UK

London skyline showing the financial district

The headline measure of inflation dipped from 6.8% year-on-year in July to 6.7% in August, moving against consensus expectations of a rise to 7.0%. Given the sharp increase in petrol prices over the course of the month it was unsurprising that the headline measure was boosted by transport prices, which includes motor fuels (fuels and lubricant prices were up 3.8% on the month). But this was offset by further declines in food price inflation and a fall in restaurant and hotel prices. When excluding food and energy prices, the core measure was also significantly lower than expectations, at 6.2% in August (July: 6.9%, consensus: 6.8%). Possibly of most relief to the Bank of England though was the flat monthly price in the stickier services sector. This resulted in the annual rate declining by 0.6% to 6.8% - the first more convincing sign of improvement this year. Petrol prices aside, this is a very encouraging report and one that means that headline inflation is now tracking 0.4% below the Bank of England's projections set out the August. These data were sufficient to encourage the Bank to keep the base rate on hold at 5.25% at last week’s meeting.

US

New York skyline

The latest PMI data was generally a bit downbeat. The US Composite reading was dragged down to 50.1 (f/c 50.4) by weaker Services (50.2 vs f/c 50.7), although Manufacturing did surprise to the upside at 48.9 (f/c 48.2). Once again, it looks as though those two elements of the economy are not in synch, which might continue to send confusing signals. Indeed, those mixed signals were also evident in both housing and employment data. Housing Starts fell 11% from July to August when they were expected to be roughly unchanged. Meanwhile, the weekly Initial Jobless Claims number came in at a lowly 201k vs 220k the previous week, which is where expectations were pitched. The labour market remains firm.

Europe

EU flags

The PMI outcome in Europe was the opposite to the US, with Services ahead of forecasts and Manufacturing lower, although both remain below the vital 50 mark which is the dividing line between growth and stagnation, at 48.4 and 43.4 respectively. Even within Europe, France came in below expectations while Germany came in better. But it’s clear that Europe is not blowing any lights out at the moment. The latest IFO business sentiment survey in Germany showed little change in September from August, coming in at 85.7, which is still very close to the post-pandemic lows.

China

China

No economic data from China last week, but still plenty to ponder. Stimulus measures remain piecemeal by nature rather than “big bazooka”. That means a still slow recovery. The situation is exacerbated by the ongoing restructuring of the highly indebted real estate sector. The latest news there is that real estate giant Evergrande was unable to monetise certain assets or issue new debt as part of its restructuring plan, sending the shares down 20% on the news (although they already trade at but a small fraction of their pre-Covid levels, because the outstanding debts overwhelm whatever stub of equity value might be left).

FTSE 100 Weekly Winners and Losers
Year to Date Market Performance
Someone moves a chess piece during a game of chess

Tactical Turning Points

Are we approaching a turning point as we enter the final throes of the cycle of rising policy rates?

Weekly Digest

7 min read

Further analysis

From updates on the economy and markets, to guidance on tax and retirement planning, find more to read and watch here.

Important information

The information in this document is for private circulation and is believed to be correct but cannot be guaranteed. Opinions, interpretations and conclusions represent our judgment as of this date and are subject to change. The Company and its related Companies, directors, employees and clients may have positions or engage in transactions in any of the securities mentioned. Past performance is not necessarily a guide to future performance. The value of shares, and the income derived from them, may fall as well as rise. The information contained in this publication does not constitute a personal recommendation and the investment or investment services referred to may not be suitable for all investors. Copyright Investec Wealth & Investment Limited. Reproduction is prohibited without permission.

Investec Wealth & Investment (UK) is a trading name of Investec Wealth & Investment Limited which is a subsidiary of Rathbones Group Plc. Investec Wealth & Investment Limited is authorised and regulated by the Financial Conduct Authority and is registered in England. Registered No. 2122340. Registered Office: 30 Gresham Street. London. EC2V 7QN.