Market Commentary Week ending 25th August 2024

US: Changes in Fed monetary policy and mixed PMI results

The major stock indexes rose more than 1% last week, with the S&P 500 up 1.45%, the Nasdaq up 1.09%, and the Russell 2000 the standout with a particularly strong performance on Friday, up 3.58% for the week.

The most prominent event of the week was the report read by Mr. Powell on Friday, during which the Chairman of the Fed Board said that “ the time has come for policy to adjust “. In this way, the chairman set high expectations for interest rate cuts in the near future. Powell stressed that keeping interest rates high risks having a negative impact on the labor market, which has looked weaker than expected based on recent data. Stocks rallied more than 1% on Friday after the announcement, bond yields fell and the US dollar also weakened, losing nearly 1.5% against the euro for the week.

A lot of attention was attracted by the published revision of the annual change of newly employed people in the USA (excluding the agricultural sector) — the Bureau of Labor Statistics reduced the annual result of newly employed people by as much as 818 thousand. This was the biggest negative revision since 2009. Preliminary PMI results also came out last week, with the manufacturing PMI falling from 49.6 to 48 points, 1.5 points below analysts’ forecasts. Meanwhile, the services PMI beat analysts’ expectations at 55.2, while the overall S&P Global PMI edged slightly lower than economists’ expectations at 54.1.

Retailers were the big gainers last week, with Walmart up 3.06% and Target up 10.9%. An impressive jump was recorded by uranium miners after the results of the largest uranium supplier Kazatomprom were announced: Cameco rose 5.84%, Kazatomprom 5.16%, NexGen Energy 7.38%.

Europe: Wage growth slows and service sector recovers

Most European stock indexes kept up with the US and recorded positive developments, with Germany’s DAX up 1.7% for the week, France’s CAC 40 up 1.71% and the UK’s FTSE 100 up 0.2%.

In the Eurozone, according to HCOB data, the services sector stood out in August, where the PMI index rose to as much as 53.3 points, when analysts predicted a result of 51.7 points. Economists note that the Olympic Games held in Paris had a significant influence on the growth of the service sector. Meanwhile, the manufacturing sector remains weak, with the manufacturing PMI retreating to 45.6 points in August and still remaining below the 50-point mark. Finally, the general HCOB eurozone PMI rose from 50.2 to 51.2, beating economists’ projections.

The change in wage growth, which is actively monitored by the ECB, also appeared last week — in the second quarter, wages in the euro area grew by 3.55% in annual terms, while the growth was 4.74% in the first quarter. The slowdown in wage growth creates conditions for interest rate cuts. In addition, representatives of the German Bundesbank said that the recovery of the country’s economy is projected even later than expected due to weak foreign demand.

On Tuesday, revised inflation data for the euro zone was published — there were no surprises and the region’s annual growth in the consumer price index remained at 2.6%. It is true that the consumer confidence index, which indicates the consumer’s attitude towards economic activity and partly allows for forecasting the potential expenses of households, reached -13.4 and was lower than expected by economists.

In Europe, the financial and banking sectors registered somewhat higher growth: the price of Allianz shares rose by 3.41%, Deutsche Bank by 4.7%, and AXA by 1.77%.

Asia: Japan’s trade balance shrinks and inflation rises gently

Asian stock markets were less volatile, with mixed results, with Japan’s Nikkei 225 up 0.8%, China’s CSI 300 down 0.55% and Hong Kong’s Hang Seng up 1.04%.

In Japan, National Core CPI inflation, excluding fresh food prices, came in at an annualized 2.7%, marking a slight 0.1% increase from last month. Economists note that a stronger yen contributes to lower energy and food prices for domestic residents. In addition, Japan’s trade balance data were released — the trade deficit reached as much as 621.8 billion. yen, when 224 billion was fixed in June. yen surplus. It is noted that the annual growth of imports was as high as 16.6%, while exports grew by 10.3%, although analysts expected an increase of 11.4%. Finally, Japan’s manufacturing sector PMI, published by Japan’s Jibun Bank, came in at 49.5 points and, while highlighting growth compared to last month’s result, remained below the 50-point mark indicating contraction in sector activity.

There have been no significant changes in China in the past week. The People’s Bank of China (PBOC) left interest rates unchanged. Economists note that if the Fed starts cutting interest rates, China’s central bank may follow the Fed’s lead.