Market Update

As depicted in the provided table, markets concluded the week on an upward trajectory while investors sifted through a plethora of economic indicators.
The Core PCE index in the US, which the Fed prioritizes as an inflation measure, met the projections by surging 0.2% monthly in July 2023 and 4.2% annually. Throughout the week, analysts intently monitored employment data for any indicators of an economic deceleration that could counteract inflationary tendencies. Central banking officials have consistently spotlighted the enduring strength of the job market as a primary hurdle in their attempts to curtail inflation.
On Friday, statistics unveiled an uptick in the US unemployment rate to 3.8% in August 2023, from 3.5% in July, marking the steepest since February 2022 and surpassing market forecasts. Notably, the wage growth pace decelerated both annually (4.3%) and monthly (0.2%), falling behind July's figures. Paradoxically, stock markets responded positively to these seemingly adverse economic indicators, given their implications for forthcoming monetary policies.
Moreover, the annual US GDP growth rate underwent a downward revision to 2.1% from an initial 2.4%. This recalibration stimulated a rise in equity valuations, potentially providing the Federal Reserve with added justification to hold steady on interest rate adjustments in their imminent meeting.
These recent findings resonate well with the Federal Reserve’s goals, spotlighting signs of a softening labor market. Such trends further fortify the anticipation that the forthcoming monetary policy summit will lean towards sustaining the present interest rates.
Shifting focus, recent economic metrics from China left investors wanting. However, this week's PMI data hinted at a brighter scenario. The Caixin Manufacturing PMI swelled to 51.0, surpassing the anticipated 49.3 and marking the highest since February 2023, signifying economic expansion.
The People’s Bank of China also unfurled significant monetary strategies on Friday. They proposed a two-point reduction in the foreign exchange reserve requirement ratio for financial institutions from 15 September, in a bid to rejuvenate economic progress and enhance financial liquidity. Multiple Chinese banking institutions have declared rate cuts on yuan reserves, likely to galvanize domestic lending and borrowing.
With the Shanghai Composite Index and the Hang Seng in Hong Kong registering gains (though trading concluded earlier due to a looming typhoon), the central bank's maneuvers underscore their proactive efforts to modulate monetary policies to buttress economic growth and liquidity.
In Europe, the annual inflation rate for August remained unaltered at 5.3%, albeit slightly above the predicted 5.1%. Nevertheless, a silver lining for the European Central Bank (ECB) emerged as the core inflation rate slid from 5.5% to 5.3%. This variegated data hasn't pacified the ongoing deliberations within the ECB, but it has nudged investors to temper their forecasts of a rate hike in September. Proponents of a monetary policy hiatus contend that the rapid deterioration of economic growth hints at the potential for the Eurozone to enter a recession, especially given the scant prospects for an economic resurgence.