The latest economic news and market highlights from the UK, US and Asia.
Key takeaways:
📊 US inflation growth stays timid – core PCE, the Fed’s preferred inflation measure, rose just 0.2% in July, in line with expectations and supporting the case for a possible September rate cut.
🛍️ Steady growth for UK retail sales – sales rose 0.8% year on year in August, as the sunshine drove purchases of summer clothes, gardening products and BBQs.
💼 US job openings fall – JOLTs job openings fell by 237,000 in July, reaching the lowest levels since early 2021, with major declines across health care and state and government sectors.
💥 Nvidia loses $278bn in one day – the tech giant had a miserable week, dropping around 9.5 % on Tuesday and wiping out billions in market value, as concerns grow over the long-term profitability of AI.
🚧 Volkswagen proposes factory closures in Germany – the automaker plans to scale back manufacturing due to slower EV take-up and increased Chinese competition, in a blow for Germany’s industrial credentials.
What does that mean for you and your clients?
Gentle inflation growth and a slowdown in US jobs strengthen the case for a potential interest rate cut by the Federal Reserve in September. While the size of the cut is still being debated, today’s Non-Farm payroll and unemployment data will be pivotal. An interest rate cut should boost global equity markets by lowering borrowing costs and encouraging growth, while bond investors could see their existing portfolios become more valuable.
Chart of the week
Cumulative change in gilt holdings (absolute £bn)
Source: Allianz
Data: Bank of England, Bloomberg
Why’s this worth sharing?
Our chart of the week highlights the shift in Gilt ownership since 2020, with the investor base broadening beyond the Bank of England (BoE). As the BoE continues to sell gilt holdings through quantitative tightening (driving prices down), foreign investors have stepped in, attracted by higher yields compared to other countries. Despite Liz Truss’s disastrous 2022 ‘mini-budget’, this trend has held steady.
Pension schemes and insurance companies are also continuing to grow their gilt allocations in an attempt to match their assets with their liabilities and reduce risk.
With more diverse ownership, volatility should ease, as its fortunes depend less on one specific sector or investor-type, offering more support to prices – this is a positive trend for Gilts, which remain a core part of our lower-risk allocations.
The Markets
Oil plummets: This week saw deep losses in oil as concerns around future demand grow, particularly in China. This comes despite an OPEC+ agreement to delay a planned increase in output by two months.
UK sustains losses: UK markets saw a gradual, and broad, fall throughout the week with oil and gas stocks leading the decline.
US AI concerns: AI doubts spread beyond Nvidia into broad falls across the sector, with the tech-heavy NASDAQ taking the biggest hit.
Asia Tech woes: US tech issues spread to Asia, with mega-stocks such as Taiwan Semiconductor Manufacturing Company (a key Nvidia supplier) losing ground and dragging down the broader market. The Hang Seng also suffered from continued global trade tensions with China.
Gold stays flat: Gold prices stayed flat this week as traders await further US economic data for an insight into rate cut expectations.
| | Weekly Change | YtD Change |
|---|---|---|
| FTSE 100 | -1.61% | 6.58% |
| FTSE 250 | -1.54% | 5.45% |
| S&P 500 | -2.68% | 11.79% |
| NASDAQ | -3.42% | 10.55% |
| Hang Seng | -3.08% | -0.70% |
| Nikkei 225 | -3.16% | 3.96% |
| Brent Crude | -9.01% | -4.24% |
| Gold Spot | -0.24% | 22.00% |
| UK 10yr GILT | -10bps | +30bps |
| US 10yr Treasury | -10bps | -22bps |
Source: FE FundInfo, figures as at close Thursday 5th September 2024.
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