The global equity markets in September delivered mixed outcomes, influenced by various economic developments across key regions. Interest rate decisions, particularly in the US, played a pivotal role in driving market returns. The Federal Reserve surprised investors by cutting interest rates by 50 basis points—double what many had expected. This proactive move was aimed at countering potential economic weakness. The lower borrowing costs resulted in the US equity market hitting new highs. The question remains whether inflation is fully under control or whether we may see this re-emerge going forward.
Outside the US, China’s economic landscape was another key driver of market activity. Beijing announced an aggressive stimulus package designed to revive its property market and boost consumer confidence. This led to a sharp rally in Chinese stocks, with the Shanghai Composite surging by nearly 16%. However, long-term concerns remain regarding the structural issues in China’s property sector, and if these measures really address the underlying problems.
Commodity markets reacted positively to China’s stimulus, with metals and materials rallying. However, oil prices remained subdued, reflecting weaker global demand. This had a negative impact on the UK equity market, as the FTSE 100 (the biggest listed companies in the UK stock market), has a significant exposure to the energy/oil sector. The UK equity market posted a negative return for the month and underperformed many other developed equity markets.
In Europe, business surveys in September pointed to continued economic difficulties. The Purchasing Managers’ Index (PMI) measures economic activity, and a reading below 50 indicates contraction. The latest reading from the Eurozone was 47.1, firmly indicating the region continues to shrink in terms of economic output. Official data published on the UK economy also showed the economy shrank. The positive take on this weaker data, is that central banks in the UK and Europe have scope to cut interest rates further.
Inflation continues to decline in both Europe and the UK. Headline inflation in Europe fell to 4.3% and headline inflation in the UK marginally declined to 6.7%. However, core inflation in the UK declined much sharper than expected to 6.2%. This enabled the European Central Bank (ECB) to cut interest rates to 4%. The Bank of England (BoE) retained interest rates at 5%, but the BoE governor, Andrew Bailey, indicated further interest rates cuts were certainly an option going forward. With inflation declining and interest rate cuts in both the US and Europe, bond markets posted mixed returns – government bonds were slightly negative, while global corporate bonds were the standout in the fixed income asset class delivering a positive return of +1.8%. Lower borrowing costs should help improve corporate profitability.
On the back of the surprise stimulus package within China, the Asian and emerging market equity regions were the best performing over the month, delivering +5.2% and +4.9% returns respectively. The UK and European posted negative returns of -1.4% and -1.2% respectively on the back of weaker economic data
Meanwhile, gold continued its strong performance, benefiting from its role as a “safe haven” asset amid falling interest rates, a weaker US dollar, and heightened geopolitical risks. In contrast, oil prices remained subdued despite China’s stimulus, which helped keep global inflation in check—a positive development for many asset classes.
Looking ahead, there are many things that markets will need to digest. We are getting ever closer to the US Presidential elections, which look too close to call, while tensions continue to escalate in the Middle East. These topics could add to volatility across markets. However, the positive counter to this is that inflation continues to fall, giving central banks the ability to cut interest rates which could be a positive for both equity and bond markets alike.
28th October 2024
Cappuccino Commentary
A relaxed read on the issues of the day
The global equity markets in September delivered mixed outcomes, influenced by various economic developments across key regions. Interest rate decisions, particularly in the US, played a pivotal role in driving market returns. The Federal Reserve surprised investors by cutting interest rates by 50 basis points—double what many had expected. This proactive move was aimed at countering potential economic weakness. The lower borrowing costs resulted in the US equity market hitting new highs. The question remains whether inflation is fully under control or whether we may see this re-emerge going forward.
Outside the US, China’s economic landscape was another key driver of market activity. Beijing announced an aggressive stimulus package designed to revive its property market and boost consumer confidence. This led to a sharp rally in Chinese stocks, with the Shanghai Composite surging by nearly 16%. However, long-term concerns remain regarding the structural issues in China’s property sector, and if these measures really address the underlying problems.
Commodity markets reacted positively to China’s stimulus, with metals and materials rallying. However, oil prices remained subdued, reflecting weaker global demand. This had a negative impact on the UK equity market, as the FTSE 100 (the biggest listed companies in the UK stock market), has a significant exposure to the energy/oil sector. The UK equity market posted a negative return for the month and underperformed many other developed equity markets.
In Europe, business surveys in September pointed to continued economic difficulties. The Purchasing Managers’ Index (PMI) measures economic activity, and a reading below 50 indicates contraction. The latest reading from the Eurozone was 47.1, firmly indicating the region continues to shrink in terms of economic output. Official data published on the UK economy also showed the economy shrank. The positive take on this weaker data, is that central banks in the UK and Europe have scope to cut interest rates further.
Inflation continues to decline in both Europe and the UK. Headline inflation in Europe fell to 4.3% and headline inflation in the UK marginally declined to 6.7%. However, core inflation in the UK declined much sharper than expected to 6.2%. This enabled the European Central Bank (ECB) to cut interest rates to 4%. The Bank of England (BoE) retained interest rates at 5%, but the BoE governor, Andrew Bailey, indicated further interest rates cuts were certainly an option going forward. With inflation declining and interest rate cuts in both the US and Europe, bond markets posted mixed returns – government bonds were slightly negative, while global corporate bonds were the standout in the fixed income asset class delivering a positive return of +1.8%. Lower borrowing costs should help improve corporate profitability.
On the back of the surprise stimulus package within China, the Asian and emerging market equity regions were the best performing over the month, delivering +5.2% and +4.9% returns respectively. The UK and European posted negative returns of -1.4% and -1.2% respectively on the back of weaker economic data
Meanwhile, gold continued its strong performance, benefiting from its role as a “safe haven” asset amid falling interest rates, a weaker US dollar, and heightened geopolitical risks. In contrast, oil prices remained subdued despite China’s stimulus, which helped keep global inflation in check—a positive development for many asset classes.
Looking ahead, there are many things that markets will need to digest. We are getting ever closer to the US Presidential elections, which look too close to call, while tensions continue to escalate in the Middle East. These topics could add to volatility across markets. However, the positive counter to this is that inflation continues to fall, giving central banks the ability to cut interest rates which could be a positive for both equity and bond markets alike.
This information is intended for professional financial advisers only. Copia does not provide financial advice. This information is not intended as financial advice and should not be interpreted as such.