UK markets declined this week, with the FTSE 100 Index falling 0.5% to trade at 7,385 points at the time of writing. The UK economy stagnated in the three months to September, according to official figures from the Office for National Statistics which showed that GDP was unchanged in the third quarter compared with the previous three months.
Zero growth in the latest quarter was down from a 0.2% expansion in the three months to June, suggesting that high borrowing costs are taking a toll on activity and the cost of living crunch is still hitting household spending.
Short-term UK gilts rallied sharply this week as investors welcomed comments from the Bank of England’s chief economist, Hew Pill, suggesting the UK central bank may be willing to consider interest rate cuts in the middle of next year. Government bonds across the US and Europe have rallied sharply after a string of weaker than expected economic data and downgrades to the Bank of England’s growth forecasts.
However, Bank of England Governor Andrew Bailey said that it was premature to discuss rate cuts, despite Huw Pill saying that markets were reasonable to expect a reduction in mid-2024. The European Central Bank’s Chief Economist Philip Lane, Bundesbank head Joachim Nagel and Ireland’s central bank chief Gabriel Makhlouf all issued similar warnings that rates may need to stay high. Officials said they would still want to see companies cutting profit margins and governments cutting their budget deficits to be convinced inflation would fall sufficiently from one of the worst surges in decades.
Investors are currently pricing in close to three cuts in 2024 by the Bank of England, a sharp increase from the quarter-point shift in September, despite its repeated claims that policy would stay tight for an extended period.
Elsewhere UK recruiters registered a sharp rise in the number of people looking for work last month, according to a survey from the Recruitment and Employment Confederation as companies being squeezed by higher interest rates and slowing demand cut their headcount.
Commodity markets
In the commodity markets, Brent crude futures traded around $81 per barrel on Friday and are set for a weekly fall, due to growing demand uncertainties and easing concerns over potential supply disruptions in the Middle East.
Oil prices fell to the lowest level since mid-July earlier in the week amid emerging demand concerns in two of the largest oil consumers, China and the United States. The latest data showed that consumer prices in China fell more than expected in October, while producer prices decline for the 13th straight month.
Earlier in the week, customs data showed that China’s total exports of goods and services contracted faster than expected, although its crude imports in October were robust. In the US, the Energy Information Administration said that total petroleum consumption is expected to decrease by 300,000 barrels per day this year, a reversal from its previous forecast for a 100,000 barrels per day increase.
On the supply side, US crude inventories surged by nearly 12 million barrels last week, the largest increase since early 2023, while Russian shipments reached a four month high.
Gold traded around $1,955 an ounce on Friday, and is set for a weekly decline, weighed down by a stronger dollar and treasury yields amid hawkish signals from US Federal Reserve officials.
Equity markets
US equity futures were little changed on Friday as sentiment weakened following a sell-off in US treasuries and Federal Reserve Jerome Powell’s comments. In Thursday’s regular trading session, The Dow Jones Industrial Average fell 0.65%, the S&P 500 Index lost 0.81%, while the Nasdaq Composite declined 0.94%. Speaking at an IMF event on Thursday, Federal Reserve Chair Jerome Powell warned the US central bank against the risk of being misled by good data on prices, saying that the mission to return inflation to its 2% target had a long way to go. He added that ‘if it becomes appropriate to tighten policy further, we will not hesitate to do so’.
The number of Americans filing new claims for unemployment benefits edged down last week, signalling that lay-offs remain low, even as the still-strong job market shows some signs of cooling. Initial claims for state unemployment benefits fell by 3,000 to a seasonally adjusted 217,000 for the week ended November 4th, from an upwardly revised 220,000 in the prior week, the US Labor Department said on Thursday. Economists polled by Reuters had forecast 218,000 claims for the latest week. Meanwhile, the rolls of those receiving benefits after an initial week of aid, a proxy for hiring, rose for a seventh straight week to 1.834 million, during the week ended October 28th, the highest level since April, the claims report showed.
Some economists say that the persistence of the recent rise indicates that while new lay-offs remain subdued, those out of work are experiencing a harder time finding a new job. This would be consistent with the latest hiring data showing the job market is cooling. The claims data adds to the case fo
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