Please see below, an article from Brooks Macdonald providing a brief analysis of the key factors currently affecting global investment markets. Received this morning – 01/10/2024
What has happened?
While the China equity market was up again aggressively yesterday on the back of last week’s Beijing-government promised stimulus, what is interesting is there was a lack of follow through in broader equity markets around the world on Monday. Indeed, on Monday, despite the Chinese CSI300 equity index up a huge +8.48%, the UK FTSE100 and the pan-European STOXX600 equity indices both ended Monday’s trading session down around -1%. Over in the US, for much of yesterday it was a similar story for the US S&P500 equity index, with only a late rally leaving the index up +0.42% on the day (all in local currency price return terms).
Israel launches ground invasion into Lebanon
Israel has launched a ground invasion of Israeli forces into southern Lebanon. While Israel is seeking to frame the ground operation as limited and targeted, it is nonetheless a major escalation in the conflict between Israel and the Lebanon-based and Iran-backed Hezbollah militant group; keep in mind that Israel is now having to contend with intense fighting on two fronts, given the ongoing war against Hamas – another Iran proxy – in Gaza. While the Brent crude oil price, a little over US$71 per barrel currently appears to have brushed off this latest escalation, should the Middle East tip into a wider regional war, possibly directing bringing in Iran and if so, likely the US, that could change very quickly.
Japan’s new prime minister calls general election on 27 September
Following his win in the governing Liberal Democratic Party (LDP) leadership elections at the end of last week, Shigeru Ishiba, as Japan’s new incoming prime minister on Monday said he planned to call a snap general election to be held on 27th October. Justifying the decision, Ishiba said that “it is important that the new government be judged by the people as soon as possible”. As far as markets are concerned, during his leadership campaign, the 67-year-old Ishiba has expressed support for the Bank of Japan’s interest rate policy normalisation, hence the market’s initial reaction earlier this week to mark the Japanese yen currency higher and Japan equities lower.
What does Brooks Macdonald think?
The late rally in US equities yesterday appeared to be somewhat at odds with the latest speech from US Federal Reserve (Fed) Chair Powell who was speaking yesterday at the National Association for Business Economics (NABE) conference. In his speech, Powell signalled that the Fed was in no rush to cut rates, that the US economy was on a solid footing, and that the Fed would remain data-dependent, with interest rates not on any pre-set course. Despite this more cautious messaging, markets by the end yesterday continued to forecast material cuts to interest rates in the coming months – around 70 basis points of cuts across the last 2 Fed meetings of 2024 in early November and mid-December – that suggests there is a lot riding on the economic data, with the US non-farm payrolls on Friday this week especially key in the short-term.
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Alex Kitteringham
1st October 2024