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Market commentary

Our mid-month insight discussed the tragic and still unfolding situation in the middle east.

The risk of escalation in the region is ever present, and along with the war in Ukraine is baked into equity and bond prices, but market movements at present are still being largely driven by the inflation outlook. Annual inflation rates in Europe and the US are well below the post-pandemic peaks of last year, but they are still some way from central banks’ inflation targets.

9th November 2023

Some of the investment volatility we have seen this year is the sentiment of markets on how the future may evolve. At the beginning of this year, it was expected that the large increases in interest rates would have a quick impact on economies and interest rates would come down quite quickly. Economies, however, have remained resilient and so the current level of interest rates is higher than was originally expected and now rates are expected to stay higher for the foreseeable future.

In August and September markets priced in that interest rates may have to go higher again to bring inflation rates down to target, along with the impact this may have on economic growth. While global recession fears have been pushed back, the question remains whether this is a global recession that has been cancelled, or merely just one that has been delayed.


Consumer Prices Index (CPI) inflation remained at 6.7% in the UK. While this was a disappointment as there was an expectation of further falls, it was still below the 6.9% rate the Bank of England projected back in August. This gave it enough reason not to raise the base rate and it remained the same in the Monetary Policy Committee meeting last week. It also leaves inflation on track to fall below 5.1% by December as the Chancellor pledged, helped by the decline in the Ofgem price cap on 1 October, which will subtract a huge 1.3 percentage points from CPI inflation.

Bank lending remains under pressure. September mortgage data showed a net repayment of £0.9bn as new borrowers baulked at higher interest rates and average interest rate on new mortgages rose from 4.82% to 5.01%. Mortgage approvals fell again but the latest house price report from Halifax showed average prices rose by 1.1% in October, driven by a shortage of property on the market. Over the year house prices fell overall by 3.2% which is almost a double digit fall once inflation is taken into account.


European natural gas prices, having earlier this year fallen sharply from the highs of last year, are providing some relative relief for both businesses and households.

CPI inflation continued to fall in Europe to 4.3% in September from 5.2% in August. The European Central Banks (ECB) held interest rates steady at 4% despite some data pointing to Germany, especially, with its export led economy, already being in recession.


One of the reasons for the sharp rise in US equities last week was the US jobs report which came in below expectations with less jobs created in October than expected. Importantly the September figures, which pointed to economic strength and helped the equity market sell-off in October, was revised lower as well. The report was weaker across all of the key measures, suggesting that the tight US monetary policy backdrop was finally leading to a cooling of the labour market as well as the broader economy.

CPI Inflation remained flat in September at 3.7%.

Emerging markets

China’s economic recovery post zero-COVID has proved disappointing, but Beijing is refusing to listen that efforts to stimulate the economy might prove insufficient. President Xi announced additional fiscal support for the economy in October to the tune of $137bn to be raised through the issuance of sovereign debt.

Emerging markets as a whole have suffered as US dollar strength re-emerged since the middle of the year due to their dollar-denominated debt and investment flows falling in the region more broadly. Given the still-uncertain global economic outlook, headwinds for commodity prices have also weighed against those emerging markets which are more resource-export-led.

Defensive assets

The persistent inflation picture continues to dominate central banks’ actions and sentiment for markets. Resurging inflation remains a risk, whether brought about by further resilient consumer demand or a shock to the energy market, either through reduced supply from turmoil in the middle east or increased demand from a severe winter.

Any of these might lead to a longer period of peak interest rates, in turn weighing more on economic growth. Equally, should inflation fall sufficiently quickly, this would give central banks the confidence that they can ease monetary policy and still see inflation settle around their target levels.

Looking at your investment portfolios we do not try and predict which of these is more likely but use asset classes which will provide return for either.

We remain confident that your portfolio is well positioned for growth now sentiment in markets has become more positive.

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