Weekly comment: ECB deliver another rate rise

3 minute read

Weekly podcast – Market overview

This week’s host, Investment Manager, Andrew Cartwright discusses the ups and downs of the past week with Head of Fixed Interest Research, Richard Carter and Head of Property Research, Oli Creasey. Among the topics discussed – inflation, interest rates, the housebuilding and commercial property sectors, and what markets will focus on next.

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Market overview – Alan McIntosh, Chief Investment Strategist

Global stock markets advanced last week with the MSCI All Country World index closing up 0.5%. Bond yields rose in the US and Europe as the latest US inflation data came in a little hotter than expected and the European Central Bank raised rates once more, while UK government bond yields fell after a larger than expected drop in GDP data.

UK stocks enjoyed a strong weekly gain of 3.1%, taking the year-to-date advance to 6.6%. A depreciation in the pound and rising oil price contributed to the rise, with sterling ending the week at 1.24 against the US dollar. UK GDP came in at -0.5% for July which makes the three-month growth rate 0.2%. Signs of a softening labour market also weighed on the pound, as the unemployment rate unexpectedly increased to 4.3% in the three months the July. The 10-year gilt yield fell 7 basis points, closing at 4.35%.

Strong US data boosted the US dollar after the August consumer price index (CPI) came in at 3.7%, slightly above the 3.6% consensus forecast. This was the first time in five months this metric has come in higher than expected and the rise was largely a result of higher gasoline prices. US stocks underperformed on the week, closing -0.1% to leave 2023 returns at 17.3%. Technology and growth stocks lagged but there was some good news from the performance of ARM, which advanced after listing on the Nasdaq on Thursday.

This week the Federal Reserve meet to set monetary policy, and markets currently expect no change in the fed funds rate. The European Central Bank (ECB) delivered a 10th consecutive rate increase last week but hinted that they could be at the end of their tightening cycle. The 25 basis point increase took the key deposit rate to 4.0%, the highest ever level.

Economic data pointed to more softness in the eurozone, as industrial production dropped 1.1% in July and the European Commission lowered its forecast for 2023 GDP growth to 0.8% from 1.1% previously.

European stocks ended the week higher, with the MSCI Europe ex UK finishing up 1.2%. German benchmarks underperformed the wider bloc while France and Italy outperformed. The euro closed little changed against the US dollar at 1.07. The yield on the 10-year German government bond rose by 6 basis points to 2.67%.