October 2024 Market Commentary
September brought some big financial moves across the globe, with interest rates, fiscal policies, and economic performance taking centre stage. These shifts, especially the much-anticipated rate cuts by the Federal Reserve and stimulus measures in China, have already left their mark on markets.
Let’s take a closer look at what these developments mean in Questa’s October 2024 Market Commentary and why there’s still plenty to feel cautiously optimistic about as we head into the final months of the year.
UK: Steady but Cautious
Inflation is now at 1.7% having remained steady at 2.2% in August. What’s keeping it from dropping further? Rising airfares and rents are part of the story, but fuel, restaurants, and shop alcohol prices have actually fallen. So, it’s a mixed bag, but not quite panic mode.
On the political front, Labour’s first conference since the election in Liverpool saw Chancellor Rachel Reeves doing her best to keep things upbeat. She’s been helped by the OECD’s latest projections, which bumped the UK’s expected growth for the year up to 1.1% – a small but meaningful jump from the 0.4% forecast back in May.
That said, some recent data from the Office for National Statistics painted a slightly less rosy picture, with growth in the second quarter being a tad slower than originally thought.
And, of course, speculation is rife about the upcoming 30th October budget. Will capital gains tax and pensions be in for a shake-up? We’ll have to wait and see, but it’s worth remembering not to make any rash investment decisions based on what might happen. Keep calm, and let’s see how it plays out.
Europe: China’s Stimulus Boosts the Market
September was an interesting month for European markets, which performed well overall—though not because of homegrown success. Instead, China’s huge financial stimulus package, its biggest intervention since COVID, gave a boost to European stocks, particularly those in Germany and France. The luxury and automotive sectors in these countries are heavily reliant on Chinese demand, so this move was welcome news.
But zoom in on the Eurozone’s core economies, and things look shakier. Services are flatlining, and manufacturing continues to struggle, especially in Germany. France had a brief boost from its successful summer Olympics, but it has also dipped back into contraction.
Meanwhile, the European Central Bank cut interest rates by 0.25% to 3.50%, with more cuts on the horizon if inflation improves. However, don’t expect changes in October. The Euro has fallen sharply, and while the rate cuts might help, there’s a fair bit of uncertainty still hanging over Europe’s growth prospects.
United States: The Fed Acts, but Will It Be Enough?
Across the pond, all eyes are on the 2024 US election. Economic competence is a key battleground, and while Kamala Harris is pushing hard to win over voters, Donald Trump seems to have the edge in this area. Harris continues to face Republican accusations of being too radical, but she’s focused on trying to make economic gains, which is her strong point.
Speaking of economics, the Federal Reserve made a bold move in September, cutting interest rates by a full 0.5%. It was a widely expected change, but its reception was still positive, especially with the US labour market showing signs of strain. Unemployment is projected to rise to 4.2%, and while more jobs are expected to be added, there’s a fear that the Fed might have acted a bit too late. If the September payroll report falls short, pressure will mount for another cut.
Stock markets, meanwhile, have had their usual September wobble. Historically, it’s been a tough month for US markets, and this year was no different. The S&P500 posted its typical losses, driven by factors like tax loss selling and the focus on third-quarter corporate results. It’s a pattern we’ve seen before, but that doesn’t make it any easier to swallow.
Far East: China’s Stimulus Sparks Optimism
China made headlines in September with its bold financial stimulus plan, spearheaded by President Xi Jinping. The aim? To inject life into its struggling property market and, by extension, the broader economy. Investors responded quickly, pushing Chinese stocks up in anticipation of more state support. European markets, particularly in Germany and France, saw gains as well, given their economic ties to China.
But it’s not all smooth sailing in Asia. Japan saw a sharp dip in its Nikkei index, largely because of uncertainty around the new government. Shigeru Ishiba, Japan’s incoming president, raised concerns about potential conflicts with the Bank of Japan’s monetary policy, particularly regarding interest rates. Though he moved quickly to calm markets, his decision to call a snap election for October has kept investors on edge.
Emerging Markets: Cautious Rate Cuts
Emerging markets are inching closer to their central bank targets, with inflation cooling in most regions. Many countries, from Chile to the Philippines, have been cutting interest rates in response. Mexico, for instance, is expected to reduce its rates by up to 1% by the end of the year, though rates there will still remain high at around 9.75% to 10.75%.
Brazil, however, is going against the grain. It raised rates to 10.75% in September, bucking the trend of cuts that began earlier in 2023. The country’s currency has been sliding against the US dollar, and inflation remains a persistent concern. The Brazilian central bank is taking a tough stance for now, but it’s clearly a bit of an outlier among its peers.
Conclusion: Keeping Perspective
Despite all the buzz around interest rates and economic uncertainty, the global economy is continuing its march towards financial normality. The threat of war in the Middle East adds a layer of unpredictability, but central banks around the world are adjusting as inflation shows signs of easing.
China’s stimulus measures have provided a short-term lift, but whether they’ll lead to long-term gains remains to be seen. Investors, meanwhile, have weathered a year of volatility, but there’s no need to panic. As the next UK budget looms, it’s crucial to stay focused on your investment strategy and not let tax changes lead your decisions. We’re here to help keep things in perspective, and there’s plenty to be optimistic about as we head into the final months of the year.