Financial Bulletin – November 2023


Most major Central Banks were content to leave interest rates on hold during the month as inflationary pressure continued to fall.

The US Federal Reserve and Bank of England left their key rates unchanged for the second month in a row whilst the ECB also paused rate rises.

However, this was not enough to prevent equity markets from falling during the month as geopolitical risk in the Middle East and faltering earnings expectations weighed on investors’ minds.   

In the process the US S&P 500 reached a level 10% below its recent peak in July, which is often known as a ‘correction’.

On the economic front both the UK and Eurozone economies remained weak whilst the US economy continued to defy expectations.  

Over the last 6 months the FTSE 100 returned -2.41%, the S&P 500 returned 2.32%, whilst the Euro Stoxx 50 returned -4.75%.

The Japanese Nikkei 225 returned 9.47% over the same period.

The broad emerging markets index returned -5.77% in US$ terms.

The yield on 10 year UK Gilts was flat over the month whereas the yield on 10 year US Treasuries edged up as the US economy surprised investors with its resilience.   

US Economic News

Inflation in the US continued to make life difficult for the Federal Reserve as it attempts to bring inflation down without pushing the economy into recession.   

Whilst core inflation fell to 4.1%, the lowest for two years, the labour market remains surprisingly robust.

The number of new jobs created by employers was almost double what analysts were expecting and consumers’ inflation expectations actually rose.

In the event the Fed decided to leave rates on hold, preferring to wait for more evidence on how the economy is impacted by previous rate rises.

So far, however, the US economy is performing remarkably well.

The first estimate of growth in the third quarter of the year was 4.9% -comfortably ahead of most expectations.

Whilst more forward looking indicators are pointing to a slower rate of growth going forward they are also not pointing to a recession.

Both the manufacturing and services sectors of the economy are estimated to have marginally picked up during October.

UK Economic News

The headline inflation rate in the UK remained steady at 6.7% in the year to September, which was in line with expectations.

It was also confirmed that between June and August wages grew faster than inflation for the first time in two years.

However, the broader economy continued to weaken during the month and the latest industry surveys are pointing to a mild contraction.

The hugely significant services sector marginally deteriorated during October whilst the manufacturing sector remained firmly in the doldrums.

If the extraordinary pandemic years are excluded then the manufacturing sector is contracting at the fastest rate since the 2008-09 financial crisis.

The unemployment rate edged up again, this time to 4.3%. Although still an historically low rate this represents the third time in a row that the unemployment rate has risen.

With the economy showing significant signs of strain, even before all of the recent rate rises have filtered through, the Bank of England decided to leave the Base Rate unchanged for the second month in succession.

Nevertheless the vote was not unanimous and three members of the committee voted for another rise.

Eurozone Economic News

In a widely expected move the European Central Bank left its key interest rate unchanged during October.  

It was the first time the Central Bank has decided not to raise rates since July 2022.

The move seemed to be justified when only a few days later it was revealed that inflation across the Eurozone fell to just 2.9%. This was below expectations and the lowest rate since July 2021.

The broader economy continued to deteriorate during the month and, if anything, the downturn gathered pace.

If the pandemic-affected years are excluded then the Eurozone is estimated to be contracting at a similar rate to 2011-12 when Greece was on the verge of leaving the Euro.

Wider Economic News

Conditions in the Chinese economy continued to look fairly lacklustre with the manufacturing sector failing to expand for the first time in three months.

There were further problems with Evergrande, which is a huge property development company in China and is struggling to pay its debts.

If Evergrande collapses then it could have knock-on effects on the Chinese financial system because of the size of its debts.

Elsewhere the Bank of Japan is now forecasting stronger inflation in the country and as a result tweaked their policy.

It means that Japanese interest rates, which have been well below other advanced economies, should rise slightly.

Financial Markets and Corporate News

October is the month when the largest companies in the US (and the world) announce their latest earnings figures. As such it is an important month for setting the tone of equity markets.

Despite most companies announcing reasonable results, investors seemed to be underwhelmed and most equity markets fell in the second half of October.

In the process the S&P 500 fell 10% from its recent peak.

Over the last 6 months the FTSE 100 returned -2.41%, the S&P 500 returned 2.32%, whilst the Euro Stoxx 50 returned -4.75%.

The Japanese Nikkei 225 returned 9.47% over the same period.

The broad emerging markets index returned -5.77% in US$ terms.

The Investment Association (IA) UK Gilts sector returned -4.48% over 6 months, whilst the IA Sterling Corporate Bond sector returned -0.93% and the IA Sterling High Yield sector returned 1.39%.

Summary of Key News:

  • The BoE, US Fed and ECB all kept rates unchanged during the month.
  • The US economy remains remarkably resilient.
  • The UK economy weakened and unemployment rose.
  • The Eurozone downturn accelerated and inflation fell significantly.
  • The Chinese economy continues to look lacklustre.
  • The Bank of Japan forecasted higher inflation in the country.

Financial Markets:

  • Most equity markets sold off in the second half of October.
  • Over 6 months the FTSE 100 returned -2.41%, the S&P 500 returned 2.32%, and the Euro Stoxx 50 returned -4.75% (total return).
  • The Japanese Nikkei 225 returned 9.47% (total return).
  • The broad emerging markets index returned approximately 5.77% (in US$ terms).
  • The   IA UK Gilts    sector    returned -4.48% over 6 months, whilst the IA Sterling Corporate Bond sector returned -0.93%, and the IA Sterling High Yield sector returned 1.39%.


October only added to the evidence that we could have reached ‘peak interest rates’ for this cycle.

This is particularly true for the UK and Eurozone where their respective economies look conspicuously fragile.

There remains something of a divergence, however, between the strength of the US economy and that of the UK and Eurozone.

The remarkable strength of the US economy, despite rapid and consistent interest rate rises has taken some by surprise. Indeed, whilst the Federal Reserve has decided to sit on its hands for now, the Central Bank may feel able to raise rates further in December.

Whilst the UK and Eurozone seem unlikely to avoid what will feel like a recession, if not an official recession, the US could possibly achieve the hoped-for ‘soft landing’.

This would be where inflation is brought back down to target whilst the economy continues to grow.  

With the interest rate outlook now quite different across the major regions of the world there is the potential for substantially different investment trends.

The other factor to be considered where stocks are concerned, is how well company earnings hold up.

For some time equity investors have seemed to focus on how interest rates will affect valuations.

However, the October earnings season has brought company earnings into sharp focus and investors seemed to be in no mood to forgive companies who miss expectations.

This was typified by the reaction to Alphabet’s (the company which owns Google) announcement. Despite missing expectations by little more than a rounding error for a $1.5 trillion company the stock fell by more than 10% over the next two days.

Both the depth and length of any recession is therefore critical to the future path of stocks and bonds.