The annual Jackson Hole Symposium opened last night and gets going in earnest later this afternoon where it is expected US Fed Chair, Jerome Powell, will outline the central bank’s current view on monetary policy and the US economy. Investors will be looking for clues on the level and timing of potential rate cuts as well as assessing the US Fed’s current economic outlook.
As we head towards the month of September, when the US Fed will once again meet, markets are almost certain we will see the first interest rate cut as key economic data points have indicated a continued slowdown of the labour market and inflation has dropped below 3%. There still remains various key data points before the big decision; GDP, PCE inflation, Non-farm payrolls and July retail sales, which could all affect the level of interest rate cut. While a rate cut is nailed on for September, there is still a wide range of outcomes for the total amount of interest rate cuts for the remainder of 2024, with 0.75% of interest rate cuts the most likely outcome.
The imminent prospect of rate cuts has fuelled gold prices to rise to fresh all-time highs this week, pushing above $2,500 an ounce. To put that into perspective a standard gold bar (weighting 12kg) would now be worth more than $1 million. Gold has provided excellent diversification to portfolios as well as stellar returns, rising over 22% in the last six months.
Peloton interactive has just reported its first sales increase in nine quarters, with shares closing up 35% on the news. During the pandemic and global lockdowns, high end home gyms were certainly in fashion as consumers had the disposable income to spend and couldn’t access traditional gyms. After over-earning during lockdown, Peloton sales suffered significantly with the share price tanking. A broad restructuring plan is still underway as the search for a permanent CEO is ongoing and global headcount is being cut by 15%.
Japanese equities continued to regain their poise after the significant falls at the start of the month. The index dropped over 20% in three days, however, it is now close to recent highs.
Purchasing Managers Index (PMI) data from UK, Europe and the US was released this week, with mixed results. The standout data came from the UK, where both manufacturing PMI and services PMI were higher than expected and in clear expansionary mode. It provides further evidence of a robust UK economy that continues to perform better than anticipated. The good news has led investors to question whether another interest rate cut is required in the short-term and it will be a close call as to whether another 0.25% cut is delivered at the next Bank of England (BoE) meeting.
France also had positive PMI data. The economics of the Olympics is always interesting as Paris budgeted $8bn for the games and unlike previous hosts Brazil (Rio) and Japan (Tokyo) managed to stick to plan. Existing infrastructure has been key to this, and the French are already reaping the rewards. Services PMI rose to 55, the fastest pace in over two years, as tourists were prominent in restaurants, cafes, bars and sports arenas. This boost should also positively impact upcoming GDP figures by an estimated 30bps (0.3%) over the third quarter.
Next week has the potential for excitement with Nvidia releasing their Q2 results after hours on Wednesday. The results have set the tone for short-term market leadership and is seen as the bellwether of the artificial intelligence (AI) narrative. While we will be paying close attention to the results, our portfolios are designed to be well diversified and aim to reduce significant company specific risk, ensuring we are never de-railed by one individual stock.
Nathan Amaning, Investment Analyst
Risk warning: With investing, your capital is at risk. The value of investments and the income from them can go down as well as up and you may not recover the amount of your initial investment. Certain investments carry a higher degree of risk than others and are, therefore, unsuitable for some investors.