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A choppy week for financial markets

Key takeaways

Financial markets were buffeted to and fro over the past week, with a whole host of factors including politics, energy markets and economic updates all serving to sway investor sentiment.

  • At the beginning of the week, financial market nerves were high. It looked like the US was on the brink of exceeding its ‘debt ceiling’ – the limit on how much debt the US government can accumulate – amid political deadlock. In the event, Congress did agree on an extension to the debt ceiling, but only until early December; as a result, we can expect this topic to resurface in the festive season. Failure to raise the debt ceiling again in due course would limit government payments, including those made to many US households, which could quickly impact the health of the wider economy.
  • In Japan, stock markets also sold off early in the week, with investors alarmed by comments by incoming Prime Minister Kishida that he would look to effectively redistribute wealth to the middle classes via changes to taxation. This was interpreted as a step away from efforts to make Japan more ‘shareholder-friendly’, which have been part of government policy for a number of years. This is the latest in a series of slight shifts to the political landscape in Japan, leading to increased volatility in the Japanese stock market this year.
  • In economic news, the latest survey data (the Purchasing Managers Index) for the services sector in the US, UK and Europe pointed to signs of growth in service industries. However, with survey respondents also noting rising pricing pressures and signs of slower growth, topics like ‘stagflation’ – a term used to describe concurrently high inflation, slower growth, and high unemployment – are likely to remain in the spotlight too. Adding fuel to this fire, September’s jobs market data in the US came in well below expectations, though the overall unemployment rate did fall slightly.
  • On the subject of fuel, Europe is currently in the midst of a shortage of natural gas – the source of around a quarter of total energy consumption in Europe. This has been caused by a perfect storm of events, including a poor summer for wind and solar energy production, high demand for ‘fuel at any cost’ in China, and Russia wrangling over its supply of natural gas. Higher natural gas prices (in an already testy marketplace for fuel) could have knock-on effects across a range of areas, from agricultural output (the cost of fertiliser is soaring) to geopolitics (Europe is heavily reliant on promises for extra gas made by Russia’s President Putin), and financial markets will be closely watching developments.

Weekly market moves

  • At the end of a tempestuous week for global share prices, most major markets quite surprisingly delivered flat or mildly positive performance overall in sterling terms.

  • Japan – which had been enjoying a better patch of performance – was the significant underperformer over the week. In both the UK and US, the share prices of smaller companies lagged their larger counterparts.

  • Bond markets were weaker over the week (prices fell and yields rose), continuing a run of lacklustre performance.

What to look out for this week

  • ‘Earnings season’ begins this week, with large corporations reporting their results for the third quarter of the year, and reporting on the outlooks for their businesses. As ever, some of the world’s largest banks will lead the way. Positive guidance has been provided by a number of companies across a variety of industries, but especially in the information technology sector.

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