Aurelia Butler

Unlock the Editor’s Digest for freeRoula Khalaf, Editor of the FT, selects her favourite stories in this weekly newsletter.A closely watched UK consumer confidence survey has registered its biggest month-on-month drop in more than three years, as households contend with surging mortgage and rental costs, and higher petrol prices.The GfK consumer confidence index — a measure of how Britons view their personal finances and broader economic prospects — fell nine points from minus 21 to minus 30 in October, the research group said on Friday. The reading — the largest monthly drop since March 2020, when the government introduced strict Covid-19 curbs — reversed rises in August and September. Economists polled by Reuters had forecast a slight increase to minus 20. Joe Staton, client strategy director at GfK, said consumers’ “growing unease” had been caused by “fierce headwinds of meeting the accelerating costs of heating our homes, filling our petrol tanks, coping with surging mortgage and rental rates, a slowing jobs market and now the uncertainties posed by conflict in the Middle East”. Investors and economists are watching consumer confidence closely because it indicates households’ willingness to spend, a key driver of economic growth. The latest data will add to concerns over the health of the economy after output largely stagnated for more than a year, with fewer job vacancies and interest rates at their highest since 2008 as the Bank of England seeks to tame inflation. Peter Arnold, UK chief economist at the consultancy Ernst & Young, said that “with the effect of a major rise in interest rates coming through, fiscal policy settings tight and the jobs market fraying, sluggishness is likely to remain the story over the rest of this year and into 2024”.The GfK sub-index that tracks whether consumers think now is a good time to make big purchases, such as buying a car or house, dropped 14 points from September to minus 34 in October.Staton said this fall would “concern retailers across the land in the run-up to Christmas”, when people typically spend more. Respondents to the survey, which was based on interviews conducted in the first half of October, were less positive about their personal financial situation and the general economic picture compared with last month. Consumer confidence has been volatile recently: wages have risen faster than prices for several months, helping to bolster people’s finances against the impact of higher interest rates.However, that has been offset by more households being hit by higher mortgage payments, and a record rate of increase in residential rental costs. Prices at the fuel pump are also climbing again, with the average litre of petrol now costing 156 pence, up from 146 pence in June.Tomasz Wieladek, economist at investment company T Rowe Price, said the onset of winter and the Israel-Hamas war added to the negative mix. “The cold weather and some rise in gas prices will raise worries about the potential for more inflation going forward,” he said, adding that “the recent rise in geopolitical risk . . . will renew concerns about higher oil prices, leading consumers to be more cautious with their spending”. More

The issuance also saw the highest demand in CAF’s 30-year history in capital markets, it added, reaching $3.4 billion.About 120 investors participated amid “an international market marked by high volatility due to economic and geopolitical uncertainty,” CAF said. More

Further signs of resilience in the U.S. economy help explain the latest sell off in Treasuries, as traders have unwound bets the U.S. Federal Reserve would soon start to lower interest rates.Earlier on Thursday, Fed Chair Jerome Powell said the economy’s strength and continued tight labor markets could require still tougher borrowing conditions to control inflation, although rising market interest rates could make action by the central bank itself less necessary.Treasuries have also been hurt by expectations for higher government debt levels and increased bond sales. COMMENTS: MICHAEL SCHULMAN, PARTNER & CIO, RUNNING POINT CAPITAL ADVISORS, EL SEGUNDO, CALIFORNIA”I see the 5% as a psychological threshold but I’ve been telling my clients for over a year that we are in a higher for longer environment, that inflation is going to stay around, higher than it has in the past, and with it interest rates also.””Some people will look at this number and fear that things might get worse .. simultaneously other people look at these high rates and think that historically this is time to invest.”NOAH WISE, PORTFOLIO MANAGER, ALLSPRING GLOBAL INVESTMENTS, CHARLOTTE, NC“I do think that (Powell’s) comments today are definitely a big factor behind the move to 5%. He highlighted what everyone has seen with the strong economic growth data and the retail sales figure that came out. He also signaled that he is fine with tightening coming as a result of longer end rates going higher, even if it means that the shorter end rates don’t need to go as high.”BRIAN JACOBSEN, CHIEF ECONOMIST, ANNEX WEALTH MANAGEMENT, MENOMONEE FALLS, WISCONSIN”The move up has been driven by the Fed leaving the market as a price insensitive buyer. Foreign demand has also waned. Combined with surprisingly large issuance from the deficit, it’s a classic supply and demand effect.” “Some people think it’s because prospective growth is much stronger, but growth has never worked in explaining the level of yields. Growth stories are just that, stories. Just like how the market forced the Fed to stop quantitative tightening in 2019, it might be forcing the Fed to rethink QT today. The big difference is that in 2019 it was repo-madness that pushed the Fed to pivot. Today, it’s the chaos on the long-end of the curve.”QUINCY KROSBY, CHIEF GLOBAL STRATEGIST, LPL FINANCIAL, CHARLOTTE, NORTH CAROLINA”When we move to a new level it’s always an adjustment psychologically. It’s interesting because Powell made it clear that another rate hike is on the table, but he did not telegraph that it would be for November and that there was an opportunity to remain data dependent and see if there was a rationale for keeping rates where they are. That certainly wasn’t the catalyst.””But there is a concern that is exclusive from the Fed…and that is concern over the deficit that is clearly now poised to climb higher with the larger defense needs for the administration. Now we’re talking about not just the Ukraine-Russia conflict, that front, but now you have another front, that’s in the Middle East that has to be satisfied. Not to mention the U.S. itself needs to have a larger budget…to replenish the military stockpile. The U.S. is going to need more and more supply in terms of what we auction to pay for all of this.” More