Weekly round up
UK markets lost ground this week with the FTSE 100 Index falling by 2.7% to trade at 7,070 points at the time of writing.
The Bank of England raised interest rates by 0.5% on Thursday, holding out the prospect of a further big increase in November, as central banks across the world seek to bring inflation under control. The benchmark UK interest rate in the UK now stands at 2.25%, the highest level since 2008. The interest rate increase was lower than markets expected, putting further pressure on Sterling which traded below $1.12 on Friday.
UK consumer confidence dropped to a new record low in September as British households continue to grapple with the cost of living crisis and wider economic uncertainties. UK Chancellor Kwasi Kwarteng unveiled a mini-Budget on Friday featuring tax reforms to help struggling self-employed business owners, alongside scrapping a planned increase in corporation tax that will help profitable larger companies. The Chancellor will sharply increase borrowing to pay for a package of tax cuts and an emergency plan to hold down household and company energy bills, while announcing a series of contentious regulatory reforms.
In the commodity markets, Brent crude futures traded around $89 per barrel on Friday and are on track for their fourth straight loosing week, as central banks around the world raised interest rates further this week, adding to concerns about a global economic slowdown and its effects on energy demand. Further losses in the oil price were prevented on Friday following reports that efforts to revive the 2015 Iran nuclear deal have stalled. Investors were also monitoring Russia’s partial military mobilisation which could disrupt supply further, rebounding Chinese demand and the possibility of more output cuts from OPEC+.
Gold prices remained under pressure, trading around $1,662 an ounce on Friday, due to a strong Dollar and surging treasury yields that reflected expectations for tighter monetary policy and slowing global growth. Gold is loosing its appeal as a store of value in times of economic uncertainties as the US’s relative economic strength and the US Federal Reserve’s aggressive stance against inflation lifted the Dollar at the expense of other safe-haven assets.
US equity futures fell on Friday, with investors continuing to fret about the diminishing odds of a soft economic landing, as the Federal Reserve remains intent on bringing down inflation with aggressive interest rate hikes. The Dow Jones Industrial Average fell 0.36% in Thursday’s regular trading session whilst the US Benchmark S&P 500 Index fell by 0.28% and the tech heavy, Nasdaq lost 1.37%. All three of the major US averages are headed for their second straight losing week and are down at least 2% so far this week.
Federal Reserve Chair, Jerome Powell, refused to rule out a recession in the world’s largest economy as the US central bank implemented a third consecutive 0.75% rate rise on Wednesday and published a much gloomier set of projections. Forecasts now show the US benchmark interest rate rising to 4.4% by the end of this year before peaking at 4.6% next year.
The Federal Reserve also revised its estimate for US unemployment to be 4.4% in 2023 and 2024, up from previous forecasts of 3.9% and 4.1%, whilst upbeat US jobless claims figures showed that the job market currently remains robust.
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