Weekly Market Update - US stalls, UK hits the gas

The latest economic news and market highlights from the UK, US and Asia. 

Key takeaways:

🚧 US manufacturing stalls – August saw a dip in US manufacturing as the purchasing managers' index (PMI) fell to 48, marking its second month in a row of decline, signalling continued contraction in the sector.

🏎️ UK economy hits the gas – in contrast, the UK’s economic activity surged in August with composite PMI rising to 53.4, driven by strong growth in both services and manufacturing.

💸 European wages cool – Q2 data showed wage growth in the EuroZone took a hit, slowing to 3.55%, compared to 4.74% in Q1. Germany led this slowdown as the economic powerhouse faces headwinds.

🎯 Japan’s inflation holds steady – the Japanese annual inflation rate held at 2.8%, in line with expectations. While electricity and gas prices jumped, education costs fell.

🏠 UK housing market confidence rises – fresh data from Rightmove shows interest from buyers and sellers increasing as election uncertainly ends and mortgages start to follow interest rates down.

This week’s data signals some relief on the horizon, especially with those keeping a close eye on interest rates. Despite UK PMI growth, the market is still betting on another cut from the Bank of England this year, which could mean lower borrowing costs for your clients.

Over in the EU, the European Central Bank (ECB) is watching wage growth closely. The Q2 slowdown might sway their decisions on rates, which could provide some breathing room for businesses operating across Europe.

While across the pond, a slowdown in manufacturing activity is a clear reflection of cooling inflation. As the world’s central bankers gather for the annual Jackson Hole economic symposium, all eyes will be on today’s speech from Fed-chair Jerome Powell, in the hope he may drop some hints around the speed and magnitude of any upcoming cuts.

Chart of the week

Source: Charles Schwab, International Monetary Fund, Bloomberg data in US dollars, August 2024.

Our chart of the week looks at net international investment positions, which measure how much a country holds in overseas assets vs how much of its own assets are held by foreign investors.

Here, Japan leads with the largest net positive position, as years of ultra-low interest rates have driven investors to seek higher returns abroad. At the other end of the scale, the US has one of the largest net negative positions, with over $21 trillion more assets held by foreigners - a trend that has only accelerated since the global financial crisis.

The imbalance is unlikely to change unless US growth slows compared to other markets, which could risk a sell-off and a significant return of assets back to local markets. This scenario really highlights the risks of putting all your eggs in one basket and is just another reminder of the benefits of diversifying investments across different countries and regions.

US gives up gains
US markets flirted with all-time-highs mid-week but slipped back as big-tech stocks sold-off, while banks and retail surged ahead.

FTSE tug of war
In the UK, the FTSE 100 barely moved with a rise in retail stocks among the factors almost offsetting a fall from miners as industrial and precious metal prices fell.

China’s market mood sours
Low confidence hit Chinese markets, amid ongoing US trade tensions and stiff EU tariffs on electric vehicles, though gains in banking, property and tech kept the Hang Seng afloat.

Oil slips
Brent Crude took a hit as a cooling US economy, and weaker outlooks across Europe and China lowered fuel demand forecasts.

Gold loses its lustre
After a strong run year-to-date, gold also fell on interest rate expectations and a stronger dollar.

US Yield whiplash
US 10-year Treasury yields swung lower; despite mid-week optimism being tempered by worries that Powell’s Jackson Hole speech may prove disappointing for those hoping for aggressive cuts.

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