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Morning Market Review – October-12-2023

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In our morning market review, we meticulously examine the key economic data to gain a deeper understanding of what we might anticipate next.

Fundamental Analysis

Market News – There wasn’t much new data or news to cause a shift in market trends. The US Producer Price Index (PPI) was slightly stronger than expected, but with the core rate dropping slightly, investors didn’t see a need to change their positions before the Consumer Price Index (CPI) release. The Federal Open Market Committee (FOMC) minutes showed a consensus for restrictive policy for some time, with one more hike expected this year. However, as policy is now clearly restrictive, risks have become more balanced, allowing the FOMC to proceed more cautiously.

Long-term yields continued their correction after the payroll report, with the 30-year yield dropping further. The 10-year US real yield also eased back from its peak last week. European and German bond markets followed a similar pattern. European equities took a break after Tuesday’s sharp rally, while US indices added up to 0.7% as markets see the Fed nearing the end of its tightening cycle.

Despite lower real yields and a positive risk sentiment, the dollar’s correction is happening gradually. Brent oil dropped from $88/b to $85.5, reversing the ‘war premium’ after the start of the war between Hamas and Israel.

Morning Market Review - October-12-2023

Asian markets are positive this morning, joining the upbeat tone on Wall Street yesterday. Chinese markets got an additional boost as a state-owned investment fund reported increasing its stakes in local banks. The focus now turns to the US September CPI, with markets expecting inflation to have eased further.

The UK monthly GDP published this morning printed as expected (0.2% M/M). Industrial activity again disappointed (-0.7% M/M). The services sector showed better resilience. Sterling eases marginally with EUR/GBP at 0.863 gaining a few ticks after modest sterling gains earlier this week.

In political news, former Slovak PM Fico is set for a return to office after securing a deal with center-left Hlas presided by another former PM (Pelligrini) and the Slovak National Party (SNS) in what is considered a populist-nationalist coalition.

UK Residential Market Overview

The Royal Institution of Chartered Surveyors (RICS) released its UK residential survey for September. The report shows a challenging market environment, with interest rates affecting mortgage affordability and a gap between decreasing rental supply and increasing demand leading to higher rental prices.

New buyer enquiries indicate weak but slightly improving demand compared to August (-39% vs -46%). Agreed sales (-37% from -46%) and sales expectations for the next three months (-24% from -36%) show a similar trend.

Near-term expectations suggest a further price decrease over the next three months, although not as negative as in August (-48% from -65%). In the rental market, a net balance of +43% of survey participants reported an increase in tenant demand in September. However, there is a growing shortage of rental listings (-24%), pushing rent prices higher (5% growth expected over the next 12 months).

  • 12 October 2023
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