Quilter Cheviot|Weekly Comment

Robust performance from stock markets

Our weekly market overview from Quilter Cheviot

By Alan McIntosh, Chief Investment Strategist

Global equities chalked up another gain last week, with the MSCI All Country World Index rising 3.0% to take 2023 returns to 15.6%. Third-quarter earnings season is now drawing to a close and on the whole announcements the updates have been generally positive, albeit against modest expectations.

US benchmarks built on strong gains in the previous two weeks to post a weekly advance of 2.3%, 19.3% higher year-to-date. There was some good news on US consumer spending from retailers, as Target’s stock surged nearly 18% after better-than-expected results. The news provided a boost to the sector with rival Walmart also rising on the news, however Walmart’s rally was curbed shortly afterwards after it lowered guidance on increasing consumer caution. The strength of the consumer following the aggressive interest rate rising cycle is being closely followed by investors and the latest UK figures showed some cause for concern with a second consecutive monthly decline and the third negative print in four.

UK stocks posted solid weekly gains as indices added 2.1%, although they did lag their continental and US peers as they have for much of the year. The 10-year gilt yield decreased by 23 basis points over the week to 4.10%, leaving the year-to-date increase at 44 basis points.

In Europe, the MSCI Europe ex UK Index climbed in line with global benchmarks, advancing by 3.0% amid growing speculation of interest rate cuts next year from the European Central Bank. This rate-cut theme is also prominent in the UK and US with derivatives markets pricing in the first reductions in benchmark rates around the mid-point of 2024. Central bankers have given little support to this notion and can be expected to push back against these expectations for now, but upcoming speeches will no doubt be scrutinised for the suggestion of any hints on the timing of the first rate cut.  

Further declines in government bond yields supported stock market gains and the US 10-year Treasury yield fell to its lowest level since mid-September on Friday, touching 4.40%. On the week the closely viewed benchmark decreased by 21 basis points to close at 4.44%. A lower inflation print was the main driving factor for the decline, as the US consumer price index (CPI) fell to 3.2% year-on-year – coming in below expectations and signalling a sizable drop on the prior reading of 3.7%. 

Inflation cooling down?

In the UK, annual consumer price inflation notably lost pace, dipping to 4.6% in October from 6.7% in September. The data prompted increased market expectations for potential interest rate cuts in the upcoming year. Even with this anticipated decline, Bank of England Chief Economist Huw Pill stated that the expected drop in inflation leaves price pressure significantly above the 2% target.

Meanwhile, the UK labour market remained tight, displaying a 7.7% annual increase in wages, including bonuses, during the three months through September. The Office for National Statistics reported no change in unemployment, maintaining a 4.2% rate throughout the three months ending in October.

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