UK growth was the immediate centre of attention and did not make for cheery reading. The economy grew by just 0.1% in the third quarter, with a decline of 0.1% in September. Both numbers were expected to show an expansion of 0.2%, with some pointing to the weak figures as evidence of uncertainty leading up to the Budget from businesses and consumers alike.
The new government’s higher spending plans add to uncertainty around US tariffs, and whether the UK will be able to dodge some of those bullets or will be drawn in as the US continues with its own domestic focus. With the risks currently to the upside, the mood in markets was mostly sombre at the open.
The more domestically focused FTSE 250 fell slightly in early trade, reducing its gain in the year to date to 3.9% as the trajectory for UK economic prospects remains the subject of some debate. In the premier index, Land Securities (LON:LAND) rose after swinging to a half-year profit and raising its outlook, but this was a rare bright spot.
A broad markdown weighed on the FTSE 100, continuing the recent malaise whereby any gains have proved to be unsustainable in the shorter term and investor sentiment unconvinced, The index is now ahead by 3.9% so far this year, with sterling weakness and exposure to what could be a burgeoning US economy potentially positive drivers further down the line.
Fed Pops Party Balloons in US
The post-election rally paused for breath, with the latest Fed comments on the economy stopping the surge in its tracks.
Chair Powell popped some of the party balloons, stating that the Federal Reserve did not need to be in a hurry to cut interest rates. Quite apart from an economy that continues to grow despite the backdrop of higher interest rates, the Fed will be acutely aware that some of the new President’s policies, such as tax cuts and tariffs, will likely be inflationary. As such, the central bank is perhaps signalling that it would rather keep its powder dry until those inflationary impacts are better known.
Even so, the market consensus for a cut in December remains at over 60%, although the figure dropped from a previous 82% prior to Powell’s comments. The move follows a further reading on wholesale inflation in the form of the Producer Price Index, which rose by 2.4% from the year before, a slight acceleration from the previous month’s 1.9% reading. Core PPI was slightly higher than expected, and followed a Consumer Price Index number the previous day which suggested that while the direction of travel was intact, the fight against inflation is not quite won.
With the quarterly reporting season all but wound down, two names next week could add to potential volatility. Walmart (NYSE:WMT) will release its numbers, giving a further indication of the state of the consumer, while market darling Nvidia (NASDAQ:NVDA) will need to match the increasingly lofty expectations which it now carries, with the stock up by 205% this year alone. In the meantime, the Dow Jones is now ahead by 16% so far this year, the S&P 500 by 24.7% and the Nasdaq by 27.3%.
Asian markets were mixed overnight, with investors remaining skittish over the potential tariffs from the US which could well be coming their way. This adds to the already uncertain state of the Chinese economy, where the announced stimulus measures have yet to rekindle investor appetite in any sustained way. The latest economic releases did little to improve the cause. Although retail sales increased by a better-than-expected 4.8% in October, industrial output and property numbers underlined the scale of the challenges that remain.
Japan was slightly more positive, with the economy growing by 0.9% in the latest quarter, despite an interest rate hike in the period, suggesting that the economy can withstand further rate rises which are likely to arrive in the coming quarters. Meanwhile, the more recent strength of the dollar has weakened the yen, providing something of a boost to exporters, as evidenced by a near 5% rise in shares of Nissan Motor in early trade.