With inflation cooling and interest rates expected to ease, you might think we’re on a smooth path back to normality. But, as always, global markets have their own twists and turns. Let’s take a closer look at what’s been happening across key regions this September.

UK: Economic Growth Amidst Political Uncertainty

The UK’s economy has shown some resilience this year, growing by 0.6% between April and June. This follows a 0.7% increase in the first quarter, marking a solid recovery after last year’s brief recession. The services sector has been the driving force, with the IT industry, legal services, and scientific research leading the charge. On the flip side, manufacturing and construction haven’t fared as well, with output falling during the same period.

Consumers have been given a slight reprieve as shop prices in August dropped by 0.3% compared to last year – the lowest rate since October 2021. However, this was largely due to discounts on non-food items like clothing and furniture, which were spurred by poor summer weather and ongoing cost-of-living pressures. Food prices, however, continued to rise, albeit at a slower rate.

Looking ahead, the political landscape is adding a layer of uncertainty. The looming October budget, coupled with Labour’s gloomy predictions, has many speculating about potential tax hikes. While Prime Minister Keir Starmer has vowed not to raise National Insurance, income tax, or VAT, other areas like inheritance tax, capital gains tax, and pension relief may be on the chopping block.

Europe: Inflation Eases, But Is It Enough?

Over in Europe, the inflation picture is starting to improve. The Eurozone saw inflation drop to a three-year low of 2.2% in August, with Germany’s inflation rate also down to 2%. This has sparked expectations that the European Central Bank (ECB) may cut interest rates in September – a move that markets have already begun to anticipate.

However, not everyone is convinced that this is purely good news. Some experts argue that the drop in inflation is largely due to falling energy costs, masking underlying pressures in other areas, particularly services, which have seen stubbornly high inflation rates.

In France, household confidence has ticked up slightly, possibly buoyed by the successful hosting of the Olympics and a brief respite from economic turbulence. But whether this positivity can be sustained in the face of broader challenges remains to be seen.

United States: Tech Stocks Wobble as Election Fever Heats Up

Across the Atlantic, the US economy has been making headlines, particularly with the performance of tech stocks. The so-called ‘Magnificent Seven’ – Apple, Microsoft, Nvidia, Alphabet (Google’s parent), Amazon, Meta (Facebook’s parent), and Tesla – experienced significant volatility in August. The group lost a staggering $1.2 trillion in value early in the month, though the overall market performance has remained positive for the year.

Inflation in the US stood at 2.9% in July, the smallest increase since March 2021, and just shy of the Federal Reserve’s 2% target. This has led to growing expectations that the Fed might cut interest rates sooner rather than later, potentially outpacing the Bank of England in easing monetary policy.

On the political front, Vice President Kamala Harris delivered her first major speech on economic policy, proposing initiatives like new-build homes, tax breaks for families, and a crackdown on grocery price-gouging.

While these ideas have resonated with some voters, critics argue that they echo previous proposals from President Biden that failed to pass through Congress. With an election on the horizon, economic issues are set to dominate the conversation, and market predictions are becoming increasingly polarised.

Far East: China Struggles, Japan Surprises

In the Far East, the economic outlook is mixed. China’s economy is struggling to hit growth targets, with weakening consumer demand and property market woes weighing heavily. Although smaller manufacturers saw modest growth in August thanks to exports, the broader trend remains negative. This has led to calls for the government to shift its focus from infrastructure projects to boosting household consumption.

In contrast, Japan has delivered some positive news. The country’s GDP grew by 0.8% in the second quarter, surpassing expectations. This growth, coupled with rising inflation, could prompt the Bank of Japan to consider further interest rate hikes in the coming months.

Emerging Markets: India and South Africa in the Spotlight

Emerging markets have had a mixed run. India’s central bank might be the next to ease interest rates, potentially as early as December, if food inflation subsides. However, political challenges loom large for Prime Minister Modi, whose historic third term may be complicated by a reduced majority, making coalition-building a necessity.

In South Africa, a new coalition government marks a significant shift in the country’s politics. President Cyril Ramaphosa, re-elected with a power-sharing deal, faces the challenge of maintaining stability while addressing the nation’s pressing economic issues.

Despite these uncertainties, emerging markets as a whole have seen gains, with the MSCI EM Index up by 5.0% in the second quarter, bringing year-to-date returns to 7.5%. Asia has led the sector, while Latin America, particularly Mexico and Brazil, has struggled due to political turbulence.

Conclusion: A Volatile Yet Promising Outlook

August’s tech stock sell-off was a key story, affecting indices worldwide due to the dominance of the Magnificent Seven. Although the initial shock was severe, the market has shown resilience, and the damage wasn’t as long-lasting as some feared. As we move into the final months of the year, global markets are balancing on a knife’s edge, with political developments, inflation trends, and central bank actions all playing pivotal roles.

Whether the optimism for a ‘soft landing’ in the global economy is justified remains to be seen, but one thing is clear: the rest of 2024 will be anything but dull.