Market Update

In the US, investor sentiment was buoyed by the release of the Federal Reserve’s minutes earlier in the week, which revealed that the “vast majority” of policymakers deemed a rate cut in September as “likely appropriate.” This view was based on growing confidence in disinflation trends and the labour market moving towards better balance.
As the week concluded, US stocks surged back toward record highs, driven by optimism following Fed Chair Jerome Powell’s much-anticipated speech at the Jackson Hole Economic Symposium. Powell indicated that interest rate cuts were likely, stating “the time has come for policy to adjust.” While he refrained from offering specific details, he stressed the Fed's usual cautious approach: “the direction of travel is clear, and the timing and pace of rate cuts will depend on incoming data, the evolving outlook, and the balance of risks.”
After an early-month decline, stocks rebounded as economic fears eased. With the Fed’s September meeting on the horizon, investors remain hopeful that rate cuts are forthcoming, which would be beneficial for both equity and bond markets.
This week’s US economic data was generally in line with expectations. The composite PMI dipped slightly to 54.1 in August from 54.3 in July, while the manufacturing PMI fell to 48, staying in contraction territory. On the other hand, the services PMI continued its expansion, rising to 55.2. Notably, the pace of price increases for goods and services slowed to its lowest level since January, reinforcing expectations that inflation will continue to ease in the coming months.
In the UK, August’s preliminary PMI data exceeded expectations, showing the fastest rise in private sector output since April. The Services PMI came in at 53.3, and the Manufacturing PMI at 52.5, both well above the 50 threshold, signaling expansion. This strong performance was driven by increased business activity and a notable uptick in new order intakes. Inflationary pressures, particularly in the services sector, have moderated, creating a favorable environment for the Bank of England. Businesses are optimistic about the near-term outlook, citing reduced political uncertainty and the potential for further interest rate cuts as factors contributing to their positive sentiment.
In contrast, the Eurozone’s economic indicators paint a more mixed picture. While business activity has increased across the region, particularly in France, likely boosted by excitement surrounding the Olympic Games, new orders have continued to decline. Manufacturing activity remains under pressure, with a PMI of 45.6, indicating contraction. The European Central Bank's latest minutes showed openness to potential rate cuts, although the ECB has kept rates unchanged for now.
Meanwhile, Japanese stocks experienced a sharp decline in early August following the Bank of Japan’s second rate hike of the year, compounded by concerns about US economic growth. Addressing these issues, Bank of Japan Governor Kazuo Ueda spoke at Jackson Hole on Friday, reaffirming the BoJ's commitment to its monetary policy while signaling its readiness to adjust if economic and inflationary conditions evolve as expected. Ueda acknowledged ongoing market instability, despite recent recoveries, and stressed that the BoJ is closely monitoring fluctuations in the yen's value, which could impact its inflation targets.