Weekly Market Update -5th November 2024

Last week, UK Chancellor Rachel Reeves took the opportunity to take centre stage and deliver her inaugural Budget, before focus turns to the US election this Tuesday.

Ultimately, she delivered a range of tax rises in concert with an expansion in government spending. The Budget had little impact on UK equity markets, with the FTSE 100 finishing the week down slightly (0.87%).

Hetal Mehta, our Head of Economic Research, noted: “While it was one of the biggest tax-raising Budgets of recent decades it was also one of the biggest fiscal loosening announcements too. The government has got public spending, as a share of GDP, broadly moving sideways rather than declining as per the previous OBR forecasts and boosted investment so that the overall level of longer-term GDP will be 1.4% higher. However, most of the uplift comes in the next couple of years."

That said, she warned: “Given the change to the fiscal rules and the definition of debt, it is surprising to see the fiscal headroom only increased slightly from the record low of the previous Chancellor. Complying with the rules within a three-year horizon could give some scope for more stimulus ahead of the next election, but that will depend on how the economy performs.”

One immediate reaction to the Budget came from the UK’s AIM Index. Investments in this market can potentially be inheritance tax free. This benefit was created to attract investment into the higher risk market. The Government had been widely expected to scrap this benefit, instead, Reeves halved the benefit. The fact that some relief remained caused a much needed (if potentially short-term) boost for the AIM market, which rose by 2.3%, with the majority of the gains coming after the budget on Wednesday.

The Bank of England’s (BoE) Monetary Policy committee is due to meet later this week. The Budget is not expected to have affected their immediate interest rate decisions, though any medium to long term effects of last week's announcement could cause the BoE to gradually alter course.

Turning to mainland Europe, the MSCI Europe ex UK fell 1.2% in Euro terms. This came despite some positive economic figures, as Eurozone GDP growth reached 0.4% in the third quarter - doubling expectations.

Germany, Spain and France all exceeded forecasts, while Ireland reported a GDP growth rate of 2.0% for the quarter.

George Curtis, Portfolio Manager at TwentyFour Asset Management, noted: “Part of the confidence of the European Central Bank’s (ECB) growth forecast – stronger growth this year than last year – came from excess savings, which European consumers held onto after the pandemic as a result of the gas crisis stemming from Russia’s invasion of Ukraine. With an unemployment rate that remains at record lows in the Eurozone (it actually fell again in August), declining deposit rates and stronger consumer sentiment should drive stronger consumption, and indeed we started to see broader signs of this in the third quarter numbers with stronger domestic consumption across most countries.”

In the US, last week saw both the S&P 500 and NASDAQ dip on a busy week for earning reports. This was partly caused by cautious updates from a number of large companies, including Microsoft.

On Friday, a US job report showed the US economy added just 12,000 jobs last month, the lowest recorded since December 2020. However, it is important not to read too much into these numbers, as they were impacted by a combination of weather incidents and strikes.

The US election will be followed by a Federal Reserve meeting to decide on interest rates. It seems likely that, regardless of the results of the election, interest rates are set to be cut