31st October 2023
US GDP on the up
24th October will forever be a significant date in market terms. And while the current market has its struggles, we’ve thankfully come a long way since the stock market crash 94 years ago.
The US economy has actually been performing well this year, defying those lingering macroeconomic and geopolitical challenges. Last week, it was announced that – buoyed by strong consumer spending – the nation’s GDP grew 4.9% during the third quarter. This was the fastest rate since the end of 2021 and a clear improvement on the 2.1% growth recorded in Q2.
This will likely give the Federal Reserve confidence about keeping interest rates higher when they next meet on the topic.
(Un)lucky number 7
It wasn’t good news across the board, however, with indexes continuing to be dictated by the aptly named “S&P7” (Apple Inc., Alphabet Inc., Meta Platforms Inc., Microsoft Corp., NVIDIA Corp., Amazon.com Inc. and Tesla Inc.).
Despite a surge by Amazon, Alphabet missed analyst expectations, leading to 2.5% and 2.6% drops in the S&P 500 and NASDAQ respectively.
Interesting moves in Europe
The FTSE was also on the slide in the UK, perhaps in a case of foreboding ahead of this week’s Bank of England policy meeting?
Across the Channel, the European Central Bank (ECB) brought an end to 10 consecutive interest rate hikes by leaving the base rate unchanged at 4.5%.
Pressures around surging inflation pressures have abated meaningfully this year, with inflation expected to have slowed last month. With the economy having also weakened, there’s less pressure for the ECB to raise rates further, although ECB President Christine Lagarde has been clear that additional action isn’t out of the question. Despite this, the MSCI Europe ex UK index closed the week 0.8% lower.
Hetal Mehta, Head of Economic Research at St. James’s Place, noted:
“Unlike the last meeting, the ECB kept rates on hold as widely expected. We’ve had a long spate of negative data surprises – including weak business sentiment – and continued progress on inflation. But there is still a while to go before the ECB will be comfortable enough to signal a cut in rates. Unemployment is still low and core inflation tends to move slowly.
“The ECB is most likely done on hiking now, but the bias will be towards a hike for a few more months.”
Government support boosts Chinese equities
While it was hard to pinpoint positive performance in the US or Europe last week, Chinese equities lifted after the government announced further support for the economy. The measures, which included a bump in its fiscal deficit and fresh sovereign debt issuance for disaster relief and construction, were welcome news after recent falls left the CSI 300 Index at its lowest level since 2019.
The Chinese market has been weak this year, with the country’s property market struggling in particular. However, Martin Hennecke, Head of Asia & Middle East Investment Advisory & Comms at St. James’s Place, notes this may prove a long-term opportunity for investors. He says:
“From a China macro perspective, these days, whenever there are announcements of new stimulus measures – and we have been seeing a steady flow of such recently – the public reaction is one of ‘crying wolf’ too many times and its being largely ignored, yet stabilising industrial production and consumer spending may indicate they are starting to work their way through, at last.
“When retail investors exit depressed markets or sectors driven by recency bias, corporate CFOs looking at business value vs price often see and exploit the opportunity, with 2023 corporate stock buybacks in Hong Kong expected to come in four times higher than the prior five-year average being a good example.”