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Weekly Market Update Monday 11th September 2023

In a reversal of last week’s opening, this week was one in which we saw good news for the economy being digested as bad news for markets.

U.S. stocks on Wednesday sustained their biggest setback of a holiday-shortened week after an economic report fuelled fears that inflationary pressures could be regaining momentum, potentially leading to further interest-rate increases. The U.S. economy’s services sector expanded for an eighth consecutive month, exceeding most economists’ expectations taking activity levels to their highest since February. Meanwhile, Thursday’s weekly jobless claims report came in lower than expected, indicating continued strength in labour demand despite August’s solid increase in the unemployment rate from 3.5% to 3.8%. Defying expectations for a small increase, the number of Americans applying for unemployment in the previous week fell to 216,000, the lowest level in six months. Continuing claims fell to 1.68 million, the lowest level since mid-July.

In corporate news, a decline in Apple, the most heavily weighted stock in the S&P 500 Index, drove part of the market declines after news that Chinese government employees would no longer be able to use iPhones. Investors also may have been discouraged by reports that the upcoming iPhone 15 will be significantly more expensive than current models. Novo Nordisk became Europe’s most valuable listed company, after its treatment for weight loss, Wegovy, was made available in Britain. The Danish pharmaceutical group’s market capitalisation stood at $428 billion at the close of business on September 4th, putting it ahead of LVMH, the world’s biggest luxury-goods firm.

In the UK, Governor Andrew Bailey said on Wednesday, the Bank of England is "much nearer" to ending its run of interest rate increases but borrowing costs might still have further to rise because of stubborn inflation pressures. UK 10 year Gilts closed the week with a yield of 4.43% whilst UK interest rates remain at 5.25%, expected to rise to 5.5% later this month.

The US jobless numbers sparked a rise in short-term bond yields, with the yield on the two-year U.S. Treasury note briefly crossing back above the 5% threshold on Thursday afternoon before closing the week at 4.97%, whilst 10-year Treasuries closed at 4.26% as the yield curve continued to steepen.

In equities, the major U.S. stock indexes fell between 1% to 2%, giving up most of the ground they had gained in the previous week. European stocks ended 0.76% lower on fears that elevated interest rates could be pushing the economy into a slowdown, whilst the UK’s FTSE 100 advanced 0.18%. Chinese stocks retreated by 0.53% as the latest economic indicators reinforced concerns about the country’s weakening outlook.

Meanwhile in commodities, the price of U.S. crude oil rose on Friday to the highest level since last November, eclipsing $87 per barrel. The price has climbed nearly 10% over the past two weeks amid renewed oil supply concerns, adding to inflationary pressures across the broad economy.