The UK remains economically prone to disappointment this week, with the release of numbers following comments expected later from the Chancellor at the Labour Party conference ahead of the November Budget.
The speech is unlikely to give any specific clues as to how the government may attempt to balance its books, but the inevitability of further tax rises has weighed on recent sentiment, with any strength in sterling, for example, being the result of pressure rather than optimism on UK economic prospects.
Even so, the main UK indices made a sprightly start to the week. The premier index saw GSK (LON:) at the top of the leaderboard, with the announcement of a new CEO removing some recent management uncertainty surrounding the stock, leaving the shares 13% higher this year despite the overarching concerns around pricing in the pharma sector as a whole.
AstraZeneca was also higher with the announcement that it plans to list its shares directly in New York, although retaining London as its primary listing, which could open the door to future valuation boosts.
The rose further and is now 44% ahead so far this year, which bolstered the likes of Fresnillo (LON:) and Endeavour Mining (LON:). The is now ahead by 14.1% in the year to date and surpassed its recent record closing high in opening trades, with its exposure to the likes of the defence and mining sectors continuing to power gains.
Meanwhile, US markets ended last week on a cautiously positive note, but the outlook is cloudy, and the next few days are likely to provide further tests of investor optimism.
The possibility of a government shutdown this week is a complication which investors could do without. Quite apart from any disruption, there could be an impact on jobs and in addition, such an outcome would delay Friday’s release of the report, which to some extent would leave the Fed flying on one engine.
Even so, the – should it happen – is expected to show that around 40000 jobs were added in September, compared to 22000 the previous month, with staying unchanged at 4.3%. Such a weak reading for the second consecutive month would be indicative of the Fed’s current dilemma.
On the one hand, the economy is still not in need of obvious support, as evidenced by last week’s readings, such as strong ongoing growth. By the same token, a weakening labour market is offset by levels which are still north of the Fed target.
In any event, the market is pricing in another cut in October and one more before the year is out. By definition, this leaves any decision open to disappointment and with valuations at stretched levels, and with the third quarter reporting season imminent, markets could be vulnerable.
At the end of last week and with the end of the quarter looming, US markets rose, but the gains were not enough to prevent a weekly loss. The Fed’s preferred inflation measure, the Personal Consumption Expenditures index, was totally in line with expectations, with at 2.9% and at 2.7%, driven by a 0.3% .
Investors are increasingly sanguine with regard to a government shutdown, as historically, such brinkmanship happens on a regular basis and is usually resolved. Nonetheless, it is a distraction which, coupled with some questions being asked on the new wave of AI euphoria, has had the effect of limiting recent market gains. The main indices for the moment remain in rude health, however, with gains of 8.7%, 13% and 16.4% for the , and respectively so far this year.