Jenson Holmes from Titan Wealth offers this week’s round-up of global markets
THE UK Budget takes centre stage this week, with markets closely focused on the government’s plans for public spending, taxation and economic growth. Investors will be looking for a balance between supporting households and businesses and maintaining confidence in the UK’s public finances. The Budget will also provide an important indication of the government’s priorities for the coming years, including potential changes to infrastructure spending, business incentives and support for key sectors of the economy.
Markets generally favour predictable and disciplined fiscal policy, as this can help support confidence among businesses and investors. Measures aimed at boosting investment, productivity and long-term growth are likely to be welcomed, particularly given recent signs of weaker consumer spending. A Budget seen as credible and focused on growth could help support UK assets and confidence in the wider economy.
This comes against a mixed economic backdrop. UK inflation was higher than expected, while the labour market and consumer spending showed signs of softening. This reinforced expectations that the Bank of England will deliver a 25-basis-point interest rate increase at its November meeting, with markets viewing a near-term hike as increasingly likely.
However, markets do not currently expect a long series of interest-rate increases as domestic inflationary pressures continue to moderate and wage growth remains relatively subdued as the labour market appears to be softening. In addition, there is growing evidence that consumers are turning more cautious as higher energy costs, elevated mortgage rates and slowing real income growth are beginning to weigh on household spending.
Away from the UK, equity markets had an unsettled week with several competing factors weighing on investor sentiment. A resurgence in oil prices saw Brent crude hit $116 as a flare- up in Middle East tensions and uncertainty around any escalation in fighting after the US midterm elections threatened global supplies. Technology stocks, particularly semiconductor and cloud-computing companies, had a tough week amid growing concerns over the huge sums being invested in AI and whether that spending will generate sufficient returns.
On a positive note, equities were supported by continuing signs of global economic strength, a solid start to the earnings season and falling government bond yields, as investors moved towards traditionally safer assets and several Federal Reserve officials struck a more cautious tone on further interest-rate rises.
Growth in Japan’s manufacturing sector slowed in October, while the services sector grew more quickly. Overall, the figures suggest the Japanese economy remains resilient despite global economic and geopolitical pressures. Meanwhile, Japanese CPI increased in September and has risen 2.1% year-on-year, with food and energy key drivers.
The Bank of Japan is expected to gradually raise rates further over the next year or so as the economy moves further away from its multi-decade period of deflation/disinflation and as monetary policy normalises. Government spending is also likely to remain supportive of the economic recovery.
