The latest economic news and market highlights from the UK, US and Asia.
Key takeaways:
✂️ US finally cuts rates – the Federal Reserve (Fed) cut interest rates by a bumper 0.50%, its first reduction since March 2020.
⛵ UK inflation holds steady – the annual inflation rate remained at 2.2% in August, as prices increased for air travel and recreation.
🫖 UK interest rates unchanged – the Bank of England kept rates steady at 5%, hinting gradual cuts were ahead.
💹 Japanese inflation on the rise – inflation rose to 3% in August, its highest level since October 2023, due to big increases in energy costs. The Bank of Japan also voted to keep rates unchanged at 0.25%.
🏭 Intel delays German chip factory – construction has been delayed by two years in a blow to the EU’s ambitions to produce one-fifth of the worlds semiconductors and reduce reliance on China and the US.
What does that mean for you and your clients?
While a US rate cut was expected, the Fed went the bolder route with a 0.50% (versus 0.25%) reduction, as chair Jerome Powell looks to shore up credibility while aiming for a ‘soft landing’ and avoiding a recession. This is good news for many investors and stocks reacted well to the news, with markets in the US and beyond rising, reassured by the announcement.
Chart of the week
Source: Bloomberg, September 2024
Why’s this worth sharing?
Our chart of the week looks at the performance of the ‘Magnificant-7’ mega-tech stocks since their July peak, compared to other sectors in the S&P 500. While tech has had an incredible run for the last 18 months or so, it’s had a much tougher summer centred around concerns about the profitability of the AI hype.
Instead, what has performed well are traditionally more value-oriented, and lower risk/reward sectors such as utilities and consumer staples.
While these figures are no guarantee that recent trends will continue, the chart does help to reiterate the importance of diversification in smoothing out returns and spreading risk throughout different sectors and markets.
The Markets
US markets buoyed by Powell – a relatively flat week was given a last-minute bump from the Fed’s decision to cut interest rates, leading to broad gains across the S&P500 and NASDAQ.
Europe follows suit – expecting a soft landing in the US, both the STOXX Europe and FTSE rose, led by sectors like mining.
Asia gains – in Japan the Nikkei climbed as the Yen weakened against the dollar, while the Hang Seng also gained on the assumption that lower rates in the US may drive some global inflows to China.
Gold highs – US rate moves also caused gold spot prices to reach all-time highs, as the metal tends to perform better in lower interest rate environments.
Oil rises – Brent Crude was up on fears explosions in Lebanon would spark further Middle East conflict, meaning reduced oil flows out of the region.
| | Weekly Change | YtD Change |
|---|---|---|
| FTSE 100 | 0.67% | 11.00% |
| FTSE 250 | 1.36% | 10.23% |
| S&P 500 | 0.83% | 16.06% |
| NASDAQ | 2.50% | 13.56% |
| Hang Seng | 3.01% | 6.14% |
| Nikkei 225 | -0.79% | 5.36% |
| Brent Crude | 4.04% | -1.33% |
| Gold Spot | 1.13% | 25.44% |
| UK 10yr GILT | +14bps | +25bps |
| US 10yr Treasury | +6bps | -22bps |
Source: FE FundInfo, figures as at close Thursday 19th 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.
