Market Commentary 27th August 2024 – from Charlie Hancock

UK economic data and business newsflow was generally positive last week. An initial reading for a UK Purchasing Managers’ Index (PMI) indicated that the economy experienced relatively strong growth during August. The reading for the composite index, covering both services and manufacturing, was the strongest since June 2023. Firms reported easing cost inflation, which points to further declines in consumer price inflation in the coming months.

Rightmove reported that enquiries to estate agents from potential buyers have risen by 19% year on year this month, suggesting that the property market is seeing improving momentum. On a less positive note, the Insolvency Service reported that the number of business insolvencies in July rose by 16% year-on-year.

PMI data for the Eurozone indicated that economic growth accelerated during August after flatlining during July. The services sector in France was notably strong, with the Olympic games being a contributing factor.

The European Central Bank (ECB) stated that wage growth slowed during the 2^nd quarter to 3.55%, down from 4.74% in the first quarter. This contributed to rising expectations for the central bank to cut interest rates further in 2024. Sweden’s central bank cut interest rates by 0.25% last week, taking its key policy rate to 3.5%, whilst the central bank indicated that two or three further rate cuts are likely before the end of the year.

Investors paid close attention to the speech delivered by Federal Reserve chair, Jerome Powell, at the annual conference for central bankers in Jackson Hole. Powell stated that “the time has come for policy to adjust”, adding that “the direction of travel is clear, and the timing and pace of rate cuts will depend on incoming data”.

Powell’s comments added to expectations for the Fed to begin cutting rates next month. Economic data in the US was mixed last week, with PMI data showing the services sector remained in expansionary territory during August, whilst the manufacturing sector continued to experience a downturn. Revised US payroll data released by the Bureau of Labour Statistics showed that, over the last year, the economy added 810,000 fewer jobs than previously reported.

Newsflow regarding the Chinese economy was relatively gloomy last week. The Australian mining giant, BHP, warned that China is seeing an “uneven recovery” and industrial demand remains sluggish. Chinese e-commerce giant, Pinduoduo, delivered a disappointing outlook, citing weak consumer demand. Their share price declined by 33% across the week. Meanwhile, the leading search engine company in China, Baidu, reported lower than expected revenues for the second quarter.

Japanese economic data showed there was a mild acceleration in consumer price inflation during July. The governor of the Bank of Japan, Kazuo Ueda, hinted that further interest rate hikes are likely in the coming months. Meanwhile, the Yen resumed its rise against the US Dollar, gaining 2% across the week.

GBP / EUR – Current 1.1809 Previous 1.1739

The Pound gained 2.09% against the US Dollar last week, with sentiment on Sterling turning bullish amidst relatively positive UK economic data. The US Dollar weakened against most major currencies following growing expectations for Federal Reserve rate cuts. Against the Euro, the Pound rose by 0.60%.