November 2023 Investment & Economic Update

Our latest monthly investment update for November 2023 examines how the global investment markets, economy, and commodities are performing.

Commodity Stocks Influence on FTSE 100

The FTSE 100 index of leading UK company shares closed at the end of October at 7,321.72 points, down 280.13 points or 3.69% during the month.

The FTSE 100 concluded October with a decline, affected by commodity stocks.

BP's lower-than-anticipated quarterly earnings led the dip, resulting in a 4.6% drop in its shares.

This contributed to the FTSE 100's 0.1% fall on Tuesday and a 3.8% decrease for October, its steepest monthly drop since May. BP's earnings were impacted by significant energy price reductions compared to the previous year.

The FTSE 250 mid-cap index increased by 0.4% on the day but declined 6.5% for October, representing its most significant monthly drop in over a year.

Anticipation of Eurozone Economic Indicators

European stocks rose at the end of October, with investors focusing on regional corporate earnings and upcoming growth and inflation figures, despite weak economic data from China.

Upcoming eurozone growth and inflation figures will offer insights into potential European Central Bank policy shifts. The third-quarter GDP is forecasted to grow by 0.2% annually, down from 0.5% in the previous quarter.

October's annual consumer price rise is anticipated at 3.1%, decreasing from 4.3% the month before.

On Tuesday, data revealed a 0.1% quarterly growth for French GDP and a 0.8% monthly decline for German retail sales in September, representing a yearly fall of 4.3%.

Surprising Surge in UK House Prices

UK house prices saw an unexpected 0.9% rise in October, largely attributed to limited property availability rather than a market revival, according to Nationwide.

This is a notable increase from September's 0.1% growth and the largest since August 2022. However, when compared to the previous year, prices in October decreased by 3.3%, a milder decline than September's 5.3%.

Contraction in Major Asian Economies

In October, Asian manufacturers faced increased challenges, particularly in China where factory activity dipped. This poses concerns for the region's leading exporters already impacted by reduced global demand and rising costs.

Factory activity in major manufacturing nations like China, Japan, and South Korea indicated contraction, and Vietnam and Malaysia also felt the effects of China's economic deceleration.

China's Caixin/S&P Global manufacturing PMI dropped to 49.5 in October from 50.6 the previous month, indicating a shift from growth to contraction. This aligns with another official PMI report revealing an unexpected activity downturn, questioning the anticipated recovery of the global second-largest economy.

UK Government's Shift on Loan Guarantees

The UK government has withdrawn guarantees on almost £1 billion of bank loans given to businesses struggling during the COVID-19 crisis. This means banks may not recover some of these loans.

Figures acquired by Reuters through a Freedom of Information request reveal that by 11th October, the British Business Bank (BBB) had removed state guarantees from 10,786 loans totalling £979 million, protecting taxpayers from certain losses. Despite this being a small fraction of the £77 billion total loans provided, it comes after concerns about the leniency of the schemes.

Only £17 billion of these loans had been repaid by the end of June, suggesting potential increases in the figures.

Reversing Post-Crisis Bonus Restrictions

From today, UK bankers can receive unlimited bonuses, reversing restrictions implemented after the 2008 financial crisis. Previously, bankers' lavish spending from large bonuses attracted attention.

The TUC warns this change might revive a culture of excess, but UK Finance believes it'll help attract top global talent to the sector.

Ruksana Uddin of Robert Half anticipates a gradual return of larger bonuses, with noticeable spending by bankers expected around 2025.

Introduced by the EU in 2014, the cap restricted bonuses to twice a banker's base salary, intending to decrease incentives for undue risks and ensure financial stability.

Widening Wealth Gap in Retirement Choices

Early retirement in England is now predominantly an option for the wealthy, as financial constraints or health issues limit it for the less affluent, according to a study. The Institute for Fiscal Studies (IFS) revealed that wealth has become a significant factor in deciding early retirement among those aged 50s and 60s.

In a joint study with the abrdn Financial Fairness Trust, data from 2002-03 showed little difference in early retirement rates between wealth groups: 20% of the least wealthy and 28% of the most wealthy 55- to 64-year-olds retired early. By 2018-19, this gap widened, with only 7% of the least wealthy retiring early compared to 24% of the wealthiest.

Distress in Construction Sector

The recent Begbies Traynor Red Flag Alert indicates concerning financial health for UK businesses. Currently, 5,919 construction firms face 'critical' financial difficulties, while 20% (or 72,257) are under 'significant' distress.

Similarly, the real estate and property sector has 4,994 businesses in critical distress, a 38% rise between Q2 and Q3, with another 51,240 in significant distress.

Based on Office for National Statistics data, of the 353,365 construction businesses in Great Britain in 2021, approximately 1.6% are in critical financial distress, and one-fifth experience significant financial distress, when excluding Northern Ireland figures.

Reducing Dependence on Russia

Europe's underground gas storage is over 99% full in preparation for the heating season, a major step towards lessening energy reliance on Russia. In line with a 2022 rule mandating at least 90% full gas storage by 1st November, all European countries have met this target.

The Brussels-based "Gas Infrastructure Europe" confirms that every member state has met this mark, further decreasing dependency on Russian gas. While some countries exceed the storage target, others hover around the stipulated level.

Bank of England's Rate Stance

The Bank of England is anticipated to maintain interest rates on Thursday, given the ongoing data indicating slowing economic activity and easing price pressures. As of Wednesday, market predictions showed a 93% chance for rates to remain stable, following the Bank's unexpected decision in September to halt a series of 14 rate increases.

September's UK inflation rate remained at 6.7%, significantly above other G7 nations, though it's trending downwards.

Manufacturing and Service Sectors Underperform

Recent PMI data suggests muted economic growth, with the job market revealing signs of slackening. The S&P Global/CIPS flash PMI for October showed a third consecutive month of reduced business activity, marking the most significant drop since January. Both manufacturing and service sectors experienced decreased output.

Furthermore, diminishing work orders and work backlogs indicate reduced business strain. With private sector jobs decreasing for the second month and dampened future business outlooks leading to hiring halts, business optimism hit its 2023 low, as per the S&P Global report.

Market data

£1 buys $1.2145 or €1.1512. Gold is $1,997.60 an ounce, and UK natural gas futures are 123.01p/therm, up from 104.09p/therm at the start of October. The UK 10-year gilt yield is 4.559%, up from 4.495% at the start of October.

Kellands will continue to keep you updated on market developments on a regular basis. However, if you have any questions or need some financial advice in the meantime, please do not hesitate to get in touch.

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