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Our latest monthly investment update for October 2023 examines how the global investment markets, economy, and commodities perform.

Positive Economic Data Boosts Western Stock Markets

The FTSE 100 index of leading UK company shares closed at the end of September at 7,601.85 points, up 162.72 points or 2.19% during the month.

European and US stock markets increased at the end of September due to positive economic data. Inflation rates in the eurozone and US showed signs of slowing, and the UK’s economy grew in the second quarter.

British Market’s Remarkable Recovery

After losing the title last year, London is on track to overtake Paris as Europe’s largest equity market. British listings have a market capitalisation of $2.90 trillion, close to France’s $2.93 trillion. France’s value has decreased from its peak of $3.5 trillion due to economic challenges in China.

On the other hand, London’s market is showing positive signs, with major banks forecasting growth. This is a significant shift from last year when a survey labelled the UK as the least favoured market globally.

ONS Revises First Quarter Figures

The UK’s economy saw a 0.2% growth from April to June, as per the Office for National Statistics (ONS). This was fueled by a 1.2% increase in the production sector because of lower input costs. This growth followed a 0.3% rise in the first quarter, initially reported as 0.1%.

Stagflation Threats Loom Over the UK Economy

The Bank of England (BoE) might not raise interest rates further if wage growth slows down soon, as per S&P Global Ratings’ UK Economic Outlook report. Despite a decrease in core and services inflation in August, the BoE remains concerned about July’s 7.8% wage growth.

After 14 consecutive interest rate hikes, the BoE has kept its main policy rate at 5.25%.

S&P Global predicts that the BoE might not reduce rates until the second quarter of 2024. The effects of stricter financing conditions are already evident in the economy. S&P Global warns of subdued economic growth into the next year, with the UK nearing stagflation due to persistent high inflation and tightening monetary policies.

Gove and Hunt Diverge on Pre-election Tax Strategy

In an interview with the BBC, Rishi Sunak expressed his desire to reduce taxes but did not confirm if this would happen before the next general election.

The Prime Minister emphasised that his main focus is on controlling inflation and reducing living expenses. As the party meets in Manchester for their annual conference, issues like taxation and HS2 are causing tensions. The Institute for Fiscal Studies noted that UK tax levels are the highest in 70 years and are not expected to decrease in the near future.

Chancellor Jeremy Hunt has yet to promise any tax reductions before the upcoming election despite increasing demands from members of his party.

Michael Gove, a fellow cabinet member, expressed his desire on Sky News to lessen the tax burden before the next public vote. However, in a conversation with Kay Burley, Mr. Hunt stated that significant tax reductions at this time would lead to inflation.

He emphasised his commitment to reducing inflation, indicating that a major tax cut this year seems unlikely.

Five-Year Mortgages Hit a Recent Low

The average rate for a five-year fixed mortgage has decreased to below 6% for the first time since early July, with the rate now at 5.99%, as reported by Moneyfacts. This reduction comes after the Bank of England concluded its series of 14 successive interest rate hikes, giving lenders more confidence to reduce rates.

The average rate for a two-year deal stands at 6.5%. Most mortgage customers, about three-quarters, have fixed-rate agreements. UK Finance, a banking trade organisation, states that approximately 800,000 of these agreements will conclude in the latter half of 2023, with around 1.6 million expiring the following year.

Nationwide Reports Universal UK House Price Dip

For the first time since 2009, house prices in the UK have dropped across all regions in the three months leading up to September. This decline is attributed to high mortgage rates impacting the property market, as reported by Nationwide.

In the third quarter, the average house price was 4.7% lower than the same period the previous year. The most significant drop was in the south-west of England, with a 6.3% decrease. Other regions, including Wales and the East Midlands, saw reductions exceeding 5%. London’s house prices fell by 3.8%.

Although Northern Ireland was the least affected, its house prices still decreased by 1.8%, a shift from the 0.7% growth in the prior quarter.

Nationwide’s chief economist, Robert Gardner, highlighted the challenges of housing affordability. He pointed out that a typical first-time buyer with an average income would spend 38% of their net income on monthly mortgage payments, a significant increase from the historical average of 29%.

Eurozone Manufacturing’s Rapid Decline

Eurozone manufacturing faced a significant downturn last month, with demand declining at one of the fastest rates since records began in 1997. The final eurozone manufacturing Purchasing Managers’ Index (PMI) by S&P Global, as reported by HCOB, decreased slightly to 43.4 in September from 43.5 in August. A score below 50 indicates a contraction.

The output index, a reliable indicator of economic health, also dropped to 43.1 from 43.4.

Cyrus de la Rubia, chief economist at Hamburg Commercial Bank, noted that the manufacturing sector likely continued its recession throughout the third quarter. In September’s PMIs, France and Germany experienced the most significant downturns, while Spain and Italy fared slightly better.

Near-Government Shutdown and Political Repercussions

US President Joe Biden urged congressional Republicans to support a bill offering more assistance to Ukraine. He expressed frustration over the political games that almost resulted in a government shutdown. This came after a stopgap bill was passed on Saturday, ensuring government funding for over a month and preventing a shutdown that would have impacted millions of federal employees and various services.

Despite receiving support from both Democrats and Republicans, the bill led to Republican Matt Gaetz challenging the position of the House of Representatives’ Republican speaker, Kevin McCarthy.

Notably, the bill, effective until Nov. 17, did not contain aid for Ukraine. Following Russia’s invasion of Ukraine last year, the US has been a significant ally, and Biden continues to advocate for sustained global and national support for Ukraine.

NFT Collections Hit Rock Bottom

A significant number of NFTs, which once attracted celebrities, artists, and even Melania Trump, have now been deemed virtually worthless. A report by dappGambl, which analysed data from NFT Scan and CoinMarketCap, revealed that 69,795 out of 73,257 NFT collections have a market cap of 0 Ether. This means that 95% of NFT collection holders, equating to 23 million people, now possess investments with no value.

NFTs, or non-fungible tokens, are crypto assets that verify the ownership and authenticity of digital files, including images, videos, or texts. This report emerged almost two years after the NFT frenzy began, with many celebrities and artists quickly buying into popular NFT collections like the Bored Ape Yacht Club and Matrix avatars.

Market data

£1 buys $1.2182 or €1.1545. Gold is $1,871.60 an ounce, and UK natural gas futures are 104.09p/therm, up from 85.21p/therm at the start of September. The UK 10-year gilt yield is 4.495%, up from 4.364% at the start of September.

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