It’s been a busy week, with a raft of economic data from around the world providing plenty for investors to digest.
To begin the week UK unemployment and average wage growth reports were released and were aligned with market expectations. The unemployment rate for the month of July was 4.1%, falling from the previous month’s figure of 4.2%. Average wage growth (excluding bonuses) fell to 5.1%, down from 5.4% the month before. The Bank of England (BoE) is watching wage growth closely, as higher wages often lead to price increases as businesses try to pass on their higher costs. The BoE meet again next Thursday following their first rate cut of the year at the beginning of August to 5%.
On Tuesday UK GDP reports were released and slightly disappointed as GDP, month-on-month, came in flat at 0% for the second consecutive month, with markets forecasting a rise of 0.2%. Over the previous month, the GDP slowdown was attributed to the political uncertainty and there was huge anticipation that as the Labour party won the election there would be a post-election economic “bounce back”. So far this has failed to materialise as the Chancellor, Rachel Reeves, focuses on the fast-approaching Autumn budget. The weakness in data has made next Thursday’s BoE meeting more interesting and increased the odds of another interest rate cut.
German inflation for the month of August has fallen to the 2% target rate for the first time since March 2021. There was a significant fall (year-on-year) from July’s figure of 2.6% with energy prices largely contributing to this as they fell by 5.15%. Just this Friday morning, French inflation has fallen below target to 1.8% (year-on-year), as we continue to see the trend of inflation around Europe continuing to fall.
The European Central Bank (ECB) met this week and for the second consecutive meeting cut interest rates by 0.25%. Inflation across the Eurozone has fallen to 2.2%, which policymakers say has been “developing as expected”. The ECB downgraded their GDP forecasts for the region by 0.1% but did not commit to further imminent rate cuts. Instead, the ECB will continue to be data dependant, with its President, Christine Lagarde, stating “we are going to decide meeting by meeting”.
US inflation was announced on Thursday with inflation (year-on-year) falling to 2.5% from the previous 2.9% in July. This is now the lowest level of headline inflation since 2021. The story is a little different for core inflation (excludes food and energy prices) which remained at 3.2% (year-on-year) and rose to 0.3% (month-on-month) with rises in airline tickets, car insurance and shelter (rent) prices the main contributors to this. The US Federal Reserve will meet next week, and it is nailed on that they will cut interest rates for the first time this year. The level of the cut is open to debate, with each data point the odds change and there is currently estimated to be a 40% chance of a 50bps (0.5%) cut.
Apple began their roll out for their latest phone, the iPhone 16, with the A18 chip featuring Apple intelligence. The iPhone will be available next week however oddly the software update containing apple intelligence will not be available until October. There is the still the anticipation that Apple will see a significant upgrade cycle with a large percentage of users still using four and five-year-old iPhones. Apple also received the green light from US regulators to add a feature into the Airpod Pros enabling them to be used as hearing aids, a gateway into disrupting that market. Such news is usually extremely positive for the Apple share price, however they have a current cloud over their head in the form of an £11bn tax bill owed to Ireland in unpaid taxes.
Away from the data there was the first, and potentially only, debate between Kamala Harris and Donald Trump. Following on from the debate, the odds of Kamala Harris winning the race to the White House improved. The expectation is the result is going to be very tight, and a few swing states will hold the key. We will likely see increased campaigning in the coming weeks ahead of the election.
This week has been a stronger week for equity markets, with the US market leading the way, helped by a 10% increase in Nvidia. While equities performed well, we have also seen bond yields fall (prices rise) as investors continue to bet on significant interest rate cuts in the coming months.
Next week is likely to be lively, with all eyes on the US Fed’s meeting on Wednesday. Here in the UK we will receive key inflation data, before the Bank Of England meet on Thursday to set interest rates, with a rate cut in the balance.
Nathan Amaning, Investment Analyst
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