Market Commentary 30th September 2024 – from Charlie Hancock

UK economic growth data for the 2^nd quarter of 2024 was revised lower, with the Office for National Statistics (ONS) announcing that Gross Domestic Product (GDP) expanded by 0.5% during the quarter, rather than the previously stated 0.6%.

A purchasing managers’ index (PMI) covering both services and manufacturing in the UK pointed to reasonably strong growth during September, albeit the pace of expansion slowed from August’s level. Manufacturing firms reported that input costs rose at the fastest pace since early 2023, whilst service firms reported easing inflationary pressures.

Economic data in the Eurozone was gloomy. PMI data indicated that the economy shrank during September, defying economist expectations for an increase in activity. The services sector saw growth slow, whilst the manufacturing sector experienced a contraction in activity, with a relatively steep decline in new orders.

Inflation data showed that consumer price increases slowed in France and Spain by more than expected. Headline year-on-year inflation in France during September was 1.2%, whilst prices in Spain rose at 1.7% year-on-year. The data contributed to rising expectations for the European Central Bank (ECB) to deliver further interest rate cuts this year.

A closely watched measure of consumer confidence in the US declined at the fastest pace since August 2021, with the survey data showing that consumers have a negative outlook on the business environment. The data also pointed to further softness in the labour market.

Data on the housing market was mixed. The number of new home sales declined by 4.7% during August, with demand from new buyers appearing weak. The number of mortgage approvals rose in September, with falling interest rates contributing to an increase in re-mortgaging activity.

The Federal Reserve’s preferred measure of inflation, the personal consumption expenditures index (PCE) showed that annual inflation was 2.2% year-on-year in August, which was lower than expected. The data appeared to support calls for the Federal Reserve to cut interest rates again during the final quarter of the year.

A range of stimulus measures were announced by the Chinese government and the People’s Bank of China (PBOC) last week. The government stated they would ramp up fiscal spending in an attempt to meet their 5% economic growth target for 2024. Senior government officials also vowed to implement measures to stabilise China’s real estate market. The PBOC cut reserve requirements for China’s banks in an attempt to stimulate lending in the economy.

Inflation data in Japan showed a softening in price rises. The Tokyo core consumer price index (CPI) rose by 2.0% year-on-year in September, slowing from the 2.4% recorded for August. An initial set of PMI data pointed to continued growth during September, with services driving the increase in activity as manufacturing output declined.

PMI data which pointed to continued economic growth appeared to contribute to the rise in UK government bond yields last week.

Softer than expected inflation data and continued weakness in economic growth indicators contributed to rising expectations for the European Central Bank (ECB) to deliver further interest rate cuts in the coming months.

PCE inflation data which showed that prices rose at the softest pace since February 2021 contributed to US treasury yields remaining steady last week, with investors expecting that the Federal Reserve will deliver a further interest rate cut at their November policy meeting.

GBP / EUR – Current 1.1981 Previous 1.1934

The Pound gained 0.40% against the US Dollar, with relatively strong UK economic data and rising Gilt yields contributing to strength in the Pound. Against the Euro, the Pound rose by 0.39%.