Market Commentary 7th October 2024 – from Will Binks

The governor of the Bank of England (BoE), Andrew Bailey, commented last week that the central bank may become “more aggressive” in cutting interest rates, if news on inflation continues to be positive. The BoE’s Chief Economist, Huw Pill, since warned about cutting interest rates too far or too fast.

According to Halifax, UK house prices have risen for the third consecutive month, aided by lower borrowing costs. The average house price has risen to £293,399, representing annual growth of 4.7% and just slightly lower than the record high of £293,507 in June 2022.

Inflation data in the Eurozone showed that consumer price increases slowed to 1.8% in September 2024, the lowest since April 2021 and below expectations of 1.9%. The headline inflation rate is now sitting below the European Central Bank’s target of 2%, as energy prices fell by much more than expected.

Economic data on retail sales in the Eurozone showed an increase of 0.8% year on year in August 2024, compared to a 0.1% decrease in July. The growth was driven by a rise in spending on automotive fuel as well as non-food products.

The US economy added 254,000 jobs in September, much higher than the 159,000 added in August and almost double the forecasted 140,000 new jobs. This was the strongest monthly job growth in over half a year and was driven predominantly by food services and public sector roles.

A closely watched Purchasing Managers’ Index showed strong growth in the services sector, led by increased business activity and new orders. The manufacturing sector in the US didn’t perform quite as well, remaining in a recessionary position for sixth straight months.

China saw little newsflow last week, with stock exchanges closed for the celebration of the National Day holiday. Beijing’s roll out of various stimulus measures has seen the Shanghai Composite increase to the highest level in almost 18 months.

The Bank of Japan’s index for business confidence held steady in the 3^rd quarter of 2024, with sentiment generally appearing to be upbeat. Large Japanese businesses planned to increase capital expenditure and investment by 10.6% over the financial year ending March 2025.

Mixed messages coming out of the Bank of England alongside a strong US jobs report led to an increase in gilt yields.

Falling inflation data in the Eurozone has increased bets that the European Central Bank will implement further interest rate cuts this year.

The hotter than expected labour market data led to a surging Treasury yield as expectations for further aggressive interest rate cuts moderated.

GBP / EUR – Current 1.1949 Previous 1.1981

The Pound fell by 1.93% against the US Dollar and by 0.27% against the Euro. Dovish rhetoric from the Bank of England has led to a falling Pound when compared to other major currencies.