Important information - the value of investments and the income from them, can go down as well as up, so you may get back less than you invest.

ANOTHER week, another three charts to showcase what the big stories of the week for us were. Despite August being a quieter time of year in many respects, there’s always something that grabs our attention.

This week was Jackson Hole - where central bankers met in the picturesque Wyoming mountain - which always gives us food for thought. While closer to home, the squeezed finances of mortgage borrowers really spoke to us. As did the property sector in general.  

Here’s the week in charts for you to mull over at your leisure. Have a great weekend.

1. US data releases paint a brighter picture for interest rates

Stock markets can seem perverse to newbie investors at times. Often, they will rise on the back of apparently bad economic news. The reason is simple. A weakening economy can be the trigger for central banks to cut interest rates or at least to stop hiking them. Investors love falling interest rates because they reduce the cost of borrowing and so boost company profits.

This week has seen a string of economic releases in the US which have surprised to the downside. The S&P 500 has responded with a run of daily gains including the biggest one day rise for three months on Tuesday.

One key release showed the level of job openings (or vacancies), which was lower in July than in June and well below expectations.

The chart shows how the strength of the jobs market has actually been waning on this measure for some time.

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Source: U.S. Bureau of Labor Statistics, Job Openings and Labour Turnover, August 2023, rate, three-month moving average. 

Alongside weaker than forecast GDP growth and the smallest rise in private sector payrolls in five months, the latest data have persuaded investors that the Federal Reserve may be close to ending its 18-month long monetary squeeze that has seen interest rates rise from just above zero to nearly 5.5%.

2. UK mortgage borrowers face a squeeze on their finances

Ever wondered why interest rate rises take so long to slow down the economy?

This Bank of England chart shows the impact that raising rates has had - and will have - on household consumption of mortgage borrowers. It shows higher rates taking increasingly bigger chunks out of household budgets until the end of 2025 - two and a half years from now. That’s despite the fact that interest rates, while not yet at peak, are expected to get there soon - perhaps even before this year is out.

Impact of change in Bank rate on mortgage payments

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Source: Bank of England, August 2023, % of consumption (based on micro cash-flow analysis).

The chart also shows how the structure of the mortgage market delays the impact of the Bank of England’s policy. Only when fixed-term mortgage end, do borrowers feel the pinch of higher rates. Relatively few fixed-rate borrowers have felt the pain of remortgaging on more expensive deals up to now, but the number will accelerate for the next two and a half years.

The mortgage squeeze has only just begun.

3. Persimmon sees a rise after a shaky couple of years

Housebuilder Persimmon saw its shares shoot up by 7.5% this week, after the government announced rules to remove some EU rules that had been set in place to curb water pollution. The lag in scrapping the rules post-Brexit was welcomed by the entire housebuilding sector. And no doubt by investors who had seen Persimmon’s shares fall almost 30% last year.

Barratt Developments, Berkeley Group, Taylor Wimpey and Bellway all rose on the back of the news that thousands of new homes will now be able to be built on otherwise redundant land. However, environmental groups were, unsurprisingly, not happy.

Expect more on this when Barratt Developments and Berkeley Group post their latest results and trading updates in September. For more see Saturday’s Pulse+.

Persimmon share price chart

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Source: Fidelity International, 31.08.22 to 31.08.23. Past performance is not a reliable indicator of future returns.

Five-year performance table

% As at 31 August  2018-2019 2019-2020 2020-2021 2021-2022 2022-2023
Persimmon -14.1% 39.8% 22.5% -41.9% -25.7% 

Past performance is not a reliable indicator of future returns.

Source: FE, as at 31.8.23 Basis: Total returns in GBP. Excludes initial charge. 

Important information - investors should note that the views expressed may no longer be current and may have already been acted upon. Overseas investments will be affected by movements in currency exchange rates. Investments in emerging markets can be more volatile than other more developed markets. Reference to specific securities should not be construed as a recommendation to buy or sell these securities and is included for the purposes of illustration only. When you are thinking about investing in shares, it’s generally a good idea to consider holding them alongside other investments in a diversified portfolio of assets. This information is not a personal recommendation for any particular investment. If you are unsure about the suitability of an investment you should speak to one of Fidelity’s advisers or an authorised financial adviser of your choice.

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