September Market Commentary

Introduction

As inflation cools and interest rates look likely to come down over time, the world is expecting a gradual return to economic normality in the second half of 2024. However, it’s never quite that straightforward. Changes in government around the world create temporary blips as we wait to see if policy will change with personnel, and global markets are still heavily exposed to US tech stocks which have delivered inconsistent result in recent months leading to a little more turbulence of late.

UK

The ONS revealed that UK’s economy grew by 0.6% between April and June, following a 0.7% increase in the first three months of the year. Liz MccKeown, director of economic statistics at the Office for National Statistics, said “The UK economy has now grown strongly for two quarters, following the weakness we saw in the second half of last year.”

The figures were in line with expectations after last year’s short and shallow recession. The services sector led the way, in particular the IT industry, legal services and scientific research. Manufacturing and construction saw output fall during the quarter.

Shop prices in August were down 0.3% from a year ago, the lowest rate since October 2021, research from the British Retail Consortium (BRC) revealed. The drop in prices was driven by non-food goods, such as clothing and furniture, which many retailers have discounted due to the miserable summer weather and continued cost-of-living pressures. Food prices rose by 2% in August, which was slower than July’s 2.2% number.

The mood music from Keir Starmer and Rachel Reeves ahead of October’s budget is decidedly gloomy, ramping up inevitable speculation about tax increases. It’s “going to be painful” said Starmer in his 27th August speech, asking the country to “accept short-term pain for long-term good”. The PM did re-iterate his his pledge, made during the election campaign, that the government would not raise National Insurance, income tax or VAT.  Media attention will probably focus on inheritance tax, capital gains tax, and tax relief on pensions as the alternative sources of increased tax revenues, and ones which theoretically target those with more wealth or higher earnings. At this stage we have no idea what will actually be included in the budget.

Inflation crept up a little in July to 2.2%, suggesting that the Bank of England may be more likely to cut interest rates further in November rather than September.

Chancellor Rachel Reeves has appointed Alan Taylor, a staunch critic of George Osbourne’s austerity policy, to the Bank of England’s interest rate-setting committee. Taylor starts a three year term in September, replacing Jonathan Haskell who has stepped down after six years on the Monetary Policy Committee. Haskell was one of four committee members who were against the interest rate cut announced at the start of August, which was approved with a narrow 5-4 majority.

Europe

Figures statistics agency Eurostat at the end of August showed Euro zone inflation dropping to a three-year low of 2.2% in August. This has heightened expectations that the European Central Bank (ECB) will cut interest rates in September, and markets appear to have already priced this in. This was in line with a Reuters poll of economists prediction. Germany’s inflation is down to 2%.

There is still concern from some commentators that the cooling of inflation in Europe is largely down to reducing energy costs. Kyle Chapman, foreign exchange markets analyst at Ballinger Group, said “The positive headline is purely down to energy price effects, and it masks the fact that little real progress in underlying pressures has been made here” noting in particular that “services inflation has been glued to the 4% area for almost a year now and has headed in the wrong direction since the spring.”

Data released in August from the French statistics office showed that household confidence about the country’s economy rose slightly in the month. After a successful Olympic games the French may be feeling more positive about their country following a turbulent few months.

United States

Kamala Harris delivered her first speech focused on economic policy. She called for millions of new-build homes and first-time buyer help, tax breaks for families and a ban on grocery “price-gouging”. This was an attempt to directly address voter concerns on price inflation. Critics, including Donald Trump, have pointed out that this is just a rehash of Joe Biden’s policies which has failed to get through Congress previously.

Her campaign has been described having a strong pro-consumer and anti-corporate abuse agenda. However, polls suggest that Trump and the Republican party is trusted more by voters on economic issues.

Inflation was 2.9% in July, the smallest annual increase since March 2021, according to the Labor Department in August, close to the 2% target. Expectations have increased that the Fed may well cut interest rates faster than the Bank of England. In July it kept rates at 5.3%, a two decade high, where it has been since July 2023.

Markets were heavily influenced by the tech giant’s financial results. 5th August saw US indices tank with the ‘Magnificent Seven’ losing around $1.2trn in value just after trading opened. It remained a bumpy ride throughout August but overall performance has been positive for the year, and there is plenty of market optimism that a ‘soft landing’ for the economy is the most likely outcome. Skeptics point to the slowing employment market and possible recession. However, with an election to come in November, US economic predictions are likely to become noisier and ever more extreme.

