Market Commentary 10th September 2024 – from Charlie Hancock

The Labour government cancelled plans for a ‘British ISA’ last week, citing concerns that it would complicate the investment market for individuals. Proposals for a British ISA were previously introduced by Rishi Sunak’s government to incentivise greater investment into domestic companies.

A Purchasing Managers’ Index (PMI) covering both the services and manufacturing sectors signalled relatively strong growth during August, with activity accelerating from July’s reading. Businesses reported the weakest input cost inflation since November 2020, which should ease concerns regarding persistent inflationary pressures.

Germany’s data releases last week pointed to continued economic weakness, with industrial production declining by 2.4% in July, which was significantly worse than the median economist estimate of a 0.3% decline. Hopes for a strong recovery in Germany’s car sector were dented by the release of data for July. The automotive sector reversed the growth experienced during June, with production falling by 8.1%.

Key officials at the European Central Bank (ECB) made some hawkish remarks last week. An executive board member at the central bank, Piero Cipollone, stated that there are risks the ECB’s stance “could become too restrictive and harm the economy”. He added that recent economic data confirmed inflation was slowing, which gives the central bank scope to lower interest rates further.

Economic data for the US pointed to a slowing economy. Data on the labour market data showed that vacancies across the US economy fell to their lowest level since January 2021, whilst the number of jobs added during August came in below expectations at 142,000.

PMI data showed that the manufacturing sector remained in contractionary territory, with new orders in the sector declining for the third month in a row. The week’s disappointing economic data contributed to growing expectations that the Federal Reserve will start cutting interest rates this month.

Regulators in China announced proposals to reduce interest rates on existing mortgages, in an attempt to shore up confidence in the property market. Fresh data showed that the property sector remained weak in August, with the value of home sales declining by 27% year-on-year. PMI data came in worse than expected. The manufacturing sector remaining in contractionary territory in August, whilst the reading for the services sector pointed to muted growth. Meanwhile, Producer Price Index (PPI) data, which measures output costs from manufacturers of goods and services, showed deflationary forces persisted during August, with prices declining by 1.8% year-on-year.

Gross Domestic Product (GDP) data for Japan was revised lower, with the new data showing that the economy expanded by 0.7% during the second quarter of the year. Consumption was lower than previously thought, whilst the release of July’s data for household spending indicated that consumer demand remained weak into the third quarter, with a rise of just 0.1% year-on-year.

Whilst economic data for the UK was generally positive, weak economic data from elsewhere around the globe contributed to lower government bond yields.

Economic data for Germany pointing to continued sluggish growth prompted Bund yields to move lower across the week.

The release of weaker than expected jobs data appeared to be one of the main drivers for Treasury yields falling last week. It is widely expected that the Federal Reserve will cut interest rates by 0.25% at their policy meeting this month, however, investors continued to weigh up the possibility of a larger 0.50% cut.

GBP / EUR – Current 1.1845 Previous 1.1882

The Pound was relatively stable last week, moving 0.02% higher against the US Dollar and 0.31%  lower against the Euro.