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The Week in Global Markets
Financial markets summary:
– EUROPE: Stock markets in Europe gained across the board this week as the ECB cut rates as expected. The bank is still not committing to a specific pre-determined path. The outlook for core inflation was revised slightly higher, while growth is expected to be slightly lower. Stocks also advanced in the UK, although monthly GDP data disappointed with a decline in manufacturing output despite growth in Q2. However, both the euro and the pound depreciated against the US dollar.
– UNITED STATES: US stocks recovered from last week’s drops, with growth outpacing value stocks. NVIDIA in particular pared back its losses from the previous week on hopes that an approval for exports of advanced chips to Saudi Arabia could boost the company’s earnings. Inflation data was mostly in line with expectations, despite core remaining elevated. Markets are now pricing in basically equal odds of a 25bp and a 50bp rate cut by the Fed next week.
– ASIA-PACIFIC: Japanese stocks had a mixed performance this week, with the TOPIX declining and the Nikkei 225 up slightly. The yen kept strengthening against the USD, putting further pressure on exporting companies. Comments from the BoJ suggest that there might be another hike coming, although it is very unlikely that this will happen next week at the same time as the Fed starts cutting. Q2 growth was revised lower. Chinese stocks were down on the week as fears of a negative wage-price spiral are rising. Chinese exports are still strong but there are risks if the US economy slows down going forward.
– BITCOIN: BTC rose this week and its USD price is currently around $59.8k but some analysts seem to have come up with quite optimistic forecasts, expecting $92k in the last quarter of this year. Their argument is based on a recent retest of a key support level on a weekly basis, and historical rallies in October and December. But whether or not this is, as stated in this analysis, “the last dip buying opportunity”, only time will tell.
policy rate overview
The European Central Bank (ECB) cut its key policy rates for the second time as expected this week – the deposit facility rate is down 25bp to 3.5%; the main refinancing operations rate is down 60bp to 3.65%; the marginal lending facility rate is down 60bp to 3.90%. The new rates will be in effect from the 18th Sep. The latest ECB staff projections confirm the previous inflation outlook: headline to average 2.5% in 2024, 2.2% in 2025 and 1.9% in 2026, as in the June projections. Inflation is expected to rise again in the latter part of this year, partly because previous sharp falls in energy prices will drop out of the annual rates. Inflation should then decline towards the target over the second half of next year. For core inflation, the projections for 2024 and 2025 have been revised up slightly, as services inflation has been higher than expected. At the same time, staff continue to expect a rapid decline in core inflation, from 2.9% this year to 2.3% in 2025 and 2.0% in 2026. Labor cost pressures are moderating, and profits are partially buffering the impact of higher wages on inflation. Financing conditions remain restrictive, and economic activity is still subdued, reflecting weak private consumption and investment. Staff project that the economy will grow by 0.8% in 2024, rising to 1.3% in 2025 and 1.5% in 2026. This is a slight downward revision compared with the June projections, mainly owing to a weaker contribution from domestic demand over the next few quarters.
As the Danish krone (DKK) is a member of the ERM 2, the Danish central bank followed suit and cut its policy rates as well.
The Russian Central Bank (ECB) raised its key interest rate by 1pp to 19% as high inflation is still a challenge for the country. The official statement pointed to growth in domestic demand that is still significantly outstripping the capabilities to expand the supply of goods and services. The bank held out on the prospect of more rate increases as part of efforts to return inflation from the current 9.1% to the bank’s target of 4% in 2025.
Next week will be quite busy as multiple major central banks, including the Fed, the Bank of England, the Bank of Japan and the People’s Bank of China will announce their decisions.
highlights from Germany
Corporate insolvencies still rising by double digits
Preliminary data show that the number of regular insolvencies filed in Germany rose by 10.7% YoY in Aug-24. Local courts reported 10,702 corporate insolvencies filed in H1-24 which was 24.9% more than in the first half of 2023. The estimate of creditors’ claims from the corporate insolvencies reported in the first half of 2024 was around 32.4 billion euros compared to 13.9 billion euros over the same period last year. The transport and warehousing sector accounted for the majority of insolvencies, followed by the construction industry, other economic services and the hospitality industry.
highlights from Europe
Industrial production contracts
The output in Europe’s industrial sector declined in July: by 0.3% MoM / 2.2% YoY in the euro area and by 0.1% MoM / 1.7% YoY in the EU. Both the monthly and annual declines are driven by lower output in intermediate goods, capital goods and durable consumer goods – with the latter being down the most on a monthly basis and capital goods being down the most on an annual basis. The largest monthly decreases were in Malta, Estonia and Romania. The highest increases were in Ireland, Croatia and Belgium. The largest annual decreases were recorded in Hungary, Estonia and Germany. The highest increases were in Denmark, Greece and Finland.
highlights from The United States
Headline inflation decelerates further, while core is still stubborn
The headline Consumer Prices Index (CPI) fell to 2.5% YoY and was 0.2% MoM in August. The index for shelter rose 0.5% in August and was the main factor in the all items increase. The food index increased 0.1% in August, while the energy index fell 0.8% over the month. The all items less food and energy index rose 3.2% YoY and 0.3% MoM, with indexes that increased in August including shelter, airline fares, motor vehicle insurance, education, and apparel.
Producer prices rise in line with expectations
The increase in PPI in August was 1.7% YoY headline and 2.4% YoY core. The main driver is the increase of 0.4% in final demand services, while the index for final demand goods was unchanged. Economists who translate the CPI and PPI into the PCE believe core inflation using the Fed’s preferred gauge will be around 0.13% to 0.17% in August, extending a streak of mild, target-consistent monthly readings.
highlights from The United Kingdom
Growth momentum remains strong in Q2
The first estimate for Q2-24 growth is 0.6% or 0.9% compared to Q2-23. Services grew by 0.8% QoQ with widespread growth across the sector; this offset declines of 0.1% in both the production and construction sectors. There was an increase in gross capital formation, government consumption and household spending. Within gross capital formation, the largest contribution was from acquisitions less disposals of valuables which saw a change of £6.7bn between Q1 and Q2. There was an increase of 0.2% in real household expenditure QoQ, mainly driven by the transport, housing, and recreation and culture components. Real government consumption expenditure increased by 1.4% QoQ, mainly reflecting higher activity in public administration and defense, and education, which offset a fall in health. Net trade declined, with the trade deficit for goods and services reaching 2.7% of nominal GDP in Q2.
Author: Nikolay
Founder of MoneyCraft
