Market Commentary 2nd September 2024 – from Will Binks

Retail sales data released by the Confederation of British Industry (CBI) pointed to the third consecutive month of falling sales. Of the retailers interviewed, 27% reported declining sales over the past year, with 13% expecting things to deteriorate further over the next three months.

The UK saw its fastest annual house price growth last month since 2022, according to a recent report by Nationwide. The average house price rose by 2.4% last month to £265,375. Robert Gardner, Nationwide’s chief economist, said he expects the housing market to strengthen as interest rates continue to fall.

The annual rate of inflation measured by the Consumer Price Index (CPI) fell to 2.2% in August, down from 2.6% in July. The sharp reduction in energy costs last month was the biggest contributor, offsetting a small rise in prices in the services sector. The European Central Bank is expected to continue cutting interest rates over the next year as inflation settles.

Germany released Gross Domestic Product (GDP) figures last week, showing that the economy stagnated (+0.0%) in the second quarter of 2024. A closely watched business climate indicator released by the research institute, Ifo, pointed to a pessimistic outlook amongst major corporations. The Ifo president, Clemens Fuest, said “the German economy is increasingly entering a crisis”.

The release of July’s data for the Federal Reserve’s preferred measure of inflation, the personal consumption expenditures (PCE) index, showed that year-on-year PCE inflation was 2.5%. The data has strengthened the view that the Federal Reserve will begin cutting interest rates at their next meeting in September.

An initial estimate of GDP showed that the American economy grew at an annual rate of 3.0% in the second quarter of 2024, up from 1.4% in the first quarter. Personal spending also increased by 0.50% from the month before, predominantly led by increased activity in the housing and motor vehicle sectors.

China and Japan had a relatively slow week last week with little newsflow. The investment bank UBS downgraded its forecast for China’s growth, expecting the government to fall short of their 5.00% GDP target. The Chinese property slump appears to be deepening, with the value of new home sales falling 27% and total number of sales falling 20% from the year before.

A closely watched consumer confidence indicator for Japan suggested no changes from the month before. The figures suggest consumer morale is at its highest since April, with an improved willingness to buy durable goods, whilst sentiment for income growth deteriorated. The CPI for Tokyo increased to 2.60% in August, from 2.2% the month prior.

GBP / EUR – Current 1.1881 Previous 1.1809

The Pound fell 0.66% against the US Dollar last week and gained 0.60% against the Euro. The Euro fell against most major currencies last week as traders expect the European Central Bank to cut interest rates a second time on the 12^th September.