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Weekend Summary

Total household wealth falls, hike rates are over for the ECB, US House speaker talks on the Israel/Palestine conflict, and a lot on the data front this week.

A couple of stories this morning are highlighting what rate hikes have done to the UK consumer: The Resolution Foundation have reported that total household wealth – that is the sum of property, pensions, savings etc. (minus outstanding loans and mortgages) has fallen from 840% of GDP in 2021, to 630% of GDP this year. The fall can be explained with higher rates pushing down house prices and decreasing the value of bond heavy pension pots, which have a lower value when interest rates rise. House prices have fallen across 80% of the UK this year, according to property website Zoopla; the fall is a relatively small 1.1% on average, with no region falling more than 5% – stacking this up against a 9.2% average price rise last year and it would seem that house prices have further to fall if affordability is going to return to levels that reignite market activity, which is down around 20% versus last year.

Across the Channel, the European Central Bank are done with hiking rates for the time being according to policy maker Boris Vujcic. Speaking to Croatian TV at the weekend, he said ”we have finished the process of raising rates for now…at this moment we see that inflation is falling, we have a disinflation process. And after we conducted a series of measures to dampen lending, it has fallen”. The ECB, much like other major central banks, has a 2% inflation target, which he sees being hit in 2025. By contrast, the Swiss National Bank say that they might have further to go. Swiss base rates are at 1.75% at the moment, which is incredibly low by comparison to the UK, US and ECB at 5.25%, 5% and 4.5% respectively, though their inflation levels are also incredibly low at just 1.7%! The Swiss have benefited from a strong currency which gives them greater purchasing power and also they are less impacted with energy prices as the vase majority of their electrical energy is created by hydropower or nuclear sources.

In the US

Newly installed House speaker Mike Johnson has said that he expects to pass an Israel aid bill this week. The Speaker intends to split the combined Israel – Ukraine aid bill that the president is pushing for as he believes there is bipartisan support for funds to Israel, whereas other issues will take more debate. Joe Biden wants $106bn to be signed off, with the vast majority going to Ukraine, but it looks like the bill that will be presented to the house will be for $14.5bn to Israel. The lack of funding to Ukraine is a major problem for Kyiv, but so too is the slightly fragmenting global support. Earlier this month we also saw Putin welcomed at a summit by China and North Korea having resupplied Russia’s ammunition stores, which is a double blow for Ukraine which, though it is grindingly slow, is making progress in its counter offensive.

Iran has said that they don’t want the Israel-Hamas conflict to spread. Iranian foreign minister Hosein Amirabollahian spoke to CNN on Sunday and denied that Iran had any knowledge of the attacks prior to them being carried out. The war does seem to be spreading out though, with Israel making deeper incursions into the West Bank, as well as continuing its operations in Gaza. Meanwhile there have been at least 19 reports of US and coalition troops being attacked in Iraq and Syria in the last week, by Iran backed forces. Gaza’s health ministry has reported overnight that the death toll has exceeded 8,000 as Israel’s ground offensive continues.

In China, the property giant Evergrande has been given one last chance to come up with a debt restructure that satisfies its creditors, or be placed into liquidation. The company is the worlds’ most indebted property developer, with more than $325bn of liabilities, and poses a systemic threat to other Chinese property companies that are in similarly perilous positions. The Chinese government has so far not been in the mood to intervene in the sector and probably still won’t be given this news, but if these companies do finally collapse (and it’s taking a lot of time because nobody really wants them to collapse) then we could see some reluctant intervention. The FT has more, click here to read.

Looking Ahead

We’ve got a lot on the data front, with PMI data from just about everywhere, along with inflation and consumer confidence data from Europe and payrolls numbers from the US. We’ve also got rate announcements from a load of central banks – most are expected to hold, but we should see a rate cut out of Brazil as they see inflation falling. All of this could theoretically move markets, but the driver for the last couple of weeks has been risk sentiment more than it has been specific data on a specific country, so we shall see.

Have a great week.

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