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Market commentary

Uncertainty caused by mixed economic data has caused a seesaw in equity and bond markets over the last month.

8th September 2023


UK inflation as measured by the Consumer Price Index (CPI) continues to fall to 6.8% in the year to July staying higher than many other developed countries. Food prices remain high and the Office for National Statistics revealed in April to June 2023, the annual growth rate for regular pay (excluding bonuses) was 7.8%. This is the highest annual growth rate in regular pay since comparable records began in 2001.

As an example of this mixed data, strong wage growth figures appear to have coincided with a decrease in labour market strength. Over the three months leading up to the end of May, the UK unemployment rate increased from 4% to 4.2%. This rise is the sharpest since the three months ending in October 2021 and occurred more quickly than the Bank of England had predicted.

UK property sales volumes are expected to be 21% lower in 2023 than last year, according to Zoopla’s House Price Index for August. If accurate, this will be the lowest number of property sales since 2012. The fall is primarily caused by a decline in mortgaged sales, which is expected to drop 28% compared to last year.


Euro area CPI data was in line with expectations at 5.3% for July, but the core inflation, which excludes food and energy prices and is an indicator of longer-term inflation was stronger than expected.

This surprise was accompanied by stronger economic growth for the first half of the year, which also beat forecasts. As a result, the expectation is for further rises in interest rates by the end of the year.


The latest Federal Reserve meeting concluded with a 0.25% increase in interest rates. The latest increase brings the target range for the funds rate to a range of 5.25% to 5.50%. Minutes of the meeting emphasised upside risk to inflation remains, opening the door to additional hikes.

Since mid-August US bond yields have fallen on the back of weaker-than-expected economic data with several major retailers reporting falling earnings, and indicators of consumer sentiment fell.

Emerging markets

While the US and other Western economies struggle to bring down high inflation, China is facing the opposite problem: deflation. Consumer prices declined for the first time since early 2021, as data from the National Bureau of Statistics revealed a marginal decline in the cost of living. CPI dropped from 0.0% in June to -0.3% in July. This change was primarily driven by a considerable 1.7% year on year drop in food prices.

Moreover, Chinese import and export data looked very weak. Exports declined 14.5% year-on-year in US dollar terms, which is the largest fall since the Covid-19 pandemic hit in February 2020. Imports also fell by 12.4%. The Chinese economy is evidently struggling under the pressures of subdued international trade and weak domestic demand. The economy’s reopening after the country’s stringent lockdown regime continues to underwhelm, prompting further speculation that the Chinese Government will need to take further action to stimulate the economy.

Defensive assets

Since the sharp rise interest rate expectations in October last year caused falls in value after the Truss mini budget, the outlook has looked much better for fixed interest. Higher yields, even for short-dated bonds have generated positive returns and while there has been some pressure on prices, especially in February this year, the path has been generally upwards. Looking forward a yield of 5.5% on the short dated global bond fund offers the prospect of strong returns for the near future.

Index Linked gilts, in the longer duration fund we use has seen more volatility but values are still higher than the falls we saw last October.

Please speak to your financial planner if you want to discuss your portfolio.