This week just ended

Founded in 1990s Cambridge as Advanced RISC Machines Ltd, a joint venture between Acorn Computers, Apple and VLSI Technology, the fledgling company of just a few workers enjoyed an initial $3 million in funding from Apple in order to develop processors for Acorn computers.

A lot can happen in 33 years and after various iterations, going both private and public with its shares, arm (the company went lower case for its styling and logo in 2017) looked set to return to public markets this week, securing a £43.6bn valuation, making it the largest initial public offering (IPO) this year. An illustration of British commerce and the much overlooked domestic technology industry, arm estimates that 70% of the world's population uses its microchips, including almost the entirety of the planet’s smartphones.

Although the UK’s FTSE 100 controversially got the elbow from arm, favouring a listing in the US instead, there has been plenty of news that has driven our own markets this week. Although Tuesday saw a release of some relatively weak employment figures, it was Wednesday’s Gross Domestic Product (GDP) data that, hands down, stole the show on domestic shores. Falling by more than expected, the UK economy shrank by -0.5% compared to estimates of -0.2%, predominantly driven by recent strike action by NHS workers and teachers. Unseasonably wet weather also had a hand in dragging down the economy, as the larger services sector faltered during July. However, it should be mentioned that the production and construction sectors did grow 0.2% in the three months to July as well as a busy summer of sporting events and increased visits to theme parks, also contributing positively to the GDP rollercoaster.

Lending a hand to a buoyant week overall for financial markets, Wednesday saw US inflation data made public. The numbers were mixed to say the least, showing that although consumer prices increased by the most in 14 months during August, with a surge in petrol prices accounting for half the rise, the annual rise in core inflation (stripping out volatile sectors such as energy and food prices) was actually the smallest in nearly two years. The cost of shelter, a facet of inflation that has increasingly cost the American consumer an arm and a leg over the past 18 months, did continue to rise, although the data did show that rental prices seem to be finally moderating.

The middling data did serve to cement market bets that the US Federal Reserve will keep a firm hand on the tiller during its next meeting, maintaining rates at their current level before one more possible hike before the end of the year.

Rate rises were very much the talk of markets come Thursday afternoon as it was the European Central Bank’s (ECB) turn to go out on a limb, raising borrowing costs on the continent for what could possibly be the last time. Raising rates by 0.25% to 4%, the highest since the Euro came into circulation, the bank also made it clear that their rate hiking journey could now be at its end, commenting:

 "Based on its current assessment, the Governing Council considers that the key ECB interest rates have reached levels that, maintained for a sufficiently long duration, will make a substantial contribution to the timely return of inflation to the target." 

However, the ECB did revise their inflation expectations upwards, with inflation seen at 5.6% in 2023, 3.2% in 2024 and 2.1% in 2025. After the news, European indices certainly flexed their muscles, with the pan-European STOXX 600 index rising 1.5% to hit a one week high, led by the rate sensitive property and mining sectors, rising 3% and 4.2% respectfully.  Not getting too far of themselves, the bank later declared "We have not decided, discussed or even pronounced cuts.”

When all was said and done, it was arm’s debut that really stole the show this week, rising 25% within its first few hours of trading to a market capitalisation of nearly $70 billion. The warm reception from investors bodes well for companies that have been waiting to list, after the IPO market collapsed due to the war in Ukraine and global interest rate hikes. Indeed, high-profile names including German sandal maker Birkenstock are preparing to list in the coming weeks, with the chipmaker’s bow the kind of start you would imagine they’d give their right arm for…

This coming week

In what could be a tale of two central banks next week, investor gaze should be fixed on both Wall Street and Threadneedle Street as the US Federal Reserve and the Bank of England are set to announce their base rates for the month. Although the subject will be the same, the trajectories seem to be diverging somewhat, with the tone of both press conferences potentially worlds apart.

The Federal Reserve are due to go first on Wednesday evening, with the expectation that they will hold rates steady. Although recent economic data has still been fairly robust, it seems this has only served to ease worries over a recession rather than fears that the Fed will have to keep hiking rates. Market futures are now pricing in a 97% chance of the US central bank holding rates steady during next week’s policy meeting and a near 65% likelihood of a pause when they reconvene in November. With the chances of rate hike being almost totally ruled out this time around, investors will be listening very carefully for any hints as to what the Fed may do next, ensuring it will be the forward guidance that could really affect markets.

In complete contrast, Thursday will see the Bank of England (BoE) almost certainly raise rates by another 0.25%, with all 65 economists polled by news agency, Reuters, expecting borrowing costs to rise to 5.5% from 5.25%. Despite inflation easing to 6.8% in July from 11.1% last October, domestic price rises are the highest among the western world and are forecast to stay above the BoE's 2% target for years to come yet, suggesting the central bank has far more ground to cover than its central bank peers. Interestingly 30 of those 65 questioned by Reuters expected rates to peak at 5.75% by the end of the year in the UK, with 2 arguing the case for a peak of 6%.

Despite the two central banks taking the majority of column inches this coming week, there is room for economic data to have some impact, the most notable being a raft of Purchasing Manager Index (PMI) numbers on Friday. Covering both the Services and Manufacturing sectors for the UK, Europe and the US, PMI readings prove so useful to economists due to the data acting as leading indicator of economic health. Businesses usually react quickly to market conditions, with their purchasing managers holding perhaps the most current and relevant insight into the company's view of the economy.


The information in this blog or any response to comments should not be regarded as financial advice. If you are unsure of any of the terminology used, you should seek financial advice. Remember that the value of investments can go down as well as up, and could be worth less than what was paid in. The information is based on our understanding as at 15 September 2023.