel played a role in sustaining inflation, while prices for food and non-alcoholic beverages experienced their first decline since September 2021. Additionally, the prices of household appliances and airfares decreased. Tuesday’s data revealed that average wages are rising faster than prices for the first time in nearly two years. The government has set a goal to bring the primary inflation rate down to 5% by year-end, with a longer-term target of 2%. With this in mind, the Bank of England may not change interest rates in November, which currently stand at 5.25%.

Source: ONS

China’s economy demonstrated stronger growth than anticipated in the third quarter, and there were positive surprises in consumption and industrial activity during September. This suggests that recent policy measures have been effective in supporting a fragile recovery. The National Bureau of Statistics reported a 4.9% increase in GDP for July to September, surpassing analysts’ expectations of a 4.4% rise. Industrial output in September also outperformed expectations with a 4.5% growth compared to the previous year, remaining consistent with the pace observed in August. Analysts had predicted a 4.3% increase. These positive developments imply that the government’s goal of achieving around 5.0% growth for the full year 2023 is well within reach.

Finally, investors continue to monitor the ongoing conflict within the Middle East, with President Joe Biden planning to visit Israel today.

Still to come this week we have UK retail sales, US initial and continuing jobless claims and Japan’s inflation rate.

Nicola Tune, Portfolio Specialist 

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