Market Update

As the summer season came to a close, people around the world, including UK politicians, returned to work, marking a week of considerable political upheaval and financial fluctuations. Sterling experienced volatility, dropping below 1.20 against the US dollar for the first time since January 2017. This decline boosted the FTSE 100, as most of its companies generate revenue overseas and benefit from a weaker pound. As the week unfolded, Sterling regained some ground due to the Conservative Party losing their majority in the House of Commons and opposition parties making strides to prevent a hard Brexit. However, the possibility of a general election and concerns about a Labour government impacted utility company stocks, as Jeremy Corbyn's historical interest in nationalization worried investors.
In the UK, August's PMI readings fell below analyst predictions, raising the risk of a technical recession. Manufacturing PMI hit 47.4, the lowest in seven years, missing estimates of 48.4. Services and Construction PMIs also slightly underperformed, standing at 50.6 and 50.2 respectively, compared to estimates of 50.5 and 51. Additionally, Marks and Spencer faced a historic shift as it was demoted from the FTSE 100 for the first time in 35 years after a quarterly review.
In the US, new tariffs on Chinese imports were implemented, although their impact on economic data remains to be seen. The Fed's beige book revealed concerns among companies regarding tariffs and trade policy uncertainty. The US ISM manufacturing index dropped to 49.1 from 51.3, while the non-manufacturing index surpassed expectations at 56.4 compared to forecasts of 54. However, the overall US data, including non-farm payrolls falling short of expectations, bolstered the case for a potential interest rate cut by the Fed in the upcoming meeting.
In China, despite a 14-month-long trade dispute with the US, a report to the Chinese congress indicated minimal direct impact on the Chinese economy. The focus shifted back to trade talks, as Beijing officials are expected to visit Washington in early October. Hong Kong's withdrawal of the controversial extradition bill brought relief to investors, alleviating the impact of ongoing protests. Additionally, China's central bank reduced the required reserve ratio for banks, providing support to the economy, particularly for the manufacturing sector by reducing funding costs.
Looking ahead, UK politics, including the suspension of Parliament, will continue to dominate headlines. The ECB is set to announce interest rates and provide a monetary policy update. Data releases include inflation figures from the US, China, Germany, and France, as well as retail sales data from the US and unemployment data from the UK.