Weekly Market Update - 8th October 2024

Chinese and US markets overcame Middle Eastern geopolitical fears to post another positive week last week, although European and Japanese shares did not perform so well.

The fears around Israel and Iran led to a rise in oil prices. Brent crude oil prices jumped 9.2% to $78.23 a barrel, the strongest weekly advance in nearly two years, as data showing ongoing low levels of global oil inventories pushed prices higher.

High energy prices were one of the causes of high inflation that rocked the global economy following the pandemic. However, even with last week’s rise, the price of oil is still well below its high point in April this year of almost $90 a barrel, and a long way off its 2022 levels, where prices temporarily broke $120.

Describing the effects of recent events, Mark Dowding, Chief Investment Officer at Bluebay Asset Management noted: “Events in the Middle East have put markets on edge over the course of the past week. Nevertheless, the relatively contained move up in oil prices in the past several days demonstrates the fact that a conflict, which is regionally contained, may have limited impact on the trajectory of the global economy.”

These events had seemingly little effect on Chinese markets, which continued to surge following the recent economic support measures announced two weeks ago. Mainland equities jumped by 8.1% (Shanghai Composite) whilst Hong Kong’s Hang Seng became the best performing major market this year, with year-to-date gains moving beyond the 30% mark (in local currency). Whether underlying company fundamentals will match investor optimism over the next year remains to be seen but for now, confidence is high.

US markets also had a positive week, mainly due to strong jobs data released on Friday. This represents something of an about face, as in recent months investors have been wary of positive data delaying the Fed’s decision to cut interest rates. However, with the evolving global situation, and recent recessionary fears, investors are now looking at this information to help assess the strength of the US economy.

Commenting on the figures, Hetal Mehta, Head of Economic Research at St. James's Place, said: “This month’s US labour market data have surprised positively and should help reset some of the overly negative sentiment that has been building regarding the US outlook. The fall in the unemployment rate and pick up in wage growth is modest but important. It shows the labour market is rebalancing from very tight levels, but we do not think this translates into a high/imminent recession risk."

The 0.2% increase in the S&P 500 marked the fourth straight week the Index has risen.

The situation was less positive in Europe, as the MSCI Europe ex UK retreated 2.1%, despite data showing headline inflation falling below the European Central Bank’s (ECB) 2.0% target. While this is encouraging for those hoping the ECB will cut rates, it also points to weakness in economic growth – which is currently of higher concern for many investors, particularly in light of geopolitical worries.

Equity markets also fell in the UK last week, as investors hold their collective breath for Labour’s first budget later this month. Notably, on Wednesday, the Bank of England warned: “Markets remain susceptible to a sharp correction, which could affect the cost and availability of credit to UK households and businesses, with investors sensitive to short term developments in a challenging global risk environment. Global vulnerabilities remain material, as does uncertainty around the geopolitical environment and global outlook.”

Finally, Japanese equities endured heavy selling pressure, the Nikkei 225 slumping by 3.0% (local currency) after Shigeru Ishiba became the country’s new Prime Minister. Ishiba is viewed as a more hawkish politician, economically, and his election victory led to selling pressure in equity markets.