Weekly markets review | 30 September 2024
Canaccord Genuity Wealth Management (UK, Channel Islands and Isle of Man)
A leading wealth management business with offices in London, Jersey, Guernsey and Isle of Man.
By Thomas Hibbert, CFA , Multi-Asset Strategist.
Summary
Markets last week
Chinese equities surged last week, recording their best weekly performance since the 2008 global financial crisis, gaining 15.7%
China
Chinese equities surged last week, recording their best weekly performance since the 2008 global financial crisis, gaining 15.7%, while Hong Kong equities rose an almost equally impressive 13%. This rally followed a series of significant policy announcements aimed at boosting the economy.
President Xi Jinping’s administration made a rare and decisive pivot, announcing an array of new and broad stimulus measures starting with the People’s Bank of China cutting interest rates. While the stimulus package boosted short-term sentiment, longer-term challenges remain, with economists warning that structural issues in China’s economy have yet to be addressed. However, with valuations still depressed following months of pessimism, some investors see the potential for a recovery opportunity as these new policies take hold.
Europe
European equities rallied 4% last week, driven by a surge in optimism following China’s stimulus measures. German stocks in particular, benefited from their ties to China, with the German bourse approaching record highs.
The positive sentiment from China provided a much-needed boost to Germany, whose economy has been weighed down by deteriorating data in recent months. German companies’ significant exposure to China, with many deriving over 10% of revenues from the region, made them prime beneficiaries of China’s shift. While the long-term recovery in China may take time, the immediate boost in sentiment has been a welcome relief for Europe’s largest economy.
US
US equities ended the week marginally positive, reflecting a steady performance. US economic growth for the second quarter was revised higher, indicating that the US corporate sector is in robust health. The Fed’s favoured inflation gauge core PCE was reassuringly benign adding to positive sentiment. Profit margins have risen over the past year and are higher than previously estimated, which bodes well for the US economy and the profitability of listed companies.
Bonds
It was a muted week for rates, with US Treasuries stable as the 10-year yield traded in a tight range around 3.75%. In Europe, yields broadly fell as weak economic data, including a contraction in Eurozone composite Purchasing Managers Index (PMI) and softer-than-expected French inflation, fuelled a dovish outlook for the ECB. However, the spread between French Obligations assimilables du Trésor (OATs) and German Bunds widened, driven by political uncertainty and concerns over budgetary gridlock. French yields now nearly match Spain’s despite a higher credit rating, signalling growing investor unease.
UK Gilt yields rose over the week, diverging from US and Eurozone bonds. Two-year gilt yields are nearly 40 basis points off their mid-August lows, reflecting expectations that the BoE will take a more hawkish stance compared to the Fed and ECB.
Japan
Japanese equities rose 3.7%, buoyed by both the China stimulus and political developments as Shigeru Ishiba was selected as Prime Minister in a close Liberal Democratic Party leadership race. The yen strengthened 1.2% against the US dollar as markets responded to Ishiba's victory. Investors expect a more balanced policy approach under Ishiba. Inflation remains above 2% in Japan, and wage growth is becoming more entrenched, supporting the outlook for further monetary policy normalisation.
The week ahead
Friday: US employment data
Our thoughts: In a busy week of US economic data, September’s non-farm payrolls and unemployment figures may carry the most weight, given the current focus on the labour market. There is a margin for error in the employment data, and the Fed is likely to take any major surprises with a grain of salt. Generally, economists expect a slight improvement from August.
Tuesday: Eurozone inflation
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Our thoughts: Eurozone headline inflation is anticipated to slow to 1.8% year-on-year in September, down from 2.2% in August. This would mark the first time since 2021 that inflation falls below the ECB’s 2% target, primarily due to a drop in fuel costs. Importantly, core inflation and services inflation are expected to remain steady at 2.8% and 4.1%.
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