Weekly Maket Update -17th September 2024

A mixed start to the week saw Asian markets suffer further fall out from the previous week’s US job numbers. The mood wasn’t helped by disappointing Chinese inflation data. Consumer prices rose in August at their fastest pace in six months as weather disruption hit food prices, while producer prices dropped further than forecast, reflecting fragile domestic demand and the underlying trend of a faltering economy.

News that Chinese exports grew at their fastest pace in 17 months in August offered some relief but suggested that manufacturers were rushing out orders ahead of mounting trade barriers, with the US, Canada, India and the EU among those raising tariffs. The week ended with more downbeat news, as figures showed China’s industrial output slowing to a five-month low in August, while retail sales and new home prices weakened further.

In contrast to Chinese woes, US and European stocks staged a comeback from their losing streak as buyers snapped up bargains at the beginning of the week. The tech-heavy Nasdaq index had registered its largest Friday-to-Friday fall since January 2022, but investors chose to look ahead to key data and actions from central banks.

Markets were unfazed by Tuesday’s US presidential debate between Donald Trump and Kamala Harris, largely because it provided virtually no insight into their respective policies, but also because neither candidate presents a major challenge to investors. Stocks have done well under both Trump and President Biden, and a Harris victory is unlikely to see a departure from the latter’s policies.

However, markets were distinctly unnerved by the release of the latest US inflation data. Consumer prices rose 2.5% in the 12 months to August, the lowest level in over three years and continuing the downward trend. Good news on the face of it, but the sting in the tail was an unexpected rise in housing costs and stickiness in other services inflation.

The news appeared to dash any hopes of a half-point interest cut by the Federal Reserve at its meeting this week, as it remains wary of feeding any lingering price momentum in the economy, but markets indicated the data has clinched a smaller 25 basis point reduction.

That disappointment put Wall Street on the back foot, but it performed a U-turn later on Wednesday as tech stocks again came to the rescue, encouraged by news that the US government was considering allowing Nvidia to export advanced chips to Saudi Arabia, following the steps it has taken to limit involvement with Chinese firms.

US stocks surged again on Friday on press speculation that the Fed could deliver an outsized rate cut this week, in an early attempt to head off deterioration in the job market. Futures trading suggested a quarter-point cut is still seen as the slightly more likely outcome, but only marginally so.

Official figures released on Wednesday revealed that the UK economy unexpectedly stagnated for a second month running in July, dragged down by a sharp drop in manufacturing. Whilst providing an inauspicious start to the new government’s focus on accelerating growth, the news left unchanged expectations that the Bank of England will cut interest rates once more this year, probably in November rather than following its meeting this week.

As UK manufacturing declines, the nation’s shift towards a services-dominated economy is accelerating. The UK now exports more in services – such as finance, accountancy, legal advice and advertising – than it does goods. It is the first of the G7 advanced economies to do so.

On Thursday, the European Central Bank confirmed its well-telegraphed rate cut, lowering its deposit rate by 0.25% to 3.5%. But ECB President Christine Lagarde gave nothing away in terms of the future rate path, reiterating that services inflation remains high, but ECB sources suggested another interest rate cut in October was unlikely unless there was a major deterioration in the growth outlook.

Some investors, and indeed ECB policymakers, particularly those in southern eurozone countries, are concerned that the central bank could be too slow to ease policy, hampering the bloc’s anaemic recovery still further.

As equity markets continue to trade near all-time highs, investors were also cheered by news that global dividends hit record levels in the second quarter of 2024, propelled by banks’ profits which have been boosted by higher interest rates. HSBC made the largest single payout of $4 billion, while US payouts were also boosted by new dividend payers such as Google-owner, Alphabet.