5th September 2023
Last week, we learned that Burger King is being sued in the US on claims that its Whopper burger seems larger on the menu than it actually is. This gave the narrative of food inflation a new twist.
The Fed’s inflation battle continues
In less burger-focused news, markets kept looking for evidence that the Federal Reserve was succeeding in its fight against inflation. Wall Street slightly increased throughout the course of the week amid optimism that the Fed will maintain interest rates at its monetary policy meeting later this month. This was, however, in the wake of poor economic statistics. It’s not the first time this year that bad news has turned out to be good news.
Because the US economy expanded at a somewhat slower rate than initially anticipated, the second-quarter GDP was dramatically revised downward. However, the ongoing steady growth and indications that momentum sped up early this quarter imply that a recession is not imminent.
Sharp drop in US job openings
Mid-week news announced that the hiring rate in the US plunged to its lowest level since April 2020, while in July, the number of job opportunities also fell to its lowest level in two and a half years. Growth in private payrolls also decreased significantly in August. According to data released on Friday, the US added 187,000 jobs in August – the same number as in July – despite the unemployment rate rising to 3.8%, the highest level in more than a year.
There is still a way to go until inflation is reduced to 2%, and it’s clear that the full consequences of the Fed’s rate rises have not yet been realised, but authorities will find solace in evidence that the employment market is cooling rather than deteriorating drastically. The central bank’s objective of creating a ‘soft landing’ may yet be attained.
Non-manufacturing activity in China hits new low
Figures made public in China on Thursday verified that manufacturing activity slightly improved in August but still showed a decline for a fifth straight month. There are more indications that the decline in the second-largest economy in the world has not yet bottomed out as non-manufacturing activity reached a new low for the year.
The nation’s real estate industry is still experiencing a confidence crisis. Up until recently, a third of China’s total wealth was derived from the real estate market, but credit problems and slow sales have decimated the industry. Evergrande, the most indebted real estate company in the world with liabilities totalling £260 billion, lost more than 99% of the value of its shares over the last three years, and the stock plunged about 80% on Monday when trading reopened for the first time in nearly 18 months.
The largest private property developer in China, Country Garden, then issued a default warning after posting a record loss of £5.2 billion in the first half of the year.
China moves to shore up investor confidence
Beijing unveiled an abundance of support measures in an effort to stabilise markets as there were further worries that the crisis would have an increasing negative impact on the nation’s economy, undermining consumer confidence and frightening investors. Both the down payment requirements and interest rates for current first-time buyer mortgages were reduced in various cities. Additionally, the government reduced the stamp duty on stock trading by half and halted new listings.
The recently announced measures provided some solace for equity markets, but worries that Beijing’s modest reaction is merely a superficial touch-up persist, as it’s thought that the measures are far from what is required to support its ailing economy.
Stocks had their worst month of the year in August as a result of bleak attitudes towards China, which generated market performance consistent with seasonal fears. Global equities lost some of their recent gains in August, falling 2.6%, with emerging markets leading the losses. Despite a monthly decline of almost 2%, the S&P 500 is still up more than 17% for the year.
Europe’s stagnant inflation levels in August
In the eurozone, investors processed the fact that August’s inflation rate remained unchanged at 5.3%. Meanwhile, concerns increased that the European Central Bank will hike interest rates once again to a new record high when it meets later this month. European shares ended the month down 2.7%. This is despite growing evidence that the European economy is in danger of entering a recession, with Germany’s economy – the biggest in Europe – at the top of the list of concerns.