Market Update

The past week saw heightened market activity influenced by uncertainties regarding interest rates and growing tensions in the Middle East.
Oil values increased, with Brent crude climbing 5.1% to $90.34 per barrel. This surge stemmed from worries that the conflict between Israel and Hamas might broaden. While the Middle East situation represents a significant human catastrophe, financial markets historically show resilience against geopolitical events. Israel prompted over a million residents to leave northern Gaza. If OPEC opts to increase production quotas, the rise in oil prices might be temporary. It's crucial to mention that Israel's oil output isn't on par with Russia's, and stock markets remained resilient over the week. Major oil companies, BP and Shell, played a pivotal role in reducing FTSE 100 losses.
The US Federal Reserve's September meeting minutes, released on Wednesday, revealed a continued cautious stance among policymakers due to economic unpredictabilities and rising wholesale prices. The primary concern was the duration of rate holds, not their intensity. Several officials struggled with unpredictable economic data and the outcomes of prior Fed rate increases. Though some information suggests slowing inflation, most officials remain wary of potential hikes, especially concerning global oil and sudden food price rises.
The eagerly awaited US CPI report for September 2023 indicated a 0.4% rise from the previous month, slightly above the projected 0.3% increase. The yearly CPI inflation rate stood at 3.7%, while the core rate was 4.1% – the slowest in two years. Increased shelter inflation and fuel costs mainly drove this monthly rise. However, fuel prices have seen a notable decline since September. And the significant decrease in prices for new rent agreements hints at a potential moderation in shelter inflation, which constitutes about one-third of the total CPI index.
Value stocks saw a boost, thanks to stellar outcomes from JPMorgan, Wells Fargo, and Citigroup's Q3 earnings. JPMorgan Chase took the lead with an impressive 35% profit increase, underscoring the banking sector's strength in a higher rate scenario, despite initial concerns earlier in the year.
On a positive note, UK GDP data revealed better-than-anticipated economic resilience, showcasing a slight recovery in August 2023 following July's drastic dip. The economy grew by 0.2%, primarily due to service sector expansion, which balanced out declines in manufacturing and construction. In Marrakech, Bank of England's Andrew Bailey conveyed cautious optimism about interest rates. He acknowledged considerable progress in managing inflation due to increased interest rates, resulting in an 18-month low inflation rate of 6.7%. However, with inflation still surpassing the 2% goal and a borrowing cost standstill at 5.25% after 14 straight rate hikes in September, Bailey stressed the importance of a cautious strategy.
European stocks faced challenges with the rise in global energy prices. In Ireland, the September 2023 CPI index registered a 6.4% increase from the prior month's 6.3%, as inflationary pressures lingered in the Eurozone. But the European Central Bank (ECB) hinted at a peak in interest rates, with President Christine Lagarde stating the eurozone was nearing its 2% objective.
In the upcoming week, investors will scrutinize the US consumer landscape, a major economic driver, through the US retail sales report, as well as earnings from Procter & Gamble, Netflix, and several banks. Other anticipated releases include the UK unemployment rate, retail sales, inflation data, Eurozone trade balance, US industrial output, and China's GDP, industrial production, and retail sales.