Far East

The White House confirmed that U.S. President Joe Biden and Chinese President Xi Jinping would be communicating by telephone in “coming weeks,” alongside conversations held between each counties top military leaders. The relationship remains strained with the neither neither changing their positions on tech restrictions, Taiwan, the South China Sea and Ukraine. Artificial intelligence and international climate policy are two future items to be discussed. US national security advisor, Jake Sullivan, visited Beijing in August. It was the first US national security adviser visit to China since 2016.

China’s economy has struggled to keep to it’s growth targets in the face of weakening consumption, property market woes and rising geopolitical risks. It’s factory output from smaller manufacturers showed modest growth in August as exports offset slowing domestic demand, shown in the figures from Caixin China General Manufacturing PMI Press Release. However the broader trend, revealed in the official PMI data released on 31st August, is more negative and has increased pressure on policymakers to move away from fiscal stimulus for infrastructure projects and focus instead on households.

Japan’s second quarter GDP beat expectations and was 0.8% up on the previous quarter, 3.1% up on an annualised basis. This may encourage the Bank of Japan to continue increasing interest rates as inflation continues to creep up.

Emerging Markets

Goldman Sachs has said that India’s central bank could be the latest country to start easing interest rates in December. Analyst Santanu Sengupta believes the Reserve Bank of India could “tone down the hawkish guidance” in its October meeting if food inflation eases. Prime Minister Modi’s historic third term may be slowed down by a weakened majority, which will make him reliant on coalition politics and consensus whilst modernising the region’s fastest-growing major economy.

There is a coalition government in South Africa for the first time since the end of apartheid in 1994. Cyril Ramaphosa was been re-elected as South Africa’s president but with a power-sharing agreement with the opposition Democratic Alliance and the Zulu-dominated Inkatha Freedom Party. The early signs are promising but there is the potential for friction.

Gains in emerging markets equities improved in the second quarter, with the MSCI EM Index finishing ahead by 5.0%, bringing year-to-date returns to 7.5%. Asia led the sector, with Latin America the worst performing region in the quarter. Mexico and Brazil specifically had problems connected to their politics.  Mexico’s sell-off was blamed on election results, with Claudia Sheinbaum’s Morena party’s large majority in Congress raising concerns about power concentration and a potential weakening of judicial independence. In Brazil, President Luiz Inácio Lula da Silva triggered a sell off with talk of increased spending and greater controls on business.

Conclusion

The tech stock sell off which began in June was the key market story of August, and influenced all indices due to the dominance of the Magnificent Seven in global portfolios. The Seven (Apple, Microsoft, Nvidia, Google parent Alphabet, Amazon, Facebook parent Meta and Tesla) accounted for about a third of the entire market capitalisation-weighted S&P500 at the start of August. Some correction was inevitable and the damage was not as long lasting as feared.

And Finally…

Did you know that about 99% of gold can be found in the Earth’s core?

There is enough gold that the entire surface of the Earth could be covered in 1.5 feet of gold.

Related articles

The guidance and/or advice contained within this website is subject to the UK regulatory regime and is therefore primarily targeted at consumers based in the UK. Welby is a trading name of Welby Associates Wealth Management Ltd Company Registered Number NI630504 who is authorised and regulated by the Financial Conduct Authority, FCA register number 697372. The Financial Ombudsman Service is available to sort out individual complaints that clients and financial services businesses aren't able to resolve themselves. To contact the Financial Ombudsman Service please visit www.financial-ombudsman.org.uk

The House of Vic-Ryn, Moira Road,
Lisburn, Co.Antrim, BT28 2RF
+44 (0) 2892 622 910
info@welbyassociates.co.uk

Copyright Welby 2024 | Cookie Policy | Privacy Policy

Our use of cookies

Some cookies are necessary for us to manage how our website behaves while other optional, or non-necessary, cookies help us to analyse website usage. You can Accept All or Reject All optional cookies or control individual cookie types below.

You can read more in our Cookie Notice

Functional

These cookies enable core functionality such as security, network management, and accessibility. You may disable these by changing your browser settings, but this may affect how the website functions.

Analytics cookies

Analytical cookies help us to improve our website by collecting and reporting information on its usage.

Third-Party Cookies

These cookies are set by a website other than the website you are visiting usually as a result of some embedded content such as a video, a social media share or a like button or a contact map