Market Update

As the week concluded, market activity remained somewhat muted. The surge in oil prices heightened anxieties around Central Banks' capacity to control inflation, and the looming possibility of a US Government shutdown only intensified these concerns. As the days went by, anxieties escalated due to House Speaker Kevin McCarthy's inability to clinch an agreement with Republicans concerning discretionary funds. Such shutdown threats invariably introduce market turbulence, as resolutions tend to emerge at the eleventh hour. However, viewing it from a broader perspective, this situation is likely to be a mere blip, with expectations that both sides will come to a consensus, setting a positive trajectory for equities.
Friday morning brought a glimmer of positivity with inflation data that hinted at the potential cessation of the Fed's rate hikes. The Core PCE price index in the US, when excluding food and energy, saw a modest 0.1% rise month-on-month in August, undershooting market anticipations. Year-on-year, the core PCE price index (which excludes fluctuating elements like food and energy) declined to 3.9% in August, aligning with projections after adjusting down from 4.3% in July.
Shifting focus to Europe, the continent's inflation for September 2023 was recorded at a modest 4.3%, marking the lowest in two years and a considerable dip from August's 5.2%. The deceleration can be attributed to subdued hikes in services, non-energy industrial goods, and the food, alcohol & tobacco sectors. Interestingly, even amidst soaring oil prices, energy expenses experienced further deflation, with core inflation settling at 4.5%. Statements from officials this week intimated that to achieve the 2% inflation target, interest rates might need to sustain "restrictive" levels. Yet, the recent figures offer a silver lining, underscoring the data-driven approach of policymakers.
On the UK front, stocks concluded the week with an upbeat vibe, as investors delved into heartening insights on the UK’s economic trajectory. The Office of National Statistics showcased a first-quarter growth at 0.3%, outpacing the preliminary 0.1% projection, with the second-quarter GDP growth estimation remaining stable.
Speaking at the 2023 Berlin Global Dialogue, BlackRock's Chairman and CEO, Larry Fink, accentuated the pressing need for optimism in the global arena. This perspective resonates with our own, given the myriad market opportunities and the pivotal role Central Banks have played in steadying economies amidst unparalleled inflation. Fink also spotlighted China, remarking that its diminishing savings rate coupled with augmented consumption heralds renewed optimism.
Additionally, there's mounting consensus that the zenith of interest rates might have been attained, signaling promising prospects for both bond and equity markets.
Amidst the flurry of alarming headlines and market ambiguities, we urge our clients to embrace a long-term perspective. It's crucial to acknowledge that market challenges often birth opportunities. Staying invested over an extended period enables investments to weather short-term market storms.