Please see below article received from Brooks Macdonald this morning, which provides a succinct but detailed global market update.
What has happened
Equities continued their rally yesterday as optimism around a US soft landing economic outcome rose as labour market data pointed to a further slowing in activity. Bad news for the economy is being treated as good news for markets as it implies that monetary policy tightening is having an impact on the real economy which should bring down inflation and may mean that the Fed can pause their interest rate hikes for now.
Jobs and economic data
The ADP report on private sector payrolls was released yesterday with a lower level of growth than the market was expecting. The wages for both job-changers and job-stayers slowed with the year-on-year growth rates for both cohorts falling to their lowest levels since mid to late 2021. It is important to stress that these numbers remain very high by pre-COVID standards but there are signs of a softening in labour market tightness. The second driver of the soft landing narrative was the second revision to the Q2 GDP growth figure which showed a weaker economy than the first reading implied. The US growth rate was revised from an annualised rate of 2.4% down to 2.1%. Alongside this core PCE inflation, the Fed’s preferred measure of inflation, was revised down 1/10th of a percentage point, bringing the reading closer to the central bank’s target level.
European inflation
The news was less positive within Europe however, with the German flash CPI print showing greater stickiness than the market had expected, still running at 6.4%. Spanish inflation, which has recently seen a lurch downwards, picked up from last month with the measure now running at 2.4%. Later today we receive the Euro-Area wide inflation release which, despite the German figures yesterday, is still expected to fall from last month’s reading.
What does Brooks Macdonald think
The ongoing divergence between European and US inflation sets a tricky backdrop for the ECB when they meet in a fortnight. Market expectations apportion just over a 50% chance that the central bank feels it needs to hike by a further 25bps at that meeting. With fears of European stagflation front and centre yesterday, European indices underperformed their US peers.
| Index | 1 Day | 1 Week | 1 Month | YTD | ||||||
| TR | TR | TR | TR | |||||||
| MSCI AC World GBP | -0.3% | 1.9% | -1.1% | 9.5% | ||||||
| MSCI UK GBP | 0.1% | 2.2% | -2.1% | 2.5% | ||||||
| MSCI USA GBP | -0.3% | 1.9% | -0.2% | 13.1% | ||||||
| MSCI EMU GBP | -0.4% | 1.9% | -2.6% | 10.8% | ||||||
| MSCI AC Asia Pacific ex Japan GBP | -0.3% | 2.4% | -4.1% | -2.3% | ||||||
| MSCI Japan GBP | 0.0% | 0.8% | -2.1% | 7.0% | ||||||
| MSCI Emerging Markets GBP | -0.7% | 1.9% | -3.9% | 0.3% | ||||||
| Bloomberg Sterling Gilts GBP | 0.1% | 0.6% | -0.8% | -4.2% | ||||||
| Bloomberg Sterling Corps GBP | 0.1% | 0.4% | -0.4% | 0.7% | ||||||
| WTI Oil GBP | -0.2% | 3.5% | 2.6% | -3.2% | ||||||
| Dollar per Sterling | 0.6% | 0.0% | -1.0% | 5.3% | ||||||
| Euro per Sterling | 0.2% | -0.6% | -0.2% | 3.1% | ||||||
| MSCI PIMFA Income GBP | -0.2% | 1.1% | -0.9% | 3.0% | ||||||
| MSCI PIMFA Balanced GBP | -0.2% | 1.2% | -1.0% | 4.0% | ||||||
| MSCI PIMFA Growth GBP | -0.3% | 1.4% | -1.2% | 5.5% | ||||||
| Index | 1 Day | 1 Week | 1 Month | YTD | ||||||
| TR | TR | TR | TR | |||||||
| MSCI AC World USD | 0.5% | 1.9% | -2.3% | 15.1% | ||||||
| MSCI UK USD | 0.9% | 2.2% | -3.3% | 7.8% | ||||||
| MSCI USA USD | 0.4% | 1.8% | -1.4% | 18.8% | ||||||
| MSCI EMU USD | 0.4% | 1.9% | -3.8% | 16.5% | ||||||
| MSCI AC Asia Pacific ex Japan USD | 0.4% | 2.3% | -5.2% | 2.7% | ||||||
| MSCI Japan USD | 0.8% | 0.8% | -3.3% | 12.4% | ||||||
| MSCI Emerging Markets USD | 0.1% | 1.9% | -5.1% | 5.4% | ||||||
| Bloomberg Sterling Gilts USD | 1.2% | 0.9% | -1.9% | 1.4% | ||||||
| Bloomberg Sterling Corps USD | 1.2% | 0.8% | -1.4% | 6.5% | ||||||
| WTI Oil USD | 0.6% | 3.5% | 1.3% | 1.7% | ||||||
| Dollar per Sterling | 0.6% | 0.0% | -1.0% | 5.3% | ||||||
| Euro per Sterling | 0.2% | -0.6% | -0.2% | 3.1% | ||||||
| MSCI PIMFA Income USD | 0.6% | 1.0% | -2.1% | 8.2% | ||||||
| MSCI PIMFA Balanced USD | 0.5% | 1.2% | -2.2% | 9.3% | ||||||
| MSCI PIMFA Growth USD | 0.5% | 1.4% | -2.4% | 10.9% | ||||||
| Bloomberg as at 31/08/2023. TR denotes Net Total Return | ||||||||||
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Chloe
31/08/2023