Market Commentary 12th August 2024 – from Charlie Hancock

A July Purchasing Managers’ Index (PMI) for the UK construction sector showed that activity grew at the fastest pace since spring 2022. Firms reported an improvement in sentiment following the recent general election, with hopes that planning law reforms will result in increased construction activity.

Data on the UK housing market was mixed. Halifax reported that house prices rose by 2.3% over the year to July, whilst the Royal Institution of Chartered Surveyors (RICS) said that enquiries from property buyers improved during July. Data on house repossessions pointed to growing affordability issues amongst borrowers, with a 34% year-on-year rise in the number of claims submitted to courts from lenders.

Eurozone retail sales data came in worse than expected, with sales falling by 0.3% during June. The median economist estimate was an increase of 0.2%. The data pointed to sluggish growth and contributed to rising expectations for the European Central Bank (ECB) to implement further rate cuts in 2024.

Corporate earnings results from European companies were generally disappointing. German pharmaceutical and chemical company, Bayer, reported weaker than expected profits, with their share price declining by 5.08% across the week. Meanwhile the Danish drugmaker, Novo Nordisk, saw their share price rise by 5.4%, despite reporting weaker than expected growth from key products including the weight loss drug, Ozempic.

Investor sentiment improved as the week progressed, but the major equity indices failed to recover any significant ground following the previous week’s declines. Investors remained nervous about the prospect of a continued slowdown in the US economy.

The week’s corporate earnings results pointed to weakening consumer spending in the US economy. Several large consumer facing businesses reported slowing demand, including Airbnb, Hilton Hotels, United Airlines and Disney. In contrast, PMI data pointed to relatively strong growth in the services sector during July.

Economic data in China was mixed. PMI data indicated that the services sector saw better than expected growth during July, whilst the manufacturing sector’s index fell into contractionary territory. Inflation data showed that consumer prices rose by 0.5% year-on-year in July, with inflationary pressures remaining subdued amidst weak economic growth. The producer price index (PPI), which measures factory gate prices, remained in deflationary territory for the 22^nd consecutive month, with prices falling by 0.8% year-on-year.

Despite a sharp rally on Tuesday, Japanese equities failed to recover the previous week’s losses. Currency markets were relatively calm, with the yen stabilising after strengthening during recent weeks. Senior officials at the Bank of Japan (BoJ) made some dovish remarks last week by suggesting that the bank will not hike interest rates if markets are unstable. The comments appeared to contribute to a decline in Japanese government bond yields.

UK government bond yields rose as investors reduced their exposure to bonds. The previous week saw a significant increase in demand as risk assets sold off globally.

Eurozone government bond yields crept higher despite growing evidence of sluggish Eurozone economic growth. Senior officials at the ECB have been keen to push back against expectations for further rate cuts in 2024, with the central bank appearing worried about the prospect of a resurgence in inflation.

GBP / EUR – Current 1.1687 Previous 1.1735

The Pound declined by 0.31% against the US Dollar and 0.41% against the Euro. Sentiment on the Pound amongst currency traders has deteriorated in recent weeks, with the post general election gains for the currency fading.