Market Update

Investment markets are known for their resilience in the face of various challenges, but they can also experience volatility during uncertain periods. This was evident during the brief tenures of Truss and Kwarteng, whose "mini-budget" plans for the UK economy led to upheaval in UK financial markets. Consequently, this week's Autumn Statement, focusing on "Stability, Growth, and Public Services" and supported by OBR (Office for Budget Responsibility) forecasts, was highly anticipated and helped boost investor sentiment.
Clear communication leading up to the statement managed expectations effectively, resulting in few surprises on the day. The statement's emphasis was on supporting households in the short term while working to improve public finances through a combination of windfall and stealth taxes, as well as future spending cuts. As a result, the OBR forecasts a short-term decline in household disposable income, which is expected to weigh on economic growth, given the intended increase in tax revenue.
Movements in the UK equity market, the value of the Pound, and bond prices were relatively subdued, as they had already regained much of the ground lost in recent weeks. At the corporate level, the share prices of energy producers such as Centrica, SSE, and Drax initially dipped when the increased energy profits levy was announced but later rebounded as they gained clarity on the levy's size. Shares in insurance companies Legal & General and Phoenix also ended the week positively, as the government committed to solvency reforms aimed at overhauling EU financial services regulation post-Brexit.
While the near-term outlook for UK consumers remains challenging, data released this week indicated improved sentiment compared to the lows following the "mini-budget." November's GfK consumer confidence figures came in better than expected, and retail sales showed signs of recovery in October.
In the United States, it was confirmed, as expected, following last week's midterm elections, that the Republicans have secured enough seats to take control of the lower chamber of Congress, the House of Representatives, from the Democrats. While the final majority is still pending confirmation, it wasn't the landslide victory some had anticipated. With the Democrats retaining control of the upper chamber, the Senate, the divided government situation makes it more challenging for President Joe Biden to set the agenda, a development we have previously highlighted as positive for US corporations.
Looking ahead to the next week, there are limited data releases. The main highlights include forward-looking PMI surveys in Europe and the US, as well as minutes from the Fed and ECB's most recent monetary policy meetings. Several central banks, including those in China, New Zealand, Sweden, and South Africa, are expected to announce further interest rate increases, except for China. Black Friday sales will kick off the Christmas shopping period following Thanksgiving, when US markets are closed. Finally, the 2022 World Cup will begin in Qatar this weekend, with England's first match scheduled for Monday afternoon.