Whilst much of the FTSE 100’s performance this week had been poor, strong GDP figures released on Friday indicated the UK economy grew by 0.2% in the second quarter of 2023 and has pushed year-on-year data up to 0.6%. At the time of writing the FTSE 100 trades at the 7,666 broadly unchanged for the week.
Weaker equity performance earlier in the week was because of sharp rise in energy prices. Stoking fears of prolonged inflationary pressure, it could potentially force the Bank of England to maintain a ‘higher for longer’ stance on interest rate decisions. Sentiment was also impacted by the suspension of Evergrande’s trading in Hong Kong, adding to fears of financial contagion throughout China’s property sector and pressuring certain stocks with a UK listing in London.
Equity markets
The major US indices followed a similar trend this week with both the S&P 500 and the Dow Jones down 0.2% and 0.7% respectively while the Nasdaq gained 0.3%, all three spurred on by positive GDP figures released on Thursday.
Much like in the UK, high oil prices remain a concern, driven primarily by the sharp decline in US crude stockpiles, which bolstered the case for interest rates to remain elevated for an extended period, a point reiterated by Federal Reserve Chairman, Jerome Powell. Traders have forecast interest rates to be 4.8% by the end of 2024 vs a previous 4.2%.
Economic data released in the US painted a mixed scenario as GDP growth was unchanged at 2.1% for Q2 2023 but consumer sentiment came in lower than previous. Meanwhile the number of Americans filing for unemployment benefits edged higher by 2,000 to 204,000 on the week ending September 23rd, well below market expectations of 215,000 to remain close to the over-seven-month low. The data added to evidence that the labour market remains at historically tight levels.
Investors are also keeping a close eye on the political deadlock concerning a deal to prevent a US government shutdown. Goldman Sachs has predicted a 90% chance that a government shutdown will begin this Sunday and has released a report on the implications of such an event, including a subtraction of 0.2% of Q4 GDP performance for each week the shutdown lasts.
Commodity markets
Brent Crude has been trading upwards of $97 as the market grapples with looming demand rises as we head into winter and a tightening of supply from major OPEC+ players such as Russia and Saudi Arabia, who have agreed to extend cuts through to the year’s end.
Gold and silver both trade at low levels at the time of writing, with gold at a six-month low of below $1,870 on Friday and set to decline for a second month in a row, and silver prices suffering on the back of a stronger US Dollar and slowing industrial demand in China.
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