Market Update – 11th September 2024.

11th September 2024

Markets appeared to be more upbeat this week rebounding after a poor performance last week, as investors looked towards key inflation data and the European central bank interest rate decision.

The latest UK unemployment figures showed a shift in the labour market, with British pay growth slowing to its lowest level in over two years while employment jumped. The unemployment rate fell to 4.1% between May and July 2024, down from 4.2% in the previous quarter. This drop in unemployment was accompanied by a significant rise in employment, with 265,000 more people in work—the largest increase in over 18 months. Average weekly earnings, including bonuses, grew by 4% year-on-year in the same period. Tuesday’s data suggests the Bank of England may stay on course for further interest rate cuts before the year ends.

Also in the UK, the Office for National Statistics (ONS) reported this morning that GDP growth remained flat in July 2024, with no growth in both July and June. However, the broader picture is slightly more positive, with the economy growing by 0.5% in the three months leading to July 2024. While the services sector, bolstered by a summer of major sporting events like the Euros, performed well, declines in production and construction output weighed on overall performance. Forecasters had anticipated slight growth of 0.2% for July, but this underperformance may prompt further scrutiny of the impact higher interest rates are having on the economy as the Bank of England continues its efforts to control inflation near its 2% target.

Investors are now analysing the fallout from Tuesday night’s high-stakes debate in Philadelphia between Donald Trump and Vice President Kamala Harris. During the 90-minute exchange, the candidates sparred on key issues such as the economy, US-China relations, and immigration, alongside the usual targeted jabs. The debate has sparked questions about its potential market impact, particularly concerning economic policies and trade tariffs. As the first—and possibly the only—presidential debate, it left many wondering which candidate successfully played to their strengths and managed their weaknesses. Based on Tuesday night’s performance, the momentum appeared to favour Harris. As we draw closer to November 5th and campaigns heat up, we could expect some noise in markets as investors place bets on who is the most likely to win office. As ever whilst short term noise can be unnerving our investment management team stands ready to capitalise on opportunities that arise.

On the monetary front, all eyes are on the release of US CPI data later today. Traders continue to bet on at least one significant rate cut from the Federal Reserve by the end of the year, although the exact timing of such a move remains uncertain, especially with the presidential election looming in November. A muted inflation report for August could intensify the Fed’s internal debate about when and how aggressively to cut rates.

The Japanese Yen grabbed attention earlier today, rallying against the US dollar after a Bank of Japan (BoJ) board member hinted at the possibility of future interest-rate hikes if economic conditions align with forecasts. Although the BoJ is widely expected to keep rates steady next week, the prospect of tightening remains on the table. This has added another layer of complexity to global monetary policy discussions as investors monitor central banks’ next moves.

Still to come this week, European central bank policymakers will meet on September 12th. They are largely expected to cut rates due to falling inflation and sluggish growth. Markets have priced in a 25-basis point cut marking the second cut this year, taking rates from 4.25% to 4%. Eurozone industrial production, US trade and consumer sentiment are also due later in the week.

Nicola Tune, Portfolio Specialist