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Market Recap.
After recent gains, markets paused with the FTSE 100 ETF (-0.29%) holding up best, followed by the S&P 500 ETF (-0.67%) as US central bankers continued to assure markets of their readiness to adjust interest rates.
The Dow Jones Industrial Average ETF (-0.83%) and Nasdaq 100 ETF (-0.92%) lagged for the week.
News.
The Federal Reserve appears to be very much on track for an interest rate cut in September after a “vast majority” of officials said such an action was likely, according to the minutes of the U.S. central bank’s July 30-31 meeting. The minutes, which were released last Wednesday, even showed some policymakers would have been willing to reduce borrowing costs at last month’s gathering.
The policy-setting Federal Open Market Committee left its benchmark interest rate unchanged in the 5.25%-5.50% range on July 31 but opened the door to a cut at the Sept. 17-18 meeting.
Inflation.
Eurozone inflation was confirmed at 2.6% year-on-year in July, up from 2.5% in June. The inflation rise, coupled with expectations for Federal Reserve rate cuts, have pushed the euro to a 9-month high against the US dollar.
The uptick clouded expectations for swift rate cuts by the European Central Bank, and it has boosted the euro to its highest level against the dollar since late December 2023.
Central Banks.
Federal Reserve Chair Jerome Powell has endorsed an imminent start to interest rate cuts, saying further cooling in the job market would be unwelcome and expressing confidence that inflation is within reach of the U.S. central bank’s 2% target.
“The time has come for policy to adjust,” Powell said in a highly anticipated speech to the Kansas City Fed’s annual economic conference in Jackson Hole, Wyoming. “The direction of travel is clear, and the timing and pace of rate cuts will depend on incoming data, the evolving outlook, and the balance of risks.”
Commodities.
The Bank of England will trim Bank Rate to 5% next week, a majority of economists said in a Reuters poll. According to economists, with inflation expected to hover around target, the Bank of England will embark on a slow and steady reduction path with one more cut this year.
However, markets are only pricing in around a 45% chance of a cut and several economists declined to say whether the first cut would come in August or September.
Commodities.
Oil prices closed the week at $74 per barrel, declining more than 2% for the week, due to concerns about slowing energy demand. Among the batch of data pointing to lower fuel demand, US manufacturing activity fell more than expected in August. Gold gained traction for the previous week and rebounded to above $2,500 per ounce as of last Friday.
ESG.
Renewable energy provider Pivot Energy announced a five-year agreement with Microsoft to develop up to 500 megawatts (MWac) of community-scale solar energy projects across the U.S.
Through the agreement, Microsoft will match customer electricity usage with new renewable electricity generation, supporting its efforts to reduce Scope 3 emissions.
Geopolitics.
China launched an anti-subsidy investigation into European dairy imports earlier last week. This move follows the European Union’s recent release of a revised draft tariff schedule targeting Chinese electric vehicle imports. It’s expected that trade relations will continue to deteriorate as countries look to protect industry at a national level.
Week Ahead.
This week will be a light week on the data front. Investors’ attention will turn to the release of European inflation data, with inflation expected to fall to 2.3% from 2.6%. In the US we will see the release of growth figures for the second quarter of 2024, with growth expected to expand at a rate of 2.8% from the previous reading of 1.4%, which suggests no recession in sight.
Sources:
Anthony Walters – Head of ESG at Clever Adviser Technology Ltd (Clever)
Market recap Data sourced from FE FundInfo & Koyfin. ETFs quoted: iShares Core FTSE 100 UCITS ETF, iShares Core S&P 500 UCITS ETF, iShares Nasdaq 100 UCITS ETF (quoted in Pounds Sterling).
News Fed steaming toward September rate cut, minutes from meeting show, By Michael S. Derby and Dan Burns, Reuters, 22/08/24
Inflation Eurozone inflation at 2.6% in July as euro hits 9-month high, By Piegro Cingari, Euro News, 20/08/24
Central Banks Fed’s Powell, in policy shift, says ‘time has come’ to cut rates, By Howard Schneider and Ann Saphir, Reuters, 23/08/2024
ESG Microsoft Partners with Pivot Energy to Develop Community Solar Projects to Help Tackle Scope 3 Emissions, by Susan Lahey, ESG Today, 08/08/24
Geopolitics Nathan Sweeney, Marlborough Investment Group
Commodities Nathan Sweeney, Marlborough Investment Group
Week ahead Data sourced from Investing.com
Risk Warning.
These are Anthony’s views at the time of writing and should not be construed as investment advice. The opinions expressed are correct at time of writing and may be subject to change. Capital is at risk. The value and income from investments can go down as well as up and are not guaranteed. An investor may get back significantly less than they invest. Past performance is not a reliable indicator of current or future performance and should not be the sole factor considered when selecting funds.
