Week ending 8th September 2023.

Stocks ended the week lower as mounting oil prices and the potential policy movements by major central banks in the coming weeks added to market uncertainty. It was a short trading week in the US with markets closed on Monday to mark Labour Day.

Falls in tech giant Apple’s stocks helped lead markets lower following reports that China had prohibited government officials from using iPhones in a bid to limit the use of foreign technology. Although these restrictions weren’t publicly announced by the government, concerns emerged that Apple might become entangled in geopolitical tensions between the US and China, as both countries shore up their technology and cybersecurity.

Also, in the US the ISM report for August 2023 surprised with a jump in services sector activity and new orders growing at a faster pace. Weekly jobless claims were lower-than-expected, signalling continued strength in labour demand despite the increase in the unemployment rate from 3.5% to 3.8% in August 2023. Given the close scrutiny of the labour market and strength of the economy by policymakers, any indications of deceleration or weakening will be carefully observed to inform their decision on policy.

Oil prices reached 10-month highs due to supply cuts by major producers Saudi Arabia and Russia. As China is the world’s largest importer of crude oil, oil prices stabilised as the week progressed as investors focused on trade data. Exports and imports declined in August 2023, albeit less steep than expected; partly due to weakened overseas demand. Data did indicate that some sectors might be stabilising, which will be further aided by the recent flurry of policy measures to revive demand and economic growth.

The European Central Bank (ECB) will hold its monetary policy meeting next week on 14 September. To hike or not to hike? That is the question markets seem to be unable to answer, with signs of weakening economic growth across the region.

Recent data revealed eurozone composite PMI fell to 46.7 in August 2023, indicating deteriorating conditions. Eurozone GDP was also revised lower for Q2 demonstrating 0.1% quarter-on-quarter growth. We previously mentioned how Central Bank look to steer markets, using narrative to manipulate inflation expectations. And yet, the commentary coming from ECB officials as of late has been anything but clear, with a lack of direction from the Fed since the last monetary policy meeting in July. Officials have maintained their data dependency and continue to seek sustained falls in core inflation which isn’t cooling as quickly as desired.

In the UK, the pound weakened following the Governor of the Bank of England, Andrew Bailey’s address to MPs. He anticipates a significant decline in inflation this year and raised doubts about the need for another interest rate hike. He believes we are now much closer to the peak of the interest rate cycle, noting diminishing wage growth and signs of a slowing economy in response to interest rate hikes.

Coming up next week UK jobless claims, unemployment rate. Eurozone and UK industrial production.

Investors readily await US CPI report for August 2023. Core CPI has risen modestly in the last two readings adding to hopes that the Fed can tame inflation without triggering a recession.

Investment Management Team.