UK inflation rate higher than expected

Annual inflation rate in the UK was unchanged at 6.7% in September, defying market expectations of a slight decrease to 6.6%

By Ahmed Azzam | @3zzamous | 18 October 2023

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  • UK inflation remains stable despite rising oil prices.

  • China's Q3 GDP beats expectations.

  • US housing starts expected to rebound in September.

  • Bank of Japan reacts to surging yields.

Oil surges amid geopolitical tensions

Crude oil mounted a robust rally amid escalating geopolitical tensions, with Iran's foreign minister further stoking the flames by calling for an oil embargo against Israel. This surge in the oil market coincided with an uptick in gold prices, while Treasury yields experienced a modest dip. Concurrently, the futures market saw a decline, along with a drop in stock values across European and Asian markets. Goldman Sachs sounded a note of caution, warning that any forthcoming surge in risk assets, particularly in the realm of equities, as the year-end approaches, could prove to be relatively modest and short-lived, primarily due to the looming geopolitical risks on the horizon.

Mixed earnings and corporate challenges

In the corporate earnings landscape, Morgan Stanley faced a pre-market decline, driven by weaker performance in its wealth management division, even as its Fixed Income, Currencies, and Commodities (FICC) as well as equities trading segments exceeded expectations. Post-market closure, all eyes turned to Netflix, which was expected to unveil a sluggish start for its ad-supported tier, amid intensified competitive pressures. Meanwhile, Tesla's profit margins were poised to fall short of market expectations.

ASML Holdings' shares suffered a significant decline as the company grappled with a substantial 42% drop in orders and a revenue miss, marking the first such occurrence in seven quarters. Simultaneously, Country Garden signaled its likelihood of defaulting on offshore debt payments for the first time, as a grace period reached its conclusion today.

UK inflation holds firm

United Kingdom's inflation proved more resilient than anticipated in September, with the surge in oil prices thwarting predictions of a slowdown. Nevertheless, the deviation from forecasts is unlikely to spur the Bank of England into considering further interest rate hikes.

China's strong economic performance

In a contrasting economic scenario, China's third-quarter GDP outperformed expectations, registering a robust 4.9% year-on-year growth, attributed to an upswing in consumer spending. Industrial production and retail sales also surpassed expectations for the month of September, although fixed-asset and property investment figures fell short of their anticipated growth.

US housing rebound expected

Looking ahead in the United States, data suggests that housing starts are likely to exhibit a significant rebound, potentially surging by 7.8% in September to an annualized rate of 1.38 million units, recovering from a substantial 11.3% drop in August. Conversely, building permits are expected to decline by 5.7%.

Bank of Japan reacts to soaring yields

The Bank of Japan (BOJ) made an unexpected announcement of a bond-purchase operation in response to benchmark yields reaching a fresh decade-high level. Despite the operation's lack of an immediate impact, Japanese government bonds (JGBs) now face renewed pressure, as traders test the central bank's tolerance thresholds. Notably, former BOJ board member Makoto Sakurai suggested that officials may consider scrapping negative interest rates by the end of the year.