Weekly Market Update- Week Ending 02/06/2023

With sentiment dominated by events across the pond in Washington D.C., it was a mixed week for investment markets.

On Wednesday night, there was a sense of relief as, with a vote of 314-117, the US House approved the debt ceiling and budget cuts package. The agreement now heads to the Senate with sign-off expected by President Joe Biden at the weekend, just before the 5th June anticipated deadline.

Investment markets reacted positively to the news, although I expect it won’t be long before investors’ attention once again turns back to the future path of inflation and interest rates in the period ahead. The Federal Reserve meets next on the 13th June and announces its decision on the 14th. Expectations in the market are divided with Federal Reserve Governor Philip Jefferson saying in a speech on Wednesday that pausing rate hikes at the next meeting would offer time to analyse more data before making a decision regarding any additional tightening.

On Thursday, Nationwide provided May’s house price data. The building society revealed that UK house prices experienced their sharpest annual decline in almost 14 years, falling by 3.4% in the year to May. It would come as no surprise for anyone who keeps a close eye on Rightmove (a favourite British pastime), with a marked increase in residences showing as ‘reduced’ in recent months.

The trend of falling prices looks likely to continue in the medium term as affordability remains under pressure from the increased cost of living. Borrowing costs are also on the rise again. In response to the recent inflation data and the corresponding increase in interest rate expectations, many lenders have raised their mortgage rates (or pulled deals altogether!), reducing the amount individuals can borrow.

John Naylor, Chartered FCSI – Head of Investment Committee