This week

The week that was saw yet more volatility in financial markets, characterised by a government coming out all guns blazing and a bakery coming out all buns glazing, with both U turns and apple turnovers the talk of the City.

Starting with company news, it was high-street favourite Greggs that was really making the dough, announcing that total sales were up 14.6% for the 13 weeks to 1 October 2022, compared to the same period in 2021. With profits rising as fast as the bread in their ovens, the bakery revealed that there had been no “significant change” in customer behaviour amid the cost of living crisis. Far from feeling the pain, the chain believes it has seen a return of “snacking customers”, who are picking up coffee or baked goods when “out and about.”

Keen not to have the limelight stolen from them, the beginning of the week also saw the UK government, still reeling from last week’s market reaction to their “mini-Budget”, reverse the proposed cut to the additional rate of income tax. Chancellor Kwasi Kwarteng remarked the decision was taken with "humility and contrition" and will bring forward the publication of his plan to cut Britain’s debt, alongside forecasts for economic growth.

While the proposed removal of the top rate of tax only made up around £2 billion out of the £45 billion of unfunded tax cuts, it was certainly the most divisive element, with the apparent climbdown allowing sterling to recover from the record depths of last week to around $1.14. However, government bonds were still deserted by investors, with yields remaining elevated. The government’s change of heart, accompanied by a rousing speech at the Conservative Party conference on Wednesday, taking on the “anti-growth coalition”, from Liz Truss, also did little to save the nation’s credit outlook. Wednesday evening saw Fitch Ratings cut the outlook for its credit rating on UK government debt to "negative" from "stable". It did however maintain its overall rating of AA.

The early part of the week also saw global stock markets post strong gains for 2 days in a row. Spurred on by a report showing both a shrinking U.S. job opening and a weaker reading of their manufacturing data, gave investors hope the Fed’s rate hiking policy was finally starting to cool the economy. A smaller than expected rate increase by the Australian central bank all contributed to investor speculation that a central bank shift to less aggressive rate hikes could be looming.

The proof however, was in the pudding, with Friday seeing US Non-Farm Payroll statistics being released. Treated as a very much knead to know, the information is possibly one of the most important pieces of data in determining the Fed’s view on future rate policy. The US economy added 263,000 jobs over September, with the unemployment rate now sitting at 3.5%, a trifle below expectations of 3.7%. Traders now see an 89.8% chance of 0.75% hike by the Fed during their next meeting, up from 83.4% before the release.

Next week

The coming week may see a slightly subdued start, with U.S. markets closed in observation of Columbus Day, commemorating the voyages of Christopher Columbus to the new world from Europe.

Traveling in search of new trade routes in Asia, Columbus received a great deal of financial backing from investors in Europe, most notably the Crown of Castille in Spain. Although not realising he had a discovered a new continent, believing he had instead reached the west coast of India, hence why we still use the term the West Indies today, Columbus missed out on the naming rights to his discovery. With another Italian explorer, Amerigo Vespucci, arriving ten years later, knowing this was a new continent entirely, the naming rights went to the former. Still, don’t feel too sorry for dear Christopher, who has a total of 20 US cities and 7 counties named after him.

With very little confidence put in Columbus by his European backers, it is with some irony that during the day the US markets close in his honour, European Investor Confidence numbers are released. The survey comprises of about 2,800 investors and analysts on the continent, all of which have responded to rate the relative 6-month economic outlook for the Eurozone and acts a strong leading indicator of economic health. investors can be highly informed by virtue of their job, and changes in their sentiment can be an early signal of future economic activity.

Sailing some very choppy water indeed, the Bank of England (BoE) Governor is due to participate in a moderated discussion at the Institute of International Finance Annual Membership meeting, in the new world, more specifically, Washington DC. With the inflationary pressures the Conservative’s new “mini-budget” has put on the BoE to raise rates further whilst also restoring some semblance of calm to the gilt market, it will be interesting to hear what those on Threadneedle Street are making of it all, especially a day before UK GDP data is released.

The remainder of the week will focus almost entirely on Columbus’s new lands, with Wednesday seeing the minutes from the Federal Reserve’s latest meeting being made public, before US inflation data is released on Thursday. With many hoping that the Fed’s almost relentless fight against inflation could be having an effect, the data could show us if they are on course to navigate a safer landing than Columbus could achieve some 530 years ago.

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 07 October 2022.