This week

In a week that saw a tired looking pair of Birkenstock sandals that Steve Jobs wore during the period he founded Apple have been sold at auction for a staggering $218,750, it was in fact the Bank of England (BoE) that was having trouble bringing prices to heel.

Inflation is becoming more broad based it seems, not sole-y due to the fact that Jobs’ preferred footwear went for way over the estimate of $60-80K but due to a strong rise in a number of the areas the Consumer Price Index is measured by. Domestic prices rose at a yearly rate of 11.1% v consensus of 10.7%, data showed on Wednesday, a figure not seen since October 1981. Driven primarily by household services and food and drink, the rate could have been as high as 13.8% if it wasn’t for the government’s Energy Price Guarantee (EPG) scheme.

Inflation expectations were also bolstered by domestic employment data, released during the beginning of the week. Details from the Office for National Statistics showed that unemployment rate rose to 3.6% in the three months to September, with vacancies fell for the fifth time in a row. Wages excluding bonuses also rose by 5.7% v a forecast of 5.5% in the year to September, the fastest growth since 2000 excluding the pandemic. On the largely stronger than expected news, sterling hit three-month highs against the dollar, pushing past $1.20 briefly.

Unlike the auction of Steve Jobs’ shoes, Jeremy Hunt’s Autumn Statement, announced on Thursday, was something of a flip flop from Truss and Kwarteng’s infamous “mini-Budget”, released less than two months ago. Setting out his fiscal policies for the coming years, the introduction of a £55bn package of tax hikes and spending cuts is the largest tightening in policy since the Osborne “austerity” Budget of 2010. However, the new statement does at least show to financial markets that this new pair of Sunak and Hunt take fiscal discipline much more seriously than their predecessors.

With relatively little market reaction, although sterling did falter by nearly 1%, it seems that markets are willing to allow some time to see if the new measures stifle economic growth. The only major moves were for oil heavyweights BP and Shell, who fell on the news that the windfall tax on their profits would be increased from 25% to 35% from next year.

Other headline measures included an increase in the minimum wage for those over the age of 23 from £9.50 to £10.42, state pension payments to increase in line with inflation and perhaps the biggest flip flop of all, the top 45% additional rate of income tax threshold will now sit at £125,140, down from £150,000.

Over in the US, the final results from the midterm elections were announced and could have been further from the mechanics of a sandal. Ending in an effective tie, with a split Congress with Democrat controlled Senate and Republican majority House, the red wave predicted by many, including Donald Trump failed to materialise. Historical data does show us that a finely balanced Congress is often best for market returns as parties fail to introduce radical policies, but as always with US politics, very little can be considered a shoe in.

Next week

With the World Cup kicking off over the weekend, there is a sacred point before the tournament begins, in which each team participating can feel the same level of optimism about lifting the trophy. For some European teams expectations for progression may be high, however, it is a different type of European optimism that will be interesting economists come Monday morning.

Consumer confidence on the continent acts as a leading indicator for economic health, with the survey being highly respected due to its sheer comprehensiveness. surveying about 2,300 consumers in Eurozone countries, respondents are asked to rate the relative level of past and future economic conditions, including personal financial situation, employment, inflation, and the climate for major purchases.

We stay on the continent for the duration of the first half of the week as a spate of European PMI data is released on Wednesday morning. With both the Services and Manufacturing sectors covered in the numbers, Europe’s largest economies and a composite of all the Eurozone’s nations are released. Identical data is also released on these shores the same day, the first piece of domestic data released since Jeremy Hunt’s Autumn Statement.

It’s a game of two halves as they say, with focus switching to the US during the second half of the week, not only as the they encounter England in Friday’s group game but also because the Federal Reserve release the minutes from their last meeting. With mixed messages still emanating from the Fed, “slower for longer” seems to be the order of the day as the central bank continues its battle against inflation. The publishing of their meeting minutes should help us get a clearer idea of just what future rate policy will look like at future meetings. With the Fed monitoring data much closer going forward to form a view, investors will have to revert back to that greatest of World Cup clichés, “just take it one game at a time…”

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 18 November 2022.