07 December 2023
If you are covering the latest market moves, please see the following comment from Lindsay James, investment strategist at Quilter Investors:
Labour market cooling
“The labour market continues to be in close focus this week as investors look for any signals that high interest rates are weakening labour demand. Whilst a loosening of the labour market is generally seen as a good sign that monetary policy is working, particularly given the starting point is one of near record tightness, there remains a risk of overshooting.
“Figures out yesterday showed private sector employment in the US increased by 103,000 jobs in November, well below expectations and annual pay was up 5.6 percent year-over-year, according to the November ADP Employment Report. That was the lowest level of wage growth since September 2021 as leisure and hospitality, a major source of employment growth since the end of the pandemic, saw job losses alongside areas of the manufacturing sector.
“This follows US job openings data published earlier this week which also came in below expectations, suggesting tightness in the labour market is starting to dissipate. On current estimates, there are around 1.3 jobs available per unemployed person, down from a high of 2 in March 2022. This is bringing the labour market tightness back in line with pre pandemic levels, something that will likely support lower wage inflation and the ultimate inflation-targeting goals of the Fed. Of course, the trick will be to ensure this trend doesn’t continue for too long.”
Weakness in construction
“Perhaps unsurprisingly, Construction PMI data published on Wednesday showed continued weakness in UK housebuilding, which is now spreading into other areas of construction. This ties in with the Halifax House Price index, out this morning, which reported that the second month of house price rises (+0.5% in November) was more to do with a shortage of properties than a real pick-up in demand. That said, a recent rise in mortgage approvals, up 8.5% in October but 17.1% below October 2022, likely reflects declining mortgage rates, and a degree of pent-up demand from would-be home-movers.
“In the Bank of England’s financial stability report, published on Wednesday, it chose to highlight the ongoing impact of higher mortgage rates, which although now falling, will see homeowners paying on average an extra £2,880 per year on repayments by 2026; something we have been warning of for much of the past year. In better news, this picture is slightly better than at the point of their last report in July given growth in household incomes and slightly lower rates.”
Japanese bond yields jump
“With overnight speculation by the Governor and Deputy Governor of the Bank of Japan around the benefits of positive interest rates, Japanese government bond yields have jumped in anticipation that their policy of negative interest rates will shortly come to end, pushing up government bond yields elsewhere in response after yields had recently fallen to their lowest level in months. With central bank meetings in the calendar for next week, bond yields are likely to remain a key driver for markets in the run up to Christmas.”
