Market Update – September 2024
September has been a more positive month for many global markets. US stocks are up, as is the Japanese market. Markets have seen more of a plateau in the UK (where uncertainty hands over the Autumn Statement) and Europe. In the US, expectations of a Fed interest rate cut were proved right on 18 September. In China, weak industrial output and retail figures have sown doubts over its economic outlook.
UK policy
The UK is currently rife with speculation about what the Autumn Statement might contain when it is expected to be released on 30 October. Some UK businesses and investors are delaying decisions (or bringing asset disposals forward) to avoid potential tax rises.
Chancellor Rachel Reeves announced in late July that taxes will need to go up in the coming budget. Certain taxes have already been ring-fenced – i.e. those on “working people”, namely income tax, VAT and National Insurance (NI).
However, this leaves the door open for tax rises in other key areas of wealth – e.g. pensions, capital gains tax (CGT), pensions and other property-related taxes. There is also talk of a wealth tax, although its lack of success across Europe suggests this is unlikely.
At present, it is impossible to predict which areas of fiscal policy might change.
There is still time to speak with your financial adviser to explore the best options to protect your wealth, and maintain maximum flexibility to adapt if rules change in October/November,
UK economy
The Bank of England (BoE) held the base rate steady at 5% in its September meeting. This largely followed economists’ expectations, encouraging GBP’s strengthening against the US dollar.
The Monetary Policy Committee (MPC) also engaged in further monetary policy tightening by agreeing to reduce the stock of UK government bond purchases by £100 billion.
These decisions were justified due to an “Absence of material developments” in inflation figures (the CPI rose to 2.2% in August). Economic forecasts also remain fairly static. In the second half of 2024, the UK is expected to grow by 0.3% per quarter.
Some analysts are now forecasting a further base rate cut in November. Doubts remain due to uncertainty over inflation, which could rise in the colder months as energy prices increase.
The UK market
The FTSE opened in September at 8,363 and stood at 8,320 by the 29th. The index dropped slightly following the MPC decision to hold the base rate at 5% but quickly recovered.
Investor attention has focused strongly on Labour’s annual conference, which has concentrated on October’s Budget. Confidence is currently down by 13% due to concerns about the UK’s poor economic outlook.
However, certain UK companies and sectors have continued to perform well in September. Burberry Group was up 5.4% at one point (the fashion house had fallen 75% since the start of the year).
Miners like Antofagasta, Glencore and Rio Tinto were also up in September, between 3.4% and 4.8%. Indeed, there are still opportunities to be found in the UK market – making it a valuable part of a globally diversified portfolio.
The economy is forecast to be the third fastest-growing G7 economy over the next decade. This is behind Canada and the US, but ahead of everyone else.
The Global Outlook
The UK diverged from the US over monetary policy in September, with the Fed aggressively cutting its interest rate by 0.5%. This was its biggest cut in four years, surprising many in the markets, who were expecting a more modest 0.25% cut.
US equity indices initially rallied in excitement, although this cooled off as traders digested the Fed’s commentary more fully. Overall, the S&P 500 was up 2.61% in September, and the tech-heavy NASDAQ also increased by 3.44%.
Investor hopes for a US economy “soft landing” will be put to the test in early October, when US labour market data is expected to be released. The previous two monthly reports have shown lower-than-expected job growth. If this is repeated, investors could react negatively.
In Europe, the central bank (ECB) made its second cut of the year to 3.50% on 12 September. This partly explains the UK’s strengthening pound relative to the USD and euro, as hot money flows sought higher interest rates from GBP.
This buoyed the European market, with some stocks further benefitting from an indirect stimulus boost in September (from China). The STOXX 600 index hit a record-high on 28 September.
Further afield, investor confidence in Asian markets fell due to lower-than-expected industrial output and retail sales in China. In response, the Chinese central bank lowered interest rates and injected liquidity into the banking system – boosting automakers and chemicals.
Japan’s market is also in a better place after months of Yen volatility. The Nikkei 225 increased by 3.82% in September. Investors seem to be picking up optimism about Japan’s economy after a difficult first half of 2024.
