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Astute Market Overview - 1st November 2023

Hello! And welcome to the latest Astute Market Overview, on the 1st November 2023.

We’ll start this week’s Astute Market Overview by looking at some data from the US.

An estimate of US Gross Domestic Product (or GDP) came out at 4.9% for the third quarter of the year, a jump from 2.1% growth in the second quarter of the year. The number was boosted by strong consumption, inventories and government spending data.

There has been a fall in real incomes in the US, and growth for the final quarter of the year is unlikely to be as strong. Whilst the third quarter’s GDP figures are open to revision, and the fourth quarter may be weaker, there is still some distance between the economy and recession.

The Federal Reserve (Fed) are in charge of setting monetary policy in the US – given that the strong growth was only slightly higher than expected, it is unlikely to spook them.

Moving to the Eurozone. We recently had the release of Eurozone Consumer Prices Index (or CPI, a key inflation measure) for September, and a flash CPI reading for October (which isn’t the final reading, but rather an indication based on preliminary data). September’s inflation figure came out at 4.3% for September, and October’s flash estimate was 2.9! As a reminder, 2% is the inflation target for the European Central Bank (2% inflation is also targeted in the UK), and it is comforting to see inflation continuing to fall from its highs.

When looking at the flash estimate for October, energy prices in October 2023 were much lower than October 2022, and so it looks that energy will take some of the wind out of October’s inflation sails for the final reading later in November.

We believe that inflation is coming down in the region, but that the path is unlikely to consist of consistent falls month on month. Given that the price of energy fell in November and December last year, we would need to see energy prices fall again this year to keep up the inflation reducing power in the short-term, which is highly unlikely.

The ECB will be cognisant of this, and a slight CPI uptick toward the end of the year is unlikely to knock them off course.

At a European Central Bank press conference, following a decision to hold interest rates steady, the president of the organisation, Christine Lagarde, explained that, rates should remain at this restrictive level, and the lagged effect of hiking interest rates is now feeding through to the economy – with GDP showing the euro area economy shrank by 0.1% in Q3 2023. Additionally, the ECB are attentive to the risk of heightened energy prices if the conflict in Gaza were to spill over.

Coming up, we’ve got an interest rate decision from the Bank of England tomorrow, US jobs data, UK GDP and inflation in China.

We will be back again in a fortnight with our usual market update. See you then.

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