WeeklyWatch – A turning point for US interest rates?
17th September 2024
Stock Take
Hopes of half-point rate cut in US
Despite their relative apathy towards the presidential debate, US markets were unsettled by the release of the latest inflation data. Markets remain on edge as investors await the Federal Reserve’s decision on interest rates.
Consumer prices increased by 2.5% in the year leading up to August, marking the lowest rate in over three years and extending the downward trend. While this seems like positive news, a rise in housing costs and persistent inflation in other service sectors proved to be a sting in the tail.
These developments dampened expectations for a half-point interest rate cut by the Fed at its upcoming meeting, as the central bank remains cautious about fuelling any remaining price pressures. However, market sentiment still pointed toward a smaller 25 basis point reduction.
But by Friday, US stocks had rallied amid media speculation that the Fed could implement a larger-than-expected rate cut this week to pre-empt a potential slowdown in the job market. Futures trading indicated that a quarter-point cut was still slightly more probable, but only by a narrow margin.
Tech to the rescue
While there has been recent disappointment in the tech sector, it proved the hero of Wall Street once more midweek – helping stocks rebound from the inflation news. A surge in tech shares followed reports that the US government might allow Nvidia to export advanced chips to Saudi Arabia. This follows recent moves to restrict business with Chinese firms.
Markets unfazed by Trump–Harris face-off
Markets remained indifferent to Tuesday’s US presidential debate between Donald Trump and Kamala Harris, as it offered little clarity on their respective policies. What’s more, neither candidate is seen to pose a significant threat to investors. Stocks have performed well under both Trump and President Biden, and a potential Harris win is unlikely to shift the current policy trajectory.
Stormy conditions in China
The week began with a mixed performance in Asian markets, which continued to feel the impact of last week’s US job numbers. The sentiment worsened with disappointing inflation data from China. Consumer prices in August surged at their fastest rate in six months due to weather-related disruption causing food price increases, while producer prices fell more than expected, highlighting weak domestic demand and a faltering economy.
Although news of a 17-month high in Chinese export growth provided some relief, it indicated that manufacturers might be accelerating shipments to get ahead of rising trade barriers, with tariffs increasing from the US, Canada, India and the EU. The week concluded with further negative news, as China’s industrial output slowed to a five-month low in August, and retail sales and new home prices continued to decline.
Stock resurgence in the West
In contrast to the woes in China, US and European stocks bounced back as buyers snapped up bargains at the beginning of the week. The tech-heavy Nasdaq index had registered its largest Friday-to-Friday fall since January 2022, but investors opted to look ahead to key data and actions from central banks.
Official data released on Wednesday showed that the UK economy unexpectedly stagnated for a second consecutive month in July, primarily due to a significant decline in manufacturing. While this provided a gloomy start to the new government’s growth-boosting agenda, it did not alter expectations that the Bank of England will likely cut interest rates again this year, with a probable move in November rather than after this week’s meeting.
As manufacturing continues to wane, the UK’s transition to a services-driven economy is accelerating. The UK now exports more services – such as finance, accounting, legal advice and advertising – than goods, becoming the first among the G7 advanced economies to achieve this shift.
ECB keeps its cards close to its chest
The European Central Bank (ECB) confirmed the expected rate cut on Thursday, lowering its deposit rate by 0.25% to 3.5%. But what does the future hold? ECB President Christine Lagarde gave nothing away in terms of the rate path, reminding commentators that services inflation remains high. ECB sources indicated another interest rate cut in October was unlikely unless there was a major deterioration in the growth outlook.
Some investors – and indeed ECB policymakers in southern eurozone countries – are worried that the central bank could be too slow to ease policy, further hampering the bloc’s slow recovery.
Equity markets paying dividends
Equity markets ended the week on a high. They continue to trade near the all-time record, and investor sentiment was further bolstered by news that global dividends actually did hit record levels in Q2 of 2024. This was propelled by banks’ profits, which have been boosted by higher interest rates. HSBC made the largest single payout of $4 billion, while US payouts were also boosted by new dividend payers such as Google’s parent company, Alphabet.
Wealth Check
The cost of a comfortable retirement
As we enjoy longer lives and the retirement landscape continues to evolve, it’s more important than ever to plan thoughtfully for our golden years and make the most of our pension opportunities.
A financial adviser can be a real asset in giving you the confidence that you’re saving enough to achieve an adequate retirement income. But how much is that, exactly?
The Pension and Lifetime Savings Association (PLSA) offers helpful guidance on how much you might need to save for a comfortable retirement. Their latest figures, released in February 2024, reveal that a single person will now need £14,400 annually for a minimum standard of living – an increase of £1,600 from the previous year.
For a moderate lifestyle, which includes a two-week European holiday and several UK mini breaks, the annual need rises to £31,300. To enjoy a comfortable lifestyle with regular treats like beauty treatments and theatre outings, you’d need £43,100 a year. Couples will need £22,400 for the minimum standard, £43,100 for moderate and £59,000 for a comfortable lifestyle.1
The minimum standard covers essential needs, as well as a UK holiday, occasional dining out and around £600 for clothes annually, but doesn’t stretch to car ownership. The moderate lifestyle offers greater financial freedom, allowing for a small car and a few more dining and holiday options. At the comfortable level, you can enjoy more luxuries and regular European vacations.
By providing approximate figures for various lifestyle choices, the PLSA aims to help people establish personal savings goals tailored to their individual circumstances and expectations. Setting clear goals based on what you love – whether it’s travelling, dining out or other activities – can be a strong motivator to keep saving. No matter where you are in your savings journey, having a specific income target helps you stay focused and excited about your future.
The value of an investment with St. James’s Place will be directly linked to the performance of the funds selected and the value may therefore fall as well as rise. You may get back less than you invested.
Source:
1Retirement Living Standards, Pensions and Lifetime Savings Association, 2024. All figures quoted were developed by the Centre for Research in Social Policy at Loughborough University on behalf of the PLSA.
In The Picture
The ‘Real Life Advice Report’ is St. James’s Place’s largest survey on how financial advice impacts lives and attitudes. It features real stories and interviews with over 12,000 UK consumers, conducted from May to August 2024.
The Last Word
“The Dragon is now three times higher than the Space Station, the furthest that humans have been from Earth in over half a century!”
– Elon Musk on SpaceX’s Polaris Dawn mission, where a four-person crew aboard The Dragon spacecraft completed the first commercial spacewalk.
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SJP approved 16/09/2024