UK markets pulled back this week with the FTSE 100 Index falling by 0.6% to trade at 8,255 points at the time of writing.
In September UK house sales rose at the fastest rate since the post-lockdown rebound as lower mortgage rates fuelled a rise in demand among home buyers, according to data from Zoopla. The number of sales agreed in the four weeks to September 21st rose by an annual rate of 25%, the sharpest increase since the spring of 2021, when the market rebounded after the first Covid-19 lockdown.
The latest data from the Bank of England showed that mortgage approvals rose to the highest level in two years in August, while the lender Nationwide reported approvals rising at the fastest pace in two years in September. The average two-year fixed rate deal, with a 60% loan to value, was 4.7% in August, down from 4.9% the previous month. The figure was well below the recent peak of 6.4% reached in August last year, according to Bank of England data.
The average property price rose by an annual rate of 3.2% in September, up from 2.4% in August and the fastest rate since November 2022, according to figures from mortgage lender Nationwide. The average UK house price is now £266,094, about 2% below the all-time high recorded in the summer of 2022, according to Nationwide.
UK shop prices fell for the second consecutive month in September by an annual rate of 0.6%, down from a 0.3% contraction in the previous month and the lowest rate since August 2021, data published from the British Retail Consortium showed on Tuesday. The figures show that the cost-of-living crisis, which hit millions of households, is finally receding after a long period of high inflation.
A cooling UK labour market is continuing to bring down wage growth, with the median pay award in the private sector falling from 4.4% in the three months to July to a two-year low of 4.1% in the three months to August, according to figures published on Wednesday by Incomes Data Research.
Sterling traded around $1.316 on Friday, extending its decline from last week when the currency traded above $1.34, after the Bank of England Governor, Andrew Bailey said the bank’s rate setters could be “a bit more aggressive” on lowering borrowing costs, if inflationary pressures continue to wane. Investors now put the chance of the UK central bank delivering two more 0.25% cuts this year at 75%, up from 50% previously.
Commodity markets
In the commodity markets, Brent crude futures traded around $78 per barrel on Friday, rising over 8% this week, as investors assessed the Middle East conflict and the potential disruption in crude flows against an amply supplied global market. President Joe Biden said on Thursday that the US was discussing strikes on Iran’s oil facilities as retaliation for Tehran’s missile attack on Israel. The market has started to price in the likelihood of supply disruptions in the Middle East, which accounts for about a third of global supply.
However, the supply fears have been tempered by OPEC’s spare production capacity and the fact that global crude supplies have yet to be disrupted by the Middle East unrest.
Libya’s eastern-based government and Tripoli-based National Oil Corp announced on Thursday the reopening of all oilfields and export terminals after a dispute over leadership of the central bank was resolved, ending a crisis that had heavily reduced oil production. Iran, which is operating under US sanctions, produced about four million barrels of fuel per day in 2023, while Libya produced about 1.3 million barrels per day last year, according to data from the US Energy Information Administration.
Gold prices traded around $2,660 an ounce on Friday, remaining close to all-time highs, supported by safe-haven demand arising from the Middle East conflict. Geopolitical tensions, particularly concerning Israel and Iran, are supporting gold prices and unless these risks subside, prices are likely to remain elevate.
Equity markets
US equity futures were mixed on Friday as investors look ahead to the September jobs report for more insights on the labour market. In Thursday’s regular session, the Dow Jones Industrial Average fell 0.44%, the S&P 500 lost 0.17%, while the Nasdaq Composite declined by 0.04%.
Federal Reserve chair, Jerome Powell signalled that the US central bank would consider reverting to its more usual 0.25% rate cut in November, if economic data remained robust, after delivering a larger than usual 0.5% reduction earlier this month. Striking a positive note about the health of the world’s largest economy, Powell said on Monday that the Federal Open Market Committee was “not a committee that feels like it’s in a hurry to cut rates quickly”.
Instead, the goal of the committee is to move monetary policy over time to a more neutral stance, a level that neither stimulates nor restrains economic activity. Now that inflation has retreated and the economic backdrop has “set the table for further disinflation”, Powell said the Federal Reserve’s focus would be on safeguarding the labour market, which is still strong, despite demand cooling meaningfully.
Powell said the “baseline” was two more 0.25% rate cuts this year, rather than another 0.5% move. Policymakers also expected the federal funds rate to fall another 1% in 2025, ending the year between 3.25% and 3.5%. By the end of 2026, rates are estimated to fall just below 3%.
US job openings unexpectedly increased in August after two straight monthly decreases, but hiring was soft and consistent with a slowing labour market that keeps the Federal Reserve on track to cut interest rates in November.
The Labor Department’s Job Openings and Labor Turnover Survey, released on Tuesday, also showed lay-offs declining. There were 1.13 job openings for every unemployed person in August, compared to 1.08 in July. Resignations were the lowest in four years, a sign that Americans are growing less confident in the jobs market.
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