WeeklyWatch – Global markets face stagnant inflation and political uncertainty

24^th October 2023

Stock Take

Last week, the world’s markets stayed solidly in the red as inflationary and political events continued to trouble investors.

Headline inflation remains at same level

The UK’s FTSE 100 dropped 2.6% as a result of disappointing inflation figures. According to data released by the Office for National Statistics (ONS) on Wednesday, headline inflation stayed at 6.7% in September, which is the same as August’s level and just marginally lower than the 6.8% reported in July.

At least part of the news was positive in terms of the cost of living. For the first time since September 2021, food and non-alcoholic drink costs declined throughout the course of the month, according to the ONS.

However, higher fuel prices offset this, keeping inflation at the same level as the previous month.

BoE says inflation figures are as predicted

Despite how discouraging the stagnant inflation rate may seem, Bank of England Governor Andrew Bailey stated to the Belfast Telegraph on Friday that September’s inflation data was within the Bank’s expectations. Additionally, he stated that he anticipated a “noticeable drop” in October’s inflation data.

Capital Economics’ Chief UK Economist, Paul Dales, commented on the inflationary figures:

“Although we still think that the UK’s inflation problem will dissipate slowly rather than suddenly and the situation in the Middle East poses an upside risk to our inflation forecasts, leading indicators suggest that services CPI inflation and wage growth will soon slow more significantly. Meanwhile, the rise in our long-term interest rate forecasts means that whoever wins the next election will face a more daunting fiscal outlook.”

The ONS also revealed this week that regular wages (excluding bonuses) experienced growth in 2023 from June to August at a rate of 7.8%. This means that during the period, wages had grown more quickly than inflation.

Fears of potential US government shutdown

In the US, the House of Representatives remained in a deadlock on political issues. After Kevin McCarthy was ousted as speaker earlier this month, the Republicans still hold a tenuous majority but have found it difficult to elect a new speaker.

As the House struggles to agree on a new speaker, fears of a potential government shutdown are mounting. McCarthy had only approved a budget measure for the next 45 days in September, so the House will soon have to start talking about a longer-term solution. There are growing concerns about what will happen when this measure expires since there isn’t a clear way out of the stalemate.

More rate rises to come in the US?

Jerome Powell, Chair of the Federal Reserve (Fed), gave a speech on Thursday that also undermined investor confidence in the US market. He did not explicitly state that the Fed planned to raise rates, but he did state that he believed monetary policy “wasn’t too tight right now”. This was enough for uneasy investors to assume that at least one more rate increase may be on the horizon.

Chief Investment Officer at BlueBay, Mark Dowding, said as much:

“Further evidence of strength in the US economy points to a risk that the Fed will need to raise rates further in order to mitigate demand, in line with the objective of returning inflation to target. For now, a strong labour market and a solid consumer balance sheet continue to drive retail sales, and in turn, this is supporting business sentiment.

“Over the past several months, a narrative that the Federal Open Market Committee is at (or very close to) the end of a tightening cycle has held sway. However, the more that strong growth persists, the more this common wisdom may be called into question, and we see this jeopardising hopes for a soft landing.”

Meanwhile, growth stocks underperformed their value-oriented peers, causing the S&P 500 and NASDAQ indexes to decrease by 2.4% and 3.2%, respectively.

Worsening property sector in China

In other parts of the world, Chinese equities struggled as the significant issues in the country’s troubled real estate industry expanded. The Shanghai Composite fell by 3.4%, which was partially caused by the revelation that Country Garden, previously the nation’s largest developer, had fallen behind on some of its offshore loan payments. Despite robust economic growth statistics showing that Q3’s GDP easily exceeded economist expectations, the market slumped.

Wealth Check

Financial security isn’t only fulfilling, it’s important – especially when thinking about looking after yourself and your loved one. Making sure you have enough money to cover your expenses and maintain a comfortable living when you stop working is key.

Is it ever too late to start saving, though? Put simply, no. To grow your retirement fund, it’s advisable to start saving into your pension as soon as possible. No matter your age, it’s never too early or too late to begin making plans for your retirement.

According to the ONS life expectancy calculator, 60-year-old men may live to an average age of 84 and have a one-in-four chance of surviving to 92.¹

As you get older, healthcare costs often rise along with the cost of living. Saving money for retirement means you can create a significant financial safety net, making sure that you can pay for necessary healthcare costs and maintain your standard of living.

A safety net of retirement savings in the event of unforeseen financial hardships is extremely valuable. You can’t predict the future, so it’s always better to be prepared.

When you have enough money saved for retirement, you have the freedom to make decisions based on your desires rather than your financial obligations. Knowing that your financial future is secure allows you to pursue hobbies, travel, spend time with family and do things that make you happy.

Depending on your financial situation and retirement goals, even starting a pension at 60 can be worthwhile.

Starting a pension at 60 might fill the gap if you haven’t saved enough for retirement or expect a shortcoming in your retirement income. Regular pension payments can pile up over time and offer extra income throughout your retirement.

Starting a pension at 60 might be advantageous if you’re still working and your company provides a pension plan with matching contributions. You could also get contributions from your employer under the conditions of the plan, which could significantly boost your retirement savings.

In summary, it’s never too late to start planning for retirement, no matter your age. Speaking to a financial adviser can help you in planning for the future, so that you can enjoy your retirement years free from financial worry. Get in touch today.

The value of an investment with St. James’s Place will be directly linked to the performance of the funds you select and the value can therefore go down as well as up. You may get back less than you invested.

Sources:

¹Life Expectancy Calculator, Office for National Statistics, accessed 4^th October 2023.

In The Picture

Buying your daily coffee on a bleary Monday morning is fairly routine for many of us. But what would happen if you saved your daily caffeine expenses and channelled them into an investment instead?

The Last Word

“It was a big moment but it is what you want as a player on this stage, to have moments like that as a fly-half is what you live for.”

– South African Handre Pollard on his match-winning penalty kick against England to put South Africa into the Rugby World Cup final.

BlueBay are a fund manager for St. James’s Place.

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SJP approved 23/10/2023