Weekly Market Update- Week Ending 11/08/2023

On Thursday, we saw the latest inflation data released in the United States. Having fallen to 3% in June, the Bureau of Labor Statistics announced inflation had increased slightly to 3.2% in July, broadly in line with expectations. Importantly, when stripping out some of the more volatile components like food and energy, core inflation saw further signs of moderating. It gained 0.2% in July, bringing the annual rate to 4.7% from 4.8% in June.

The reduction in core inflation provides further support to the potential for a soft landing for the US economy. It indicates to the Federal Reserve that further tightening of monetary policy may not be required in the coming months to bring inflation back towards its target. Areas of the market sensitive to interest rates saw gains on the news, with technology stocks particularly bright. The dollar fell slightly against most major currencies.

This week, there is finally a bit of good news for UK homeowners with mortgages expiring soon. Despite the Bank of England putting interest rates up last week, with inflation expectations falling following the better-than-expected June data, many major banks have started cutting mortgage rates to drive new business. Halifax, the UK’s largest mortgage lender, cut a five-year deal priced at 6.1% to 5.39%.

If July’s inflation data for the UK (due out next Wednesday) comes in below expectations, there is scope for further cuts in lenders’ rates as they start to feel more comfortable regarding the future path for interest rates.

John Naylor, Chartered FCSI – Head of Investment Committee