Market Update

Market Update: Optimism on the Horizon
After weeks of uncertainty, Wall Street’s outlook on the US economy has taken a positive turn, fueled by encouraging economic data suggesting that inflation is cooling and the economy may achieve a “soft landing.”
US Economy: Inflation Eases and Consumers Shine
Inflation Data
The latest inflation figures offered reassurance to investors:
Consumer Price Index (CPI): Rose just 0.2% month-over-month in July, bringing the annual rate down to 2.9%, the first dip below 3% since 2021.
Core CPI: Excluding food and energy, also increased by 0.2%, aligning with market expectations.
Producer Price Index (PPI): Reinforced the narrative of easing inflation, coming in softer than forecast.
These trends have sparked speculation that the Federal Reserve’s cautious strategy is yielding results. With inflation decelerating and labour market indicators cooling, some analysts believe the Fed may soon consider rate cuts to support growth.
Consumer Resilience
The American consumer remains a key driver of the economy:
Retail Sales: Surged by 1% in July, a sharp rebound from June’s 0.2% decline, exceeding forecasts and defying expectations of weakening consumer spending.
Consumer Sentiment: The University of Michigan’s Consumer Sentiment Index rose to 67.8 in August, marking its first improvement in six months.
These metrics underscore household spending strength despite signs of a cooling labour market, painting a brighter picture for economic growth.
UK Economy: Resilience with Slowing Momentum
Across the Atlantic, the UK economy posted modest growth in Q2 2024, with GDP expanding by 0.6%, slightly down from 0.7% in Q1. However, June saw no growth, influenced by:
Heavy rainfall, which dampened retail sales.
A doctor’s strike, reducing healthcare sector activity.
While the economy remains steady, the slowdown could prompt the Bank of England to adopt a more accommodative monetary policy in the months ahead.
Asia: Mixed Signals
China:
Economic data from China revealed a mixed picture:
Retail Sales: Surpassed expectations with a 2.7% increase, signaling strong consumer demand.
Industrial Production: Grew by 5.1%, slightly below the forecasted 5.2%, highlighting lingering challenges in manufacturing.
Japan:
Japan delivered strong economic results, with 0.5% quarter-over-quarter GDP growth in Q2. However, the performance was overshadowed by political uncertainty as Prime Minister Fumio Kishida announced he would not seek re-election as leader of the ruling Liberal Democratic Party. His approval ratings recently plunged to 15.5%, the lowest for a Japanese prime minister in over a decade.
This backdrop of market and currency volatility, coupled with uncertainties surrounding inflation and interest rates, has led to a strategic adjustment in our portfolio, moving from a neutral to an underweight position in the region.
Looking Ahead
The combination of declining inflation, resilient consumer activity, and steady growth across major economies offers a cautiously optimistic outlook. While challenges remain, particularly in manufacturing and political stability in Asia, the US economy’s strength continues to drive global confidence. Investors will keep an eye on upcoming inflation reports and central bank actions, which will shape the trajectory of markets in the coming months.