12th September 2023

Market Report-Hargreaves Lansdown

Susannah Streeter, head of money and markets, Hargreaves Lansdown, comments:

"Caution is in the air today as investors assess stubborn wage growth in the UK and wait for other key data, which may help determine the direction of interest rates, as speculation swirls over how far hiking cycles have left to go. Sentiment is erring on the positive, helped by an easing of property woes in China, with the FTSE 100 higher in early trade. Debt-laden giant Country Garden has won creditor approval to extend payments on some bonds adding to a slightly more optimistic take on China’s economic prospects. Brent Crude has inched up a little, ahead of key market insight reports later, still supported by extended supply cuts.

Wage growth is still hot in Britain and the temperature isn’t coming down much, providing little relief for Bank of England policymakers who need more evidence that employers are showing restraint before they’ll feel confident about pressing pause on interest rate hikes. Annual growth in regular pay remains at the scorching level of 7.8% so another rate rises this month looks nailed on. However, the unemployment rate has risen 0.5 percentage points to 4.3% and the number of vacancies has retreated, finally dropping below the psychologically important one million mark.
That’s down from a record high of 1.3 million, reached in the three months to May 2022. It does show the fight for labour is easing, which may help relieve wage pressure further down the line. However, the record numbers of sick workers still absent from the labour force continues to be a worry, a situation which isn’t set to ease significantly given long waiting lists for treatment or even seeing a GP.

Investors are expected to stay largely treading water on Wall Street rather than taking any ambitious strokes ahead of the key consumer inflation reading. Although Fed policymakers are expected to sit on their hands and keep interest rates on hold this month, the forecast for another hike ahead is uncertain. Sentiment keeps oscillating with expectations of another rate rise in November decreasing a little, with policymakers thought to be more nervous about doing too much and pushing the economy into a deeper slowdown. This helped drive stocks higher on Wall Street, with tech stocks making strides. Although the headline inflation figure is set to shift up a little, partly due to higher energy prices, the core reading will be the one to watch. If it shows signs of continuing its gradual descent the pause button is more likely to be held on future rate hikes.

Will they, won’t they questions are also still circling regarding the ECB’s decision on raising rates on Thursday, given the much weaker economic outlook, particularly in Germany. It seems to be a very close call, but with inflation still running at 5.3% in August, way above the 2% target, policymakers may well want to give it one last shove in the right direction with one more interest rate hike.

Hargreaves Lansdown Trends(170 articles)