Weekly round up
UK Markets made marginal gains this week, with the FTSE 100 Index rising by 0.1% to end the week at 7,435 points at the time of writing.
The Bank of England raised its benchmark interest rate by 0.5% to 1.75% during its August 2022 meeting, marking the sixth consecutive rate hike and pushing borrowing costs to their highest level since 2009. The UK central bank also warned that Britain faces a prolonged recession and the worst squeeze on living standards in more than 60 years, forecasting that inflation would hit 13% by the end of the year.
The move follows similarly aggressive steps by the European Central Bank and the US Federal Reserve to control soaring inflation. However, forecasts suggest Britain is facing a much bleaker economic outlook than either the US or Eurozone, as households are more exposed to the energy price shock than in the US, and less protected by government measures than in the Eurozone.
The average house price in the UK has dropped for the first time since June 2021 to £293,221. The 0.1% drop means that property prices are down just £365 from June’s record high. Nevertheless, the average UK house price remains more than £30,000 higher than this time last year according to Halifax’s latest house price index.
In the commodity markets, Brent crude futures traded around $94 per barrel on Friday down nearly 10% so far this week, with prices hitting the lowest levels in six months on growing concerns that a global economic slowdown will weaken demand. Official data showed US crude inventories expanded significantly last week despite expectations for a decline, while US gasoline demand dropped well below pre-Covid seasonal norms.
Oil prices have now erased the gains triggered by Russia’s invasion of Ukraine, amid signs that tight physical markets started to ease, and as aggressive interest rate hikes across the globe sparked demand concerns. Gold traded around $1,790 an ounce on Friday hovering at its highest levels in a month, as mounting fears of a global economic slowdown and heightened US-China tensions over Taiwan supported safe-haven demand.
Markets continue to monitor the escalating geopolitical tensions in Asia, with China reportedly firing a barrage of ballistic missiles into the waters around Taiwan and conducting other military drills to punish the country for hosting a visit by US House Speaker Nancy Pelosi.
US equity futures were little changed on Friday as investors looked ahead to the highly anticipated jobs report that could give fresh insight on the state of the US economy and further clues regarding the Federal Reserve’s tightening path.
The S&P 500 Index and the Nasdaq Composite are on track to post a third straight week of gains, while the Dow Jones Industrial Average looks set to break a two-week advance.
The US non-farm payrolls number for July, due on Friday, is expected to come in at 250,000. This would be the smallest gain since December 2020 in the latest sign of easing demand in the labour market. Nevertheless, the pace was likely strong enough to keep the unemployment rate at 3.6% for a fifth straight month, painting the picture of a healthy economy despite back-to-back quarters of GDP contraction.
The US dollar began to weaken in mid-July amid speculation that the US central bank may raise interest rates less aggressively in the coming months to avoid a recession. However, earlier this week several Federal Reserve officials pushed back against such expectations, reassuring markets that they are determined to do what is necessary to bring inflation under control.
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