Market and Macro Overview for the Week (13th - 20th Sep 2024)

Macro Trends

Financial markets rose last week, buoyed by hopes of a soft landing for the US economy. The major indices responded positively to the Fed's first 50-basis-point rate cut since 2020, with Wall Street and several European markets reaching new all-time highs. Despite this, some profit-taking occurred for end-of-month adjustments, though overall sentiment remains strong.

Stock Markets

US large-cap indexes reached record highs as investors welcomed the start of what is expected to be a prolonged Federal Reserve rate-cutting cycle. The rally extended to smaller-cap indexes, outperforming but lagging behind their previous peaks. In Europe, the EuroSTOXX 50 Index ended 0.50% higher as the US-induced rally faded, and investors grew cautious after hawkish comments from 5 separate ECB policymakers made hawkish comments about the outlook for monetary policy. Other stock indexes advanced, with Italy’s FTSE MIB increasing 0.58%, France’s CAC 40 Index adding 0.47%, and Germany’s DAX eking out a 0.11% gain. The UK’s FTSE 100 Index, however, lost 0.52%. Conversely, Japan’s stock markets rose over the week, with the Nikkei 225 Index gaining 3.1%. Japanese equities benefited as the yen weakened after the Fed, and the Bank of Japan’s (BoJ’s) decision to leave rates unchanged weighed further on the yen and impacted stocks positively.

Fixed Income and STIRs

While the Fed cut rates last week, the Bank of England, the People's Bank of China, and the Bank of Japan held their rates steady, as largely expected. However, we saw the first dissent from a Fed governor since 2005, and the press conference was somewhat ambiguous about the Committee's thinking. The message implies data dependency going forward and no obvious path of more large cuts. The dot's path wasn't in line with the market's dovish view, and the Fed raised the terminal rate, too. Consequently, global bond yields rose slightly, more so in the UK, as the services part of their inflation data ticked higher.

FOREX Markets

Last week, the dollar saw a modest decline against most major currencies following the Fed's rate cut but closed higher against the Japanese Yen and Swiss Franc. It remained above key support levels versus the Euro. The Yen weakened significantly as the BoJ indicated it’s not planning to raise rates soon. Meanwhile, the British Pound outperformed, boosted by strong UK economic data and a more hawkish stance from the BoE.

Cryptocurrency

Optimism in traditional financial markets boosted Bitcoin last week, with the crypto asset gaining 4.41% to trade around $63,000, still $10,000 below its all-time high from March. This rally was driven by over $300 million in positive net inflows into Bitcoin Spot ETFs. The week also saw pro-crypto comments from Donald Trump. His sons and associates announced the launch of a new cryptocurrency platform, World Liberty Financial, though details are scarce. Trump was even filmed using Bitcoin to pay for a burger in New York, signalling his attempt to attract the crypto community as he eyes the 2024 presidential election.

Commodities & Energy

Oil markets rebounded last week after a prolonged decline that saw Brent crude drop below $70 per barrel. The weaker US dollar and increased risk appetite following the Fed's rate cut fuelled a strong recovery, with Brent and WTI rising over 3% to $74.00 and $71.00, respectively. Geopolitical tensions, such as Israel's air strikes on Beirut and southern Lebanon, have also influenced the market, overshadowing mixed economic data from China. Gold hit new highs, reaching over $2,600/oz, up 27% since January 1, following the Fed's rate cut. Base metals also saw gains, with copper climbing to $4.34, aluminium trading at $2,540, and zinc at $2,929.

What to watch next week

MON - Data: Australian, EZ, UK, US PMIs (Flash) / Speakers: ECB’s Elderson, Cipollone; Fed’s Bostic, Kashkari, Goolsbee

TUE - Data: Japanese PMI, German Ifo, US Richmond Fed Index / Events: RBA, NBH Policy Announcements / Speakers: RBA’s Bullock; Macklem

WED - Data: Japanese PPI, Australian CPI, US Building Permits / Events: Riksbank Policy Announcement / Speakers: BoE’s Greene

THU - Data: German GfK Consumer Sentiment, US Durable Goods, GDP Final (Q2), Core PCE (Q2), IJC / Events: SNB & Banxico Policy Announcement / Speakers: ECB’s Elderson, Lagarde, Schnabel; Fed’s Powell, Collins, Barr, Kashkari, Barr

FRI – Data: Japanese Tokyo CPI, Chinese Industrial Profit, French & Spanish CPI, German Unemployment Rate, EZ Sentiment, UoM Sentiment (Final) / Speakers: ECB’s Lane, Cipollone; Fed’s Collins, Kugler

MARKETS WEEKLY PRICING COMPARISON