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Sheldon Macdonald and Nathan Sweeney talk about the topics driving the markets in their weekly Monday update.
Monday Espresso Podcast - 23rd September 2024
[00:00:00] Scott Truter: It's Monday, the 23rd of September. I'm Scott Truter, an assistant portfolio manager at Marlborough, and I'll be running through some of the main news from last week with Sarah Todino, our other assistant portfolio manager on the team. Good morning, Sarah.
[00:00:13] Sarah Todino: Good morning, Scott.
[00:00:14] Scott Truter: So Sarah, why don't we start with how markets performed last week?
[00:00:18] Sarah Todino: Well, on the whole, it's been a positive week for equity markets and a bit more mixed within fixed income. We've seen the gold price edging closer to near record highs, and that's been helped by the general expectation that economies are slowing down, and we've also had some heightened geopolitical risk as well.
[00:00:35] Sarah Todino: Fixed income was mixed due to the volatility around central bank decisions, which we will come on to, but equities ended the week positively, particularly in the US.
[00:00:45] Scott Truter: And on the US, everyone was waiting for the first rate cut from the Federal Reserve. The surprise came that the FOMC delivered a 50 basis point cut, so half a percent, and maybe some had expected that it would just be a quarter of a percent.
[00:01:00] Scott Truter: But interesting, on that Wednesday when that was announced, the equity markets didn't react that much, did they?
[00:01:05] Sarah Todino: No, so you'd expect a larger interest rate cut to be good for equity markets as those lower borrowing costs would support these companies. However, a larger cut could also suggest a more significant slowdown, so maybe cause for concern.
[00:01:20] Sarah Todino: So that's why initially we didn't see much market movement.
[00:01:24] Scott Truter: Yeah, and the Fed Chair Jerome Powell came out for that press conference. He said they felt the economy was still resilient and they weren't overly concerned. And that fits in with our base case as well, this idea of a soft landing or this gradual slowdown, and that it's not going to be too material.
[00:01:40] Scott Truter: Then we got the next day on Thursday, we had those jobless claims. They were lower than expected. I think the market started to take all of this and we saw these strong gains. Really across both large companies and smaller companies, and the S&P hitting a new high. But obviously it wasn't just the US where we've had central banks in focus this month, was it Sarah?
[00:02:00] Sarah Todino: No, so the Bank of England in the UK also met this week. They kept interest rates unchanged at 5% with an 8 to 1 vote to keep rates on hold. This decision was in line with market expectations and in terms of the direction from here, The Bank of England have said it will take a gradual approach to loosening policy, continuing to monitor inflation and growth.
[00:02:21] Sarah Todino: And inflation has, of course, been trending downwards and fallen significantly from its peak.
[00:02:26] Scott Truter: Yeah, and speaking about inflation, we had some European data out as well. That was in line. It came in at 2.2% and it was 2.6 a month earlier. So just seeing these continued gradual reductions. And I suppose we should move East and think about one of the final main central banks that met last week, the bank of Japan.
[00:02:43] Sarah Todino: So the bank of Japan also kept rates on hold at 0.25%. And again, this was widely anticipated by markets. Remember we had that surprise interest rate rise back in July, which was coupled with weaker data out of the US and that sparked. Volatility in markets in early August. We've had the inflation print for August that was slightly higher at 3%, and that's followed three months at 2.8%.
[00:03:10] Sarah Todino: So all in all, there was an element of caution in the decision to hold. And the Bank of Japan have indicated that there is no rush to raise rates.
[00:03:19] Scott Truter: Yeah, so, so there's lots of information from central banks this week. I think the broad theme generally when you think of the us, the UK, and Europe, is that things are slowing.
[00:03:28] Scott Truter: And you'd expect that given the interest rate rises that we've already seen. But that slowing has happened gradually. There's no signs of this significant slowdown or recession yet. And as I say, that is in line with our base case. And clearly what a lot of those central banks are expecting. So nothing really to sort of panic or cause alarm at this stage.
[00:03:49] Scott Truter: So I suppose, Sarah, what have we got coming up this week?
[00:03:51] Sarah Todino: In terms of the week ahead, it does look like a lighter week. But most of the focus will be on the US again with GDP growth data. There's a number of Fed speakers, including Chair Powell. Consumer and business confidence updates in the Eurozone.
[00:04:05] Sarah Todino: And the Bank of Japan meeting minutes are released. So we'll be looking here for any guidance on future activity.
[00:04:12] Scott Truter: No, that's great. Thank you. Lots of information to digest there. As always, to anyone listening, if you have any questions, do get in touch because we're more than happy to answer them.
[00:04:21] Scott Truter: Otherwise, thank you for listening. And we'll be back next week with more insights.