Last week gave us plenty to chew on in relation to market news, with rate hikes from the Fed and the Bank of England, along with a strong US jobs report. On Wednesday, US equities saw a wild swing as the initial Fed statement was interpreted as meaning interest rates would not need to go as high as previously thought. However, markets sharply reversed course (with equities lower, and two-year treasury yields higher) about 40 minutes later as Fed Chair Powell clarified in the press conference that rates will indeed move higher, just perhaps not at the pace previously forecast.
Friday did little to provide clarity for investors as the monthly US non-farm payrolls report (more info below) came in better than expected. This is, of course, a positive for the US economy, but in recent months equities have reacted negatively to encouraging data, as it infers the Fed will have to continue tightening to get inflation under control. Not so on Friday, as good news was in fact taken as good news.
The above points are admittedly nuanced but go to highlight the complicated nature of market events at this time and the importance of not getting distracted by short term noise. Investing with a consistent manager and keeping a firm focus on your own financial plan remain key principles of long-term investing
As always, if you wish to discuss anything in this newsletter in further detail, please do get in touch.
Weekly Investment News
Last week saw the Federal Reserve raise rates by 75 basis points. A move that was widely expected yet remains to be the latest instalment in the fastest set of rate hikes by the Fed in recent times. More significant, perhaps, than the rate hike itself was Fed Chairman Jerome Powell’s notably hawkish comments in the subsequent press conference. Powell insisted that the prospect of a pause in rate hikes was premature, and markets responded befittingly. US equities fell by over 3% in response, with growth orientated sectors such as tech suffering most.
The US jobs report for October was also released last Friday, a major indicator of economic health and potential Fed policy. The report showed a slight increase in unemployment of 3.7% up from 3.5%, however wage gains which are a significant sign of inflation rose by 0.4%, exceeding expectations of 0.3%. The report also showed that jobs increased by 261,000, above expectations of 200,000. While these results are positive for economic prospects, they suggest more work is to be done in terms of controlling inflation, with the labour market showing little signs of cooling. US equities ended the week down -2.8%, their biggest fall since September, many investors however still hold a view that tightening may begin to slow in the medium term.
The Bank of England also raised rates last week, increasing interest rates by 75bps to 3%, its largest rate rises since 1989 with the BoE forecasting inflation to reach a 40 year high of 11% this quarter. Elsewhere European stocks have been making decent gains over the past three weeks, the longest sustained period of growth this year. Contributing to this has been Eurozone companies who trade overseas and benefit from a weaker euro, while last week saw investors in Europe turn their attention towards China as there are prospects that China will relax its Zero-Covid policy and reopen its economy. European Equities finished the week up 1.3%. However, many economists remain downbeat on the Eurozone’s prospects entering winter.
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