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Interest rate decisions, release of monthly job's report, Apple loses value, G20 summit in India, and market moves in the next few days.

It’s been a short but busy week on markets, as Labor Day in the US marked the end of summer and the majority of investors found their way back into the office. The talk of the Street is still dominated by central bank interest rate decisions and it seems the Federal Reserve are trying to get ahead of their announcement and manage the expectations/fall out of what they are planning to do at their next meeting; overnight we’ve had three Fed members give their thoughts – one talking about ‘if we skip a rate hike in September, it doesn’t mean that we’re necessarily done hiking’, another saying that ‘current monetary policy is in a very good place, that it’s restrictive and having the desired effect, but that this needs time to fully play out’ and another saying that ‘we’re close to the conversation changing from how high rates are going, to how long they are staying high’. All of this, we think can be summarised as the Fed wanting to manage the market and consumer expectations that a lack of rate hikes does not mean rate cuts and they really don’t want people assuming that rates are heading back down immediately and therefore risking undoing all the work they’ve done on taming inflation because there’s a splurge in spending and investment in a market they’ve worked hard to constrain that will just end up piling price pressures back on again.

On this side of the Pond, we’ve seen the release of the Recruitment and Employment Confederation’s monthly jobs report which gives some interesting takeaways: UK employers have slowed down hiring permanent employees at the fastest rate since June 2020, whilst recruitment of temporary workers has also slowed down – the first time it has done so since July 2020. We’ve also seen starting salaries have risen at their slowest pace since March 2021. This news instinctively feels like bad news, but if the economy is cooling and, importantly, the wage price spiral in the private sector might be slowing it could finally be some good news for Andrew Bailey, who very unpopularly – but technocratically correctly – pointed out last year that wage rises are only going to fuel inflation and that as a nation we should try and avoid them!

We had some very good news yesterday in the UK re-joining Horizon, the EU’s scientific research programme. This is the world’s best funded research programme and losing access to it in 2021 was a major blow to the UK scientific community. As with all things post-Brexit, our membership will be “bespoke” which is shorthand for “not as comprehensive or influential as we used to be”, but this really is a lot better than not being involved.

Apple had a rough couple of days, losing 5% of their value on news that China has banned its government staff from using iPhones and that this could be widened to employees of state backed firms. China are under embargoes that prevent them access to the latest semiconductor technology and because of that haven’t been able to domestically produce a phone that is as capable as an iPhone, but that all changed last weekend when Huawei showcased a new smartphone that’s using a very advanced processor that they say is homegrown. The government clampdown on iPhones would appear to backup the claim that it is homegrown and therefore readily available technology within the phone and, with the help of the CCP, Huawei can now actively claw back market share that it’s lost since being unable to access foreign semiconductors and then some. For Apple, China is its second biggest consumer market and also one of its key manufacturing locations, and this move by the CCP will not only hurt iPhone sales but could be a sign that extra caution is needed when (and where) they start expanding manufacturing facilities. The iPhone 15 is launched next week though, so short term demand for Apple hardware will likely get a shot in the arm from that, but it will be interesting to see Apple’s own revised sales forecasts on the back of these developments, in due course.

It’s the G20 summit this weekend, hosted by India. Rishi Sunak will be glad to escape the current domestic landscape (Horizon re-joining aside) and try and secure some progress on a UK-India free trade deal, which some close to the talks say could be signed by the end of this year. He’ll also press Indian PM Narendra Modi to call out Russia’s behaviour, but that could be a tough sell as India is still importing huge amounts of Russian natural resources, at presumably very favourable terms. Putin clearly won’t be there, but neither will Xi Jinping. China and India don’t have the best of relationships – this wasn’t helped by China last week publishing an official map laying claims to disputed territory between the two nations, click here to see more  – and there is concern in the West that this could be a nod towards Russia and Xi’s own narrative that the East is rising and the West declining. We’ll have to wait and see what we get in the communique’s over the coming days.

Going into the final trading sessions of the week, we’ve already seen the German inflation print this morning which show a very gradual decline in the pace of price rises – though in line with expectations, so the reaction has been muted. Any market moves over the rest of the day are unlikely to be data driven, given how light the calendar is but with a near full house in the market, there’s bound to be something going on.

Have a great weekend!

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