Equity Markets Show Resilience
To conclude a largely positive week, the S&P 500 and Nasdaq rallied on Friday, capping their best week of 2024 thus far, with the S&P 500 gaining 2.8%, while the Nasdaq Composite jumped 4.7%. This positive end to the week helped offset some of the losses experienced earlier in September, traditionally a challenging month for equities. In Europe, markets showed signs of stability as attention shifted to the anticipated rate cut by the Federal Reserve in the following week. The FTSE 100 finished the week flat, and the STOXX Europe 600 Index ended the week positively, rising 1%, buoyed by the European Central Bank's (ECB) decision to cut interest rates.
Economic Data and Central Bank Decisions
The August U.S. Consumer Price Index (CPI), released on Wednesday, was a key focus for investors. Analysts had expected headline year-over-year inflation to reach 2.6%; however, the figures exceeded expectations, with inflation falling to 2.5% in August. This favourable print has set the stage for the Federal Reserve to start gradually cutting interest rates at its meeting next week, with markets still undecided on the size of the expected rate cut.
In Europe, the main focus was on the ECB’s rate cut decision, as headline inflation in the Eurozone neared the 2% target. The central bank also released revised economic forecasts, with a slight downward revision compared with June's projections, due to a weaker contribution from domestic demand over the next few quarters.
The UK released its monthly GDP figures for July, with the data revealing that the economy had stagnated for a second month due to manufacturing output dropping sharply. This was below market expectations of a 0.2% month-on-month expansion and will likely impact the Bank of England's rate decision next week.
Bond Markets and Commodities
In fixed income, the yield on 10-year U.S. Treasuries stood at 3.66% at the end of the week, a level last seen in June 2023, indicating a continued downward trend in yields. The bond market is currently pricing in a greater than 50% chance of a 50bps rate cut at the upcoming Federal Reserve meeting next week, up from a previously expected 25bps. In commodities, gold reached a fresh record high at the end of the week, trading at $2,581.70 per ounce. This continued strong performance comes as interest rate cuts are on the horizon and increased investor interest in safe-haven assets.
Looking Ahead
As we move into the third week of September, market participants are keenly focused on the upcoming Federal Reserve meeting. The interplay between monetary policy decisions, economic data releases, and corporate performance continues to shape the investment landscape. Investors should remain cautious yet optimistic as they navigate the traditionally volatile month of September, with an eye on long-term economic trends and potential policy shifts.