This week

Volatile weeks in financial markets are often referred to as “wild rides” or “rollercoasters” but very few, if any, are actually shaped by them. That is, until this week.

Whilst being trapped in the “Happiest Place on Earth” doesn’t sound too much of an ordeal, the tone for Asian markets was set as early as Monday morning as reports surfaced that the Disneyland in Shanghai had abruptly suspended operations. With 10 locally transmitted Covid cases being reported over the weekend, authorities were given no choice but to comply with China’s strict Zero Covid policy. With all visitors at the time of the announcement stuck in the park until they could produce a negative test, the only good news was that the rides would continue to operate for those trapped inside.

With sporadic lockdowns now becoming more commonplace in China, it was little wonder that data released on Monday showed the nation’s factory activity fell in October. Strict Covid curbs have unsurprisingly hit economic and business activity, in turn curtailing oil demand. China's crude oil imports for the first three quarters of the year fell 4.3% year on year, marking the first annual decline for the period since at least 2014.

With the latter part of the week characterised by rate decisions from both the US Federal Reserve and the Bank of England (BoE), investors strapped themselves in for what could have been a bumpy ride. First up was the Fed on Wednesday, raising rates by 0.75% for their fourth consecutive meeting as widely anticipated, cementing its most aggressive tightening cycle in 40 years. Although the first steps towards a “pivot” may have come in the form of a statement that the central bank will take previous tightening and policy lags into account before deciding its next steps, there were enough signs that they aren’t done hiking just yet. Whilst the last of its record 0.75% may have been implemented, The Fed Chair, Jay Powell, commented that "It is very premature to be thinking about pausing”.

Having originally interpreted the news that a pivot could be on its way, US stock markets rose before reassessing Powell’s words, falling 0.99% by the bell. 10-year treasury yields initially fell then rose to 4.0484%, whilst the yield on 2-year note yield also turned higher to 4.5552%. Markets did rally later in the week however as US non-Farm Payrolls showed that the labour market was beginning to cool ever so slightly, with unemployment ticking up to 3.7%.

Next in the queue was the Bank of England, giving rates something of a fast pass, hiking rates by the most since 1989 as it warned of a "very challenging" outlook for the economy. Although the bank’s Monetary Policy Committee voted 7-2 in favour of a 0.75% rise, to bring base rates to 3%, the two dissenters votes for 0.5% and even a 0.25% rise, emanating something of a dovish sentiment going forward. The central bank also forecasts that inflation will hit a 40-year high of around 11% during the current quarter, but that the domestic economy has already entered a recession that could potentially last two years, longer than during the 2008-09 financial crisis.

The move means that the European Central Bank, the Federal Reserve and the Bank of England have all raised rates 0.75% after their most recent meeting.

In company news, whilst Shanghai Disney enthusiasts couldn’t escape, it was Twitter employees who found they couldn’t get in. After Billionaire, Elon Musk’s, takeover of the company last week, it was announced that the firm’s offices would be temporarily closed, with staff unable to enter the building until they know if they have lost their jobs. In an internal email, the social media company said the cuts are "an effort to place Twitter on a healthy path". There is speculation that as many as half of Twitter's 8,000 jobs are on the chopping block, with the firm having failed to make a profit for several years.

It seems that those in Disney Land aren’t the only ones who have been taken for a ride recently though, with many experts suggesting that Elon Musk has grossly overpaid for the company, given current economic conditions and the depressed values of the tech sector as a whole.

Next week

After a weekend of firework displays and bonfires, the coming week should carry on the theme, exploding into life on Monday morning, especially for those watching the property market.

The Halifax is set to release its Housing Price Index numbers, which should make for interesting reading, especially as the housing market continues to cool. Detailing the change in the asking price of homes mortgaged by the provider, the data acts as the UK's earliest report on housing inflation. However, the housing industry's health should not be overlooked due to the wider industry activity it can spur. The property market has a wide-reaching impact on banks, mortgage providers, estate agents and even greatly impacts DIY and furniture companies who should benefit from increased activity in the sector.

Although not an economic data release per se, Tuesday sees Americans head to the polls to vote in their mid-term elections. Whilst these elections do not decide who will become the next President of the United States, the results will act a decent gauge for which party should win the main election in two years. There should also be heightened market movements, especially on US benchmarks as the results come in and investors assess the likelihood of political deadlock when passing new bills for the next two years.

It has not just been effigies of Guy Fawkes that have been on fire of late, with price rises also rocketing throughout the year, particularly for food and fuel. Staying in the US, the middle of the week will see the Bureau of Labor Statistics release their Consumer Price Index (CPI) numbers. Taking on added significance after the US Federal Reserve commented that rates would continue to rise as long as inflation remained elevated, only last week.

With the Bank of England’s outlook for the domestic economy cooling quicker than a sparkler left in a bucket of water, investors will be keen to analyse the UK’s GDP figures, released on Friday. Andrew Bailey and co have now predicted a recession lasting longer than the Global Financial Crisis and believe we could well have slumped into one now. Next week’s data should all but confirm this forecast as businesses and consumers alike continue to battle with the cost of living crisis.

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 04 November 2022.