Market Commentary: week to 2 July 2024

Last week, the UK's economic landscape presented a nuanced view. The Office for National Statistics revised first quarter gross domestic product ("GDP") growth up to 0.7%. Growth was driven by robust expansions in services and production, despite the construction sector experiencing a decline. Despite a 0.7% positive uptick in real household disposable income, April's GDP showed no growth for the month. The June Purchasing Managers Index fell to a seven-month low, indicating a quarterly growth rate of just 0.1%, suggesting cautious economic momentum.

Meanwhile, the labour market exhibited signs of sluggishness. Job vacancies stayed stable, but the jobseeker-to-vacancy ratio increased to 1.91, pointing to an ongoing imbalance. Advertised salaries also saw a marginal decline of 0.1%, reflecting a potential easing in labour market conditions. The Resolution Foundation highlighted stagnant UK living standards attributed to weak productivity growth since the Global Financial Crisis, resulting in minimal wage increases since 2010. This trend has narrowed the pay gap between middle-class and lower-earning households to its lowest on record, spurred in part by a significant 9.8% increase in the National Living Wage in April.

UK business confidence showed a notable decline from an eight-year high, with the Lloyds business barometer falling to 41% in June. Although this remains above the long-term average of 28%, the drop signals tempered expectations about business prospects and economic conditions. Fewer firms anticipated issuing pay rises above 5%, indicating cautious optimism amidst economic uncertainties. Hiring intentions also weakened, highlighting potential challenges in labour market dynamics despite earlier signs of wage growth.

In global markets, US equities witnessed a mixed performance. Technology stocks and the Russell 2000 index outperformed, contrasting with struggles seen in sectors such as utilities and medical devices. Treasuries weakened, the dollar held steady and crude oil saw a third weekly gain. Key events included disappointing corporate updates, the Trump-Biden debate, and the May inflation figures. The US Federal Reserve’s stress test indicated sufficient bank capital and remarks highlighted ongoing inflation concerns. Positives included signs of disinflation and artificial intelligence ("AI") momentum, while negatives involved concerns over consumer resilience and the risk of strong pullbacks if elevated AI expectations aren't met by company performance.

Furthermore, first-time homebuyers in the UK have faced a daunting 60% increase in mortgage payments since the last election, rising from ￡667 to ￡1,075 per month due to elevated interest rates. This surge outpaced wage growth, which grew by 27% over the same period. However, there were anticipations that mortgage rates could ease following adjustments by Barclays, who reduced rates on various mortgage products in response to declining swap rates. Nonetheless, the Bank of England's Financial Policy Committee warned of potential financial strains ahead, projecting significant mortgage payment hikes for millions of households over the next two years amidst prevailing economic uncertainties.

Continue reading the full article here.

Important information

This publication is intended to be Walker Crips Investment Management’s own commentary on markets. It is not investment research and should not be construed as an offer or solicitation to buy, sell or trade in any of the investments, sectors or asset classes mentioned. The value of any investment and the income arising from it is not guaranteed and can fall as well as rise, so that you may not get back the amount you originally invested. Past performance is not a reliable indicator of future results. Movements in exchange rates can have an adverse effect on the value, price or income of any non-sterling denominated investment. Nothing in this document constitutes advice to undertake a transaction, and if you require professional advice you should contact your financial adviser or your usual contact at Walker Crips. Walker Crips Investment Management Limited is authorised and regulated by the Financial Conduct Authority (FRN: 226344) and is a member of the London Stock Exchange. Registered office: Old Change House, 128 Queen Victoria Street, London, EC4V 4BJ. Registered in England and Wales number 4774117.