The latest economic news and market highlights from the UK, US and Asia.
Key takeaways:
📊 US inflation continues to fall – CPI came in broadly in line with expectations at 2.5%, keeping the path clear for the Fed to cut rates next week.
✂️ ECB cuts again – European interest rates have now fallen to 3.5%, in response to slowing inflation and weaker growth.
⏸️ UK growth takes a pause – GDP flatlined for the 2nd month in a row, putting pressure on Chancellor Rachel Reeves ahead of the Budget.
⛄UK wage growth cools – Average weekly earnings growth, excluding bonuses, fell to 5.1% in July, keeping a pathway open for future interest rate cuts.
🏈 US election debate sparks Kamala bounce – The US Presidential race remains too close to call, but polling for Democratic nominee Kamala Harris has improved since Tuesday’s debate.
What does that mean for you and your clients?
Economic data continues to move in the right direction for central bankers seeking to bring inflation down to target levels.
There’s been a measured pace to the disinflation, and this will help towards a potential soft landing for the economy, and the avoidance of a recession.
This environment could offer suitable conditions for broad appreciation in risk assets.
Chart of the week
S&P 500 / UST 10y (TR)*
Source: TS Lombard Research Partners.
Why’s this worth sharing?
This chart shows how differently markets can perform following a Fed interest rate cut, depending on whether there’s a recession at that time.
Market volatility has increased recently, as we await the first rate cut from the Fed on Wednesday. But are the cuts too little and too late to avoid a recession, or are they perfectly timed to support a resilient and robust economy? The jury is still out.
It’s a great example of why diversification is so important. It can provide some protection against significant unknown events.
The shadow of the great financial crisis (GFC) looms large in financial markets and colours expectations for many. At the time, interest rates were cut in response to specific structural issues in the financial system, and a market downturn followed.
Whatever happens next, one certainty is that today is very different to the GFC. And there are plenty of reasons to be positive about the chances of avoiding a recession. Liquidity is expanding, credit spreads remain tight, commodity prices have fallen significantly – all supportive conditions for economic growth. Whilst the lag in the impact of interest rate rises has been incredibly frustrating in the fight against inflation, it’s now having a moderating influence in the cooling of an economy, which as of today is slowing but not crashing.
The Markets
US tech recovers: Both the S&P and the Nasdaq rebounded after the sharp losses incurred last week, with tech stocks leading the way.
UK mid-caps gain on larger caps: Buyback and takeover activity has contributed to outsized gains for the FTSE 250.
FTSE 100 grinds higher: Improved risk sentiment aided UK stocks this week, with precious metal miners delivering strong returns due to record-high gold prices.
Yen strength: Japanese equities were boosted this week by a surging Yen, which is now the best-performing currency against the dollar this quarter.
Solid Gold: The precious metal hit new highs this week in advance of the Federal Reserve meeting and in response to falling yields.
| | Weekly Change | YtD Change |
|---|---|---|
| FTSE 100 | 0.74% | 9.83% |
| FTSE 250 | 1.04% | 7.72% |
| S&P 500 | 4.26% | 15.12% |
| NASDAQ | 5.87% | 13.15% |
| Hang Seng | -0.39% | 2.76% |
| Nikkei 225 | 1.83% | 6.11% |
| Brent Crude | 0.97% | -9.20% |
| Gold Spot | 2.57% | 20.39% |
| UK 10yr GILT | -9bps | +26bps |
| US 10yr Treasury | -8bps | -23bps |
Source: FE FundInfo, figures as at close Thursday 12th September 2024.
This article is for financial professionals only. Any information contained within is of a general nature and should not be construed as a form of personal recommendation or financial advice. Nor is the information to be considered an offer or solicitation to deal in any financial instrument or to engage in any investment service or activity. Parmenion accepts no duty of care or liability for loss arising from any person acting, or refraining from acting, as a result of any information contained within this article. All investment carries risk. The value of investments, and the income from them, can go down as well as up and investors may get back less than they put in. Past performance is not a reliable indicator of future returns.
