Week Watch - 24 October 2023

Your 7-minute read

Stock Take

Global markets remained firmly on the back foot last week, as inflationary and political developments continued to cause issues for investors.

In the UK, the FTSE 100 fell 2.6% after inflation data proved disappointing. On Wednesday, the Office for National Statistics (ONS) revealed that headline inflation remained at 6.7% in September, the same level it recorded in August and only slightly down from the 6.8% recorded in July.

From a cost-of-living perspective, there was at least some good news. The ONS noted that food and non-alcoholic drinks prices fell over the month for the first time since September 2021.

On the other hand, rising fuel prices helped counteract this, leaving inflation at the same level as the month before.

While this may sound discouraging, on Friday, Bank of England Governor Andrew Bailey told the Belfast Telegraph that September’s inflation figures were not far off what the Bank was expecting. He also noted he expected a ‘noticeable drop’ in inflation figures in October.

Commenting on the inflationary figures, Paul Dales, Chief UK Economist of Capital Economics, noted: “Although we still think that the UK’s inflation problem will dissipate slowly rather than suddenly and the situation in the Middle East poses an upside risk to our inflation forecasts, leading indicators suggest that services CPI inflation and wage growth will soon slow more significantly. Meanwhile, the rise in our long-term interest rate forecasts means that whoever wins the next election will face a more daunting fiscal outlook.”

The week also saw the ONS reveal annual growth in regular pay (excluding bonuses) was 7.8% in June to August 2023. This meant salaries were increasing faster than inflation over the period.

In the US, the political stalemate in the House of Representatives continued. Here the Republicans hold a razor thin majority but have struggled to find a new speaker after Kevin McCarthy was voted out earlier this month.

With the House struggling to agree on a new speaker, there are growing fears around a potential government shut down. McCarthy had only passed a 45-day spending bill in September, meaning the House will soon need to begin negotiations on a longer-term fix. Without an obvious solution to the stalemate, there are mounting fears over what happens when this bill runs out.

Market confidence was also hurt by a speech from Federal Reserve (Fed) Chair Jerome Powell on Thursday. While he didn’t spell out that the Fed was planning on raising rates, he did say he thought monetary policy ‘wasn’t too tight right now’. For nervous investors, this was enough to suggest there might be at least one more rate rise to come.

Mark Dowding, Chief Investment Officer at BlueBay, commented as much: “Further evidence of strength in the US economy points to a risk that the Fed will need to raise rates further in order to mitigate demand, in line with the objective of returning inflation to target. For now, a strong labour market and a solid consumer balance sheet continues to drive retail sales, and in turn, this is supporting business sentiment.

“Over the past several months, a narrative that the Federal Open Market Committee is at (or very close to) the end of a tightening cycle has held sway. However, the more that strong growth persists, the more this common wisdom may be called into question, and we see this jeopardising hopes for a soft landing.”

The S&P 500 and NASDAQ indexes declined by 2.4% and 3.2% respectively with growth stocks underperforming their value orientated peers.

Elsewhere, Chinese equities continued to struggle, with the significant issues in its embattled property sector worsening. The Shanghai Composite declined by 3.4% in part reflecting the news that Country Garden, once the largest developer in country, had failed to meet payments on some of its offshore debt. The slump in the market came despite strong economic growth data which revealed that Q3’23 GDP handily beat economist expectations.

Wealth Check

When you’re considering your future and what to do with your money, it’s important to make sure you will have enough funds to cover your expenses and maintain a comfortable lifestyle after you stop working.

But is it ever too late to start saving? The answer is no. It is of course best to start saving into a pension as early as you can, to maximise your retirement fund. But it’s never too late to start planning you’re your retirement, whatever age you are.

The life expectancy calculator from the Office for National Statistics predicts that if you’re a man aged 60 you may live to an average age of 84 years old – and you would have a one-in-four chance of living to 921.

As you age, healthcare expenses tend to increase, along with the cost of living. Saving for retirement, allows you to help build a robust financial cushion, helping to make sure you can afford necessary healthcare expenses and maintain your standard of living.

Life is unpredictable. So, it’s always better to be prepared. Saving for retirement provides a safety net in case of unexpected financial burdens.

Having sufficient savings for retirement gives you the flexibility to make choices based on your preferences rather than financial obligations. It allows you to pursue hobbies, travel, spend time with family, and engage in activities that bring you joy, knowing that your financial future is secure.

Even starting a pension at 60 can still be worth it, depending on your financial situation and retirement goals.

If you haven’t saved enough for retirement or anticipate a shortfall in your retirement income, starting a pension at 60 can help bridge the gap. Regular contributions to a pension can accumulate over time and provide additional income during retirement.

If you’re still working and your employer offers a pension scheme with matching contributions, starting a pension at 60 could be beneficial. Depending on the terms of the scheme, you may receive additional contributions from your employer, which can boost your retirement savings significantly.

Whatever age you are, it’s never too late to plan for retirement. We can help you prepare for your future which enables you to enjoy your retirement years without financial stress. Speak to us now.

The value of an investment with St. James's Place will be directly linked to the performance of the funds you select and the value can therefore go down as well as up. You may get back less than you invested.

Source:

1 Life Expectancy Calculator, Office for National Statistics, accessed 4 October 2023.

In The Picture

A lot of us don’t think twice about buying a daily coffee. But have you ever considered the potential savings if you channelled your daily caffeine expenses into an investment?

The Last Word

“It was a big moment but it is what you want as a player on this stage, to have moments like that as a fly-half is what you live for.”

South African Handre Pollard on his match winning penalty kick against England to put South Africa into the Rugby World Cup final.

BlueBay are a fund manager for St. James's Place.

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SJP Approved 23/10/2023