Market Update – October 2024
The UK economy and markets (e.g. gilt investors) are starting to digest the Autumn Statement, where a host of tax rises have been announced. CPI inflation is down for September, bringing more optimism for a further interest rate cut by the Bank of England.
In the US, voters elected Donald Trump back to the presidency, which will likely have a big impact on trade policy (e.g. tariffs). Elsewhere, Chinese stocks have been more muted than last month, and the European Central Bank made its third interest rate cut since June.
UK policy
Much of the UK media narrative has focused on the Autumn Statement (or “budget”) in October. Speculation about its provisions was finally put to rest on the 30th when the Chancellor gave her announcements to parliament.
The government once again hammered the message that the UK faces a “£22bn black hole”. To address the fiscal deficit, the Chancellor announced a range of new policies, including:
- A 1.5% increase to Employer National Insurance (NI) contributions. Also, the Secondary Threshold would fall from £9,100 per year to £5,000.
- An increase in capital gains tax (CGT) on the disposal of non-property assets.
- A boost to the National Living Wage by 6.7% (to £12.21) in 2025.
- A rise in the maximum Carers Allowance of £151 per week.
- Reduction in inheritance tax (IHT) relief for farmers.
The UK economy
Inflation appeared far more positive in September as the Consumer Prices Index (CPI) fell to 1.70%. This is a marked improvement from 2.20% in August and falls below the Bank of England’s (BoE) target of 2%.
The biggest factors pulling down the CPI measure included transport, most notably air fares and motor fuels. Other areas, such as food and non-alcoholic beverages, added upward pressure. Yet, encouragingly, “core” inflation had fallen from 3.60% to 3.20%.
The CPIH measure (which measures inflation whilst stripping out housing costs) was also down in September, falling from 3.10% to 2.60%. Interestingly, services inflation also improved, with the rate standing at 4.90% rather than 5.60% in August.
These encouraging figures raise the question of whether the BoE will lower interest rates again in the coming months. Undoubtedly, the Monetary Policy Committee is waiting to see what the potential impact of the Autumn Statement could be before making any firm decisions.
The next MPC meeting is due on the 7th of November.
The UK market
Not only are media pundits and wealth managers holding their breath for the Autumn Statement. Indeed, the uncertainty also seems to be contributing to a slowdown in private sector activity.
The S&P Global UK Composite PMI fell to 51.7 in October. This is down from 52.6 in September and represents an 11-month low.
British stocks appear to be affected by factors overseas, not just concerns about the budget. On October 9th, the FTSE 100 fell to a one-month low as miners suffered from a lack of clarity in China over its economic stimulus.
On the 28th of October, London-listed oil majors BP and Shell fell with the declining price of Brent. Tension over Israel and Iran (a major oil producer) has contributed to the volatility, with investors increasingly concerned about the potential blowback from Israel’s strikes on Iranian military targets.
The Global Outlook
With the US presidential election over on the 5th of November, investors are focusing on the possible long-term effects of a Trump presidency.
US bond yields have been rising (e.g. the 10-year treasury yield has moved above 4.20%, the highest rate since the summer). Equities seem to be more laid back, encouraged by strong recent corporate earnings. Tesla, for instance, comfortably beat its estimates for the third quarter (Q3), which helped its stock price to soar by 12%.
Closer to home, the European Central Bank (ECB) cut interest rates again. This time, by 25 basis points down to 3.25%. This represents the third cut since June 2024, with President Christine Lagarde confident that the inflation target of 2% should be attained soon.
Chinese stocks have been more muted in October following a seismic rise in the previous month (when the government announced a wide-ranging stimulus package). Deep structural problems still remain to be addressed, with investors waiting to hear what will be done.
Japan’s political future remains uncertain as Prime Minister Shigeru Ishiba stated that he would not seek to form a broader coalition. This raises the prospect of a minority government. Despite the instability, the Nikkei 225 surged 1.8% on the 28th of October upon widespread anticipation of upcoming pro-growth fiscal policies.
