Market Commentary 28th October 2024 – from Charlie Hancock

Newsflow regarding the UK economy was mixed. The International Monetary Fund (IMF) upgraded their estimate for UK economic growth in 2024 to 1.1%, up from their previous estimate of 0.7%. An initial reading for a Purchasing Managers’ Index (PMI) during October pointed to continued growth in the UK economy, albeit with the pace of expansion slowing from September’s level.

A closely watched consumer confidence survey deteriorated during the month. Consumers cited nervousness about the upcoming budget, given Chancellor Rachel Reeve’s warning that the government’s budget will involve “difficult decisions”. Meanwhile, the Office for National Statistics (ONS) reported that the UK’s public sector net debt was estimated to be 98.5% of Gross Domestic Product (GDP) at the end of the third quarter.

Economic data for the Eurozone pointed to weak activity during October. An initial reading for a composite PMI, covering both the services and manufacturing sectors, indicated that business activity contracted during October. Weak conditions in Germany and France offset the growth experienced elsewhere in the Eurozone.

Messages from senior officials at the European Central Bank (ECB) were mixed. The governor of the Bank of France appeared to warn that the ECB may be behind the curve and that weak growth could raise the chances of inflation falling below the ECB’s 2% target. Meanwhile, the ECB’s president, Christine Lagarde, said that the central bank “needs to be cautious in cutting rates”.

Initial estimates for a US PMI pointed to continued economic growth during November. The manufacturing sector remained in contractionary territory, but this was offset by expansion in the services sector. The data did point to a slowdown in employment, with firms taking a cautious view on expansion plans ahead of November’s presidential election.

The Federal Reserve published their most recent ‘beige book’ survey, which summarises economic conditions in different regions across the US. The report pointed to slowing economic growth across most of the US, whilst inflationary pressures appeared under control. Multiple districts also saw slowing wage growth.

China’s central bank implemented further stimulus measures last week in an effort to stimulate borrowing across the economy. Several large banks reduced their interest rates for mortgages and loans. The Chinese government appeared to be pursuing improved international relations last week, with reports suggesting that China is keen to garner support ahead of a potential Trump victory in the US presidential elections. Chinese authorities reportedly told the nation’s automakers, including BYD, to pause their expansion in the European Union and keep a low profile, given the escalating trade conflict regarding electric vehicles.

Newsflow regarding Japan was relatively light last week, with investors eagerly awaiting the outcome of Sunday’s snap election. The nation now faces a period of uncertainty after the ruling Liberal Democratic Party (LDP) lost their majority. The LDP are now faced with attempting to form a coalition with other parties. The path for interest rate policy in Japan remained up for debate. The governor of the Bank of Japan (BoJ), Kazuo Ueda, sounded relatively dovish last week, stating that Japan is not yet sustainably achieving the BoJ’s target of 2% inflation.

GBP / EUR – Current 1.2008 Previous 1.2009

The Pound lost 0.69% against the US Dollar last week, with the greenback strengthening against most major currencies. Against the Euro, the pound was flat (-0.01%).