Equity markets fell during the week ahead of a highly anticipated jobs report in the US on Friday, which could help determine the future of Federal Reserve policy and the pace of interest rate cuts. The Wall Street consensus is for nonfarm payrolls growth of 161,000 for August and a slight decline in the unemployment rate to 4.2%.
Markets are expecting the US central bank will start lowering interest rates in a couple of weeks, with the possibility of a 50-basis point cut should the report make gloomy reading.
The FTSE 100 was down 2.0% by mid-session on Friday, with the more UK-focused FTSE 250 trading 2.0% lower.
30 October Budget
Labour has ruled out raising taxes on "working people" in its upcoming budget statement on 30 October, including Value Added Tax, Income Tax and National Insurance. But will there be a wealth tax, and could Labour tax your pension, home or savings?
Find out more about Rachel Reeves’ spending review and the UK interest rate outlook as Charles Stanley Direct’s Chief Analyst Rob Morgan speaks to Erica Whyte about the market reaction, what we know so far, and what might lie ahead. Listen here.
Economics
House prices in the UK reached a two-year high in August and the recent interest rate cut has increased confidence among homebuyers, according to the UK's largest mortgage lender Halifax. Prices rose by an annual rate of 4.3% in August, taking the average cost of a UK property to £292,505. Currently owned by Lloyds Banking Group, Halifax said that buyers have been boosted after the Bank of England reduced interest rates at the beginning of August, the first cut for four years.
Warmer weather lifted retail sales growth in the UK in August as shoppers grabbed grub for picnics and barbecues and kitted out their wardrobes with new outfits. The turnaround was driven by food and the total amount spent in shops rose 2.9% in the three months to the end of August, up from 2.6% reported the month before. Non-food sales fell by 1.7% - the same rate as seen in July, according to the British Retail Consortium and analysts at KPMG.
In a sign the US employment market is softening, the country now has the fewest job openings since January 2021. However, Friday’s payroll report is expected to show hiring and wage growth picked up in August. The Federal Reserve is widely expected to cut interest rates in a few weeks with unemployment rising and inflation slowing toward low pre-pandemic levels. This has allowed the central bank to have a mandate to promote maximum employment and stable prices. It is now putting more of its focus on employment instead of inflation.
New orders for US factory goods rose the most since July 2020 following two consecutive monthly declines, suggesting the country’s manufacturing sector is strengthening.
OPEC+ has agreed to delay its planned increases in oil output in October and November.
Activity in the US services sector held up in August. The Institute for Supply Management (ISM) said that its non-manufacturing purchasing managers (PMI) index was little changed at 51.5 last month compared to 51.4 in July.
A PMI reading above 50 indicates growth, with the service sector accounting for more than two-thirds of the economy. The ISM views readings ahead of 49 over time as an indicator that the economy is expanding. However, although US manufacturing activity edged up in August, it remained weak as demand for new orders fell to its lowest level since May 2023. The ISM’s index tracking factory activity rose to ??.2 last month from 46.8 in July, just missing economists’ expectations for 47.5. A figure below 50 indicates that the sector is contracting.
Turkey’s inflation rate fell sharply in August, highlighting how high interest rates are beginning to cool the country’s price growth. Consumer prices rose at an annual rate of 52% in the month, compared with a 61.8% rate in July.
Read more: Personal inflation rate - what is it and why does it matter?
Energy
OPEC+ has agreed to delay its planned increases in oil output in October and November. The statement came as crude prices hit their lowest level in nine months, adding that it could further pause or reverse the hikes if needed. Oil prices have been falling due to concerns about a weak global economy, with especially soft data from China, the world's biggest oil importer.
A total of nine offshore wind farm contracts was awarded by the UK government after last year's auction failed to attract any bidders. The contracts are part of a wider slate of green energy projects that also include tidal and solar power and will provide enough electricity to fuel the equivalent of 11 million UK homes, the government said. However, while the new offshore wind projects have been broadly welcomed, some experts questioned whether they would generate enough capacity to meet renewable energy targets set for 2030.
Read more: Will planning changes achieve their aims?
Geopolitics
Former Brexit negotiator Michel Barnier has been appointed French prime minister. Emmanuel Macron lost its majority in parliament in an electoral gamble that backfired and handed more power to France’s far right. Marine Le Pen has said her National Rally party will not be part of a government that is led by Mr Barnier. Mr Barnier faces a vote of confidence by MPs in order to be able to stand as prime minister.
Donald Trump said he would enlist Elon Musk to run a “government efficiency commission” if he wins a second term as US president in November. Speaking to the Economic Club of New York, Mr Trump said the X owner had agreed to head a task force to conduct a “complete financial and performance audit of the entire federal government” and make “recommendations for drastic reforms.”
A new potential flashpoint has emerged in the South China Sea. Malaysian Prime Minister Anwar Ibrahim said the country will not stop its oil and gas exploration in the South China Sea despite claims by Beijing that Malaysia was infringing on its territory. He said that Malaysia's exploration activities were within its territory and were not intended to be provocative or hostile towards China, with whom it has friendly relations.
Beijing plans to launch a tit-for-tat trade probe into canola seeds imported from Canada, a week after Ottawa announced tariff rises on Chinese electric vehicles and steel.
Read more: China - the Third Plenum
Companies
Shares in UK-based aerospace and defence group Rolls-Royce were volatile after Cathay Pacific said it was inspecting its fleet of Airbus A350 aircraft, for which Rolls-Royce makes the engines. This followed an engine component failure on one of its long-haul jets.
Barratt Developments full-year pre-tax profit fell by three quarters, which management blamed on high interest rates putting off buyers and inflation pushing up costs. The UK's largest housebuilder completed just 14,000 homes in the year to June, compared to 17,000 for the previous 12 months, unveiled a further £130m share buyback and posted a 7% increase in first-half pre-tax profit. Vistry hailed "good demand" across its Partner Funded markets, which builds socials housing.
Housebuilder Berkeley Group reiterated its full-year guidance as it said trading in the first four months of the year has been “stable”. For the full year ending 30 April 2025 the company expects to post profits of £525m.
Associated British Foods shares fell after it revealed that like‐for‐like sales at Primark were expected to fall by around 0.5% in the second half of the year, with a projected decline of 0.9% in the fourth quarter due to wet weather in the UK and Ireland which hit footfall and seasonal sales in womenswear and footwear.
Shares in Asos surged as the troubled online fashion retailer said it was offloading 75% of the Topshop group as part of a joint venture deal with major shareholder, the Danish fashion billionaire Anders Holch Povlsen.
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