Wednesday saw the conclusion of the Federal Open Market Committee meeting, whereby the US central bank left its short-term lending target range unchanged at 5.25-5.50%, as expected. What was more surprising was that policymakers signalled that they expected to hold rates higher further into 2024. The Fed also raised its growth forecast, with the median GDP estimate for 2023 increasing to 2.1%, as the economy has been more resilient than expected. Indeed, the latest initial jobless claims report came in lower than expected at 201,000, its lowest level since January.
The hawkish Fed saw US Treasury yields move higher, with the 10-year yield up as much as 4.49%, a 16-year high, before ending the week at 4.44%. For the week the S&P 500 lost 2.9%, its worst performance since March while the Nasdaq dropped 3.6%. Both indices have logged three consecutive weekly losses.
European markets were also lower as investors weighed the economic outlook and interest rate prospects. The pan-European STOXX 600 was nearly 2% lower for the week, with most regional indices also facing losses, although the UK FTSE 100 saw a less steep decline owing to a weaker pound. The UK currency had hit a six-month low against the US dollar after the Bank of England held its benchmark interest rate steady at 5.25%. This was its first pause since December 2021 and came one day after August’s inflation data, in which the annualised CPI eased to 6.7%. The Swiss National Bank also joined the rate holding party, surprising markets which had been expecting one more rate hike. Meanwhile Sweden’s Riksbank delivered a quarter point rate hike.
In Japan, the Nikkei 225 dropped 3.4%, with investors disappointed that the Bank of Japan did not deliver any signals that it would move away from its ultra-loose monetary policy. The BoJ left its short-term interest rate at -0.1%, maintaining its dovish stance, contrasting that of the US Fed, which prompted yen pressure. Bucking the wider trend, Chinese markets saw slight gains for the week. The Shanghai Composite was up 0.5% although the Hang Seng was down 0.7%. There were a lack of economic data points for the week although markets found support from hopes of more government stimulus.
The value of your investment can fall as well as rise in value, and the income derived from it may fluctuate. You might get back less than you invest. Currency exchange rate fluctuations can also have a positive and negative affect on your investments. Please note that EFG Harris Allday does not provide tax advice. Past performance is not a reliable indicator of future performance.
This document has been produced by the EFG Harris Allday research team utilising data from documents produced by EFG Asset Management (UK) Limited for use by the EFG group and the worldwide subsidiaries and affiliates within the EFG group. EFG Asset Management (UK) Limited is authorised and regulated by the UK Financial Conduct Authority, registered no. 7389746. Registered address: EFG Asset Management (UK) Limited, Park House, 116 Park Street, London W1K 6AP, United Kingdom, telephone +44 (0)20 7491 9111.