Please see below article received from Brooks Macdonald this morning, which provides a succinct but detailed update on global markets.
What has happened
Equities had another poor day after investors reacted negatively to a stronger-than-expected US ISM services reading. Good economic news remains bad news for markets as it suggests a stronger economy which is likely to keep inflationary pressures sticky. Both European and US equity indices lost more than half a percent yesterday with technology shares particularly poorly impacted by the risk of higher interest rates to tackle the robust economic backdrop.
US ISM
The ISM services survey not only remained in expansion territory but saw a very strong result, against market expectations for a more subdued reading. The ISM survey provides an alternative narrative to some of the more recent economic data that suggests the US economy is losing some momentum. Within the data, the employment component hit a 21-month high implying strong hiring intentions and job security, by extension the market interprets this as a tight labour market which will keep wage growth pressures high. The chances of a further Fed rate hike has come back again and is currently hovering around a 50:50 chance. The US interest rate pricing in for December 2024 hit a new high for this cycle, sitting at 4.45% as the bond market positions for a ‘higher for longer’ interest rate outcome.
European central bank
With the ECB meeting next week, European monetary policy remains in focus with bond markets now implying a one-third chance of an additional ECB interest rate cut at the upcoming meeting. A few of the more hawkish ECB speakers yesterday described the meeting as a ‘close call’ while one said that the central bank should ‘take one more step’. There was some dissent to this hawkish drumbeat however with Italy’s Visco saying that he believed ‘we are near the level where we can stop raising rates’.
What does Brooks Macdonald think
UK monetary policy was also a source of currency volatility yesterday after Bank of England Governor Bailey said that monetary policy was ‘near the top of the cycle’. This catalysed a further weakening of Sterling vs the US dollar, an exchange rate that has seen increased dollar strength since the middle of the summer. UK inflation remains stubbornly high, however the Bank of England appear keen to pose a dovish counterweight to a market narrative that sees UK interest rates remain at elevated levels well into 2025.
| Index | 1 Day | 1 Week | 1 Month | YTD | ||||||
| TR | TR | TR | TR | |||||||
| MSCI AC World GBP | 0.0% | 0.6% | 1.1% | 10.1% | ||||||
| MSCI UK GBP | -0.1% | -0.6% | -1.0% | 2.0% | ||||||
| MSCI USA GBP | -0.1% | 0.7% | 2.1% | 13.9% | ||||||
| MSCI EMU GBP | -0.1% | -1.8% | -2.4% | 8.8% | ||||||
| MSCI AC Asia Pacific ex Japan GBP | 0.2% | 1.5% | -1.1% | -0.9% | ||||||
| MSCI Japan GBP | 1.3% | 4.0% | 3.0% | 11.3% | ||||||
| MSCI Emerging Markets GBP | 0.2% | 1.0% | -1.3% | 1.3% | ||||||
| Bloomberg Sterling Gilts GBP | -0.1% | -0.9% | -1.1% | -5.1% | ||||||
| Bloomberg Sterling Corps GBP | -0.2% | -0.6% | -0.8% | 0.1% | ||||||
| WTI Oil GBP | 1.6% | 9.1% | 8.1% | 5.5% | ||||||
| Dollar per Sterling | -0.5% | -1.7% | -1.9% | 3.5% | ||||||
| Euro per Sterling | -0.5% | 0.1% | 0.7% | 3.2% | ||||||
| MSCI PIMFA Income GBP | 0.0% | 0.0% | -0.1% | 3.0% | ||||||
| MSCI PIMFA Balanced GBP | 0.0% | 0.1% | 0.1% | 4.1% | ||||||
| MSCI PIMFA Growth GBP | 0.0% | 0.3% | 0.3% | 5.8% | ||||||
| Index | 1 Day | 1 Week | 1 Month | YTD | ||||||
| TR | TR | TR | TR | |||||||
| MSCI AC World USD | -0.6% | -1.1% | -1.1% | 13.8% | ||||||
| MSCI UK USD | -0.7% | -2.2% | -3.2% | 5.4% | ||||||
| MSCI USA USD | -0.7% | -1.0% | -0.1% | 17.7% | ||||||
| MSCI EMU USD | -0.7% | -3.5% | -4.6% | 12.4% | ||||||
| MSCI AC Asia Pacific ex Japan USD | -0.4% | -0.2% | -3.3% | 2.4% | ||||||
| MSCI Japan USD | 0.7% | 2.3% | 0.7% | 15.0% | ||||||
| MSCI Emerging Markets USD | -0.4% | -0.7% | -3.4% | 4.7% | ||||||
| Bloomberg Sterling Gilts USD | -0.6% | -2.8% | -3.2% | -1.4% | ||||||
| Bloomberg Sterling Corps USD | -0.7% | -2.5% | -2.9% | 3.9% | ||||||
| WTI Oil USD | 1.0% | 7.2% | 5.7% | 9.1% | ||||||
| Dollar per Sterling | -0.5% | -1.7% | -1.9% | 3.5% | ||||||
| Euro per Sterling | -0.5% | 0.1% | 0.7% | 3.2% | ||||||
| MSCI PIMFA Income USD | -0.6% | -1.7% | -2.3% | 6.4% | ||||||
| MSCI PIMFA Balanced USD | -0.6% | -1.6% | -2.1% | 7.6% | ||||||
| MSCI PIMFA Growth USD | -0.6% | -1.3% | -1.9% | 9.4% | ||||||
| Bloomberg as at 07/09/2023. TR denotes Net Total Return | ||||||||||
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Chloe
07/09/2023