Market Update

The week opened with U.S. markets showing signs of nervousness due to Fitch's credit rating downgrade. However, as we highlighted in our recent market update, the long-term market impact is expected to be minimal, drawing parallels to a similar situation in 2011.
The spotlight then shifted to the Bank of England’s (BoE) interest rate verdict on Thursday (3rd August). Marking its 14th straight rise, the BoE elevated rates by 25 basis points, hitting a 15-year peak of 5.25%. Governor Andrew Bailey emphasized the significance of wage control in the future, stating, “Much hinges on labour market developments and wage adjustments. Indications suggest a softening labour market." Operating on a data-centric approach, the Monetary Policy Committee (MPC) is poised to sustain an appropriately high rate to usher inflation towards its 2% goal. The bank's predictions hint at a swift reduction in inflation to 4.9% by the close of the year, a swifter descent than previously projected in May.
Given the backdrop of decelerating economic growth and dwindling productivity, the recent rate elevation is under scrutiny. As we've consistently emphasized, policymakers must navigate with caution, taking into account the latent impact of past rate adjustments. The employment sector did display a tempered momentum, suggesting a potential hiatus in rate adjustments come September.
In the US, the employment landscape began showing a gentle slowdown. The non-farm payrolls data disclosed a 187,000 job expansion in the US economy for July, slightly missing the 200,000 prediction. The Federal Reserve perceived this modest shortfall with optimism. While the yearly unemployment rate receded marginally to 3.5% and maintained a steady wage growth at 4.4%, the employment market showed a restrained trajectory.
Shifting focus to Japan, the Bank of Japan’s (BoJ) July policy tweaks aimed at providing more elastic interest rate adjustments through modifying its yield curve control objectives. This week saw the BoJ embark on two unanticipated bond-purchase ventures to temper yield increase momentum. Juggling its commitment to an accommodative stance and grappling with the significant interest rate disparity between the US and Japan, the Central Bank confronts ongoing currency frailty.
On a brighter note, China offered encouraging updates at the week's end. Proactive measures from Beijing fueled a rally in Chinese stocks, offsetting worries rooted in the latest economic metrics. Eager to boost the private sector, China's State Council rolled out initiatives targeting consumption rejuvenation, especially in arenas like automobiles, real estate, and services. Further reinforcing this approach, the People’s Bank of China (PBOC) declared its plan to persist with reductions in home loan interest rates, while simultaneously directing commercial banks to recalibrate rates for ongoing mortgages, solidifying economic support.