The key story last week was the shutdown of the US government which began last Wednesday. This is the first shutdown in 7 years and is a result of the Republicans and Democrats failing to reach an agreement regarding near-term federal government funding. As a result, until a resolution is reached, non-essential government functions will be suspended, with workers either placed on furlough or, in some cases, fired.
As part of the shutdown, the Bureau of Labor Statistics has furloughed staff and suspended both data collection and publication. Consequently, the release of key economic indicators that help the Federal Reserve make informed monetary policy decisions have been suspended indefinitely. Notably for investors, the US jobs report for September, which was originally scheduled for release last Friday, will be delayed. There are also concerns that a prolonged shutdown could delay the upcoming Consumer Price Index report on 15th October.
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US Equity Market:
Last Tuesday the US government reached an agreement with Pfizer, the world’s largest pharmaceuticals company, to lower drug prices for Americans. The plan will see Pfizer sell many of its products directly to consumers at an average discount of 50%, through a website called TrumpRX.gov. In exchange, the company will be exempt from tariffs on pharmaceutical products for 3 years, on the condition that it invests in manufacturing infrastructure in the US.
With the potential for other deals in the sector to follow, the announcement sparked a global rally in pharmaceutical stocks, with the S&P 500 Pharmaceuticals index up over 5% last Wednesday. This was a welcome rebound for healthcare stocks which have been hit hard by the recent uncertainty in the US market.
Last Thursday, both the S&P 500 and Nasdaq indices opened at record highs, as investor optimism around interest rate cuts outweighed the uncertainty around the federal government shutdown. As of close on Friday, the S&P 500 and Nasdaq indices were up 1.11% and 1.17%, respectively across the week.
UK Equity Market:
Last week, the Labour Party held its annual conference, and the upcoming Autumn Budget was a major talking point. Both Prime Minister Sir Keir Starmer and Chancellor Rachel Reeves failed to rule out possible tax increases, indicating that the party may break their manifesto pledge to not increase income tax, VAT or national insurance. This is crucial for UK investors because the increased likelihood of future tax rises will have a knock-on effect on consumer sentiment and spending.
In September, UK house prices rose 0.5% as the sector outperformed analysts’ expectations. The outperformance indicates the resilience of the property market despite the wider uncertain economic outlook regarding fiscal policy.
Last Wednesday the FTSE 100 index closed at a record high, rising 1.03% over the course of the day. The rise was driven mostly by the surge in healthcare stocks following the announcement of Pfizer’s deal with the US. AstraZeneca saw its shares rise 11.2% on the day, solidifying its spot as the UK’s largest company by market cap. Elsewhere, Hikma Pharmaceuticals and GSK were up 5.7% and 6.1% respectively, largely in line with their European peers.
The FTSE 100 index was up by 2.2% over the week at close on Friday
Inflation, Interest Rates and Bond Markets:
The US government shutdown is causing investors to rely on alternative sources of data for insights into the economic health of the world’s largest economy. ADP, the country’s largest payroll processor, released figures showing unexpected private sector job losses last Wednesday, with the sector cutting 32,000 employees. This marks the third time in the past four months that privately run businesses have fired more people than they hired, and increases the chance of the Federal Reserve cutting interest rates to give the labour market a boost.
What’s on the horizon:
It’s a relatively quiet week ahead for monetary policy decisions and economic data releases, with no major central banks scheduled to hold a meeting.
Investors will look out for the delayed US jobs report should a quick resolution be achieved for the US government shutdown, as well as the upcoming Consumer Price Index report. These closely watched indicators provides insights into labour and inflation trends across the US and are commonly used by the Federal Reserve when making monetary policy decisions.
You can read our September asset returns review here: September Review