Written by Chris Ayton.
Last week brought some welcome relief to equity and fixed income markets. The MSCI All Country World Index rose +2.0% and the FTSE All Share Index recovered +1.4%. The Bloomberg Global Aggregate Index was -0.3% in GBP Hedged terms.
UK news last week was dominated by the UK government’s decision to reverse its planned axing of the 45p income tax rate just days after having announced it. “We get it and we have listened” Chancellor Kwasi Kwarteng sheepishly announced on Twitter. In a further attempt to calm currency and fixed income markets, Kwarteng was also forced to announce he would be bringing forward the disclosure of his debt reduction plan from 23rd November to the end of this month. Sterling and UK Treasuries recovered some lost ground, aided by the Bank of England’s promise of intervention through buying up long dated gilts.
In the US, bad news was initially good news as weak manufacturing data increased hope of slower additional interest rate increases from the Federal Reserve. However, the week ended with news that the US unemployment rate had dropped back to its pre-pandemic low of 3.5% which pointed to a tighter labour market and dampened any enthusiasm that the Fed may choose to take things slower. Nevertheless, the 1.8% rally in the S&P 500 Index comes after three consecutive quarters of declines for the S&P 500 Index, the first time this has been observed since 2008.
Eyes now turn to the Chinese Communist party’s 20th national congress, which opens on 16th October. President Xi Jinping is widely expected to win an unprecedented third term, but the focus will also be on how China plans to deal with the harsh economic challenges caused by its zero Covid policy as well as a rapidly slowing property market.
