Portfolio Update – September 2024

General news

• On 01/09/2024, Euro zone inflation fell to a three-year low of 2.2% in August, according to flash figures from Eurostat, aligning with economist predictions and boosting expectations for a September rate cut from the European Central Bank (ECB). The core inflation rate, excluding energy, food, alcohol, and tobacco, edged slightly lower to 2.8%. The decline, largely driven by falling energy prices, saw the euro slip 0.1% against the British pound and rise marginally against the U.S. dollar, as markets anticipate a rate cut from both the ECB and the Federal Reserve. However, economists warn that persistent services inflation, which rose to 4.2%, remains a concern for ECB policymakers. Despite the headline inflation drop, sticky core inflation, particularly in services, suggests that underlying pressures persist, with economists expecting core inflation to remain above 2.5% for the rest of the year. The ECB is now expected to implement further rate cuts, including a potential 25 basis point reduction in September, after having initiated its first cut in June.
• Inflation in the U.S. edged higher in July, according to the personal consumption expenditures (PCE) price index, a key measure closely watched by the Federal Reserve. The PCE rose by 0.2% for the month, bringing it to a 2.5% increase year-over-year, matching expectations. Core PCE, which excludes volatile food and energy prices, also grew by 0.2% for the month and 2.6% year-over-year, slightly below estimates. Both core and headline inflation figures remained unchanged from June. While inflation across various components eased, shelter costs persisted, rising by 0.4% in July. Personal income grew by 0.3%, and consumer spending increased by 0.5%, though the personal savings rate fell to 2.9%, the lowest since mid-2022. This inflation data comes as the Fed prepares for its first interest rate reduction in over four years.
• Goldman Sachs is cutting several hundred jobs as part of its annual performance review process targeting underperformers, a practice it reinstated in 2022 after pausing during the pandemic. Despite the layoffs, which have affected 1% to 5% of its workforce in the past, the bank anticipates a higher headcount in 2024. The reductions come as dealmaking remains below historical norms, though Goldman posted strong second-quarter profits boosted by debt underwriting and fixed-income trading. While a report suggested up to 1,300 cuts, the bank disputes this figure, and its stock has surged 32% this year, outpacing rivals.
• On 04/09/2024, U.S. manufacturing activity remained in contraction in August, with the Institute for Supply Management (ISM) reporting a 47.2% reading for the month, slightly better than July’s 46.8% but still below the 50% threshold indicating expansion. Demand continued to be weak, and businesses showed reluctance to invest due to monetary policy concerns and election uncertainty. Though this contraction suggests economic weakness, a reading above 42.5% typically signals broader economic growth. The data prompted speculation about a Federal Reserve interest rate cut, while inflation pressures remained a consideration for future policy decisions.
• Oil prices continued to decline during Asian trading after news that Libya’s oil production was expected to resume, adding pressure to the market. Global benchmark Brent dropped 0.57% to $73.33 per barrel, while U.S. West Texas Intermediate futures fell 0.65% to $69.88 per barrel. Andy Lipow of Lipow Oil Associates attributed the price slide to multiple factors, including weaker-than-expected Chinese economic data and the resolution of a political conflict in Libya that could restore 700,000 barrels of daily output. Additionally, OPEC+’s plans to increase production amid oversupply concerns and slowing demand, especially from China, further weighed on oil prices.
• Global semiconductor stocks dropped sharply on Wednesday, following a significant plunge in Nvidia’s share price after it fell over 9% during U.S. trading. Nvidia’s decline was driven by concerns over the U.S. economy and news of an antitrust investigation by the Department of Justice. This market shock erased $279 billion of Nvidia’s value in a single day, marking the largest one-day market capitalization drop in U.S. history. The ripple effect hit global semiconductor companies, with SK Hynix and Samsung Electronics in South Korea suffering losses of 8% and 3.45%, respectively, and other major firms in Japan, Taiwan, and Europe also seeing steep declines.
• On 05/09/2024, Asia-Pacific markets ended mixed on Thursday, with Japan’s Nikkei leading regional losses. The Nikkei 225 dropped 1.05% to 36,657.09, while the broader Topix fell 0.48% to 2,620.76, influenced by Japan’s July wage data. Average monthly cash earnings rose 3.6% year-on-year, a slower pace compared to June’s 4.5% increase, while real wages grew 0.4% year-on-year. The wage growth provides the Bank of Japan more flexibility for potential rate hikes, which could impact equities. Meanwhile, Singapore’s retail sales data was also released. Additionally, Australian telecom operator Optus received regulatory approval for a regional network and spectrum sharing deal with rival TPG Telecom.
• Australia’s economy grew by 0.2% in the June quarter and 1% over the past year, marking the weakest annual growth rate in years, according to the Australian Bureau of Statistics. Excluding the pandemic, this is the slowest rate since the early 1990s recession. Treasurer Jim Chalmers attributed the sluggish growth to the Reserve Bank’s 13 interest rate hikes, which he said were “smashing the economy.” Despite modest overall growth, economic activity per person has declined for six consecutive quarters, with a 1.5% drop over the past year, the largest since 1991 outside of the pandemic. Economist Callam Pickering noted that the economy remains strained by cost-of-living pressures and high interest rates, propped up mainly by government spending and population growth.
• On 06/09/2024, Members of the OPEC+ oil alliance have postponed a planned production hike of 180,000 barrels per day (bpd) from October to December, as part of a broader program to return 2.2 million bpd to the market in the coming months. The original cut, involving eight countries including Saudi Arabia and Russia, was set to expire this month but will now extend through November 2025. Despite earlier slumps in crude prices, futures recovered on Thursday, with Brent and Nymex contracts rising around 1%. OPEC+ will produce 39.725 million bpd in 2024, with additional voluntary cuts continuing into 2025.
• In August, private sector payrolls grew at their slowest pace in over 3½ years, according to ADP, with companies adding just 99,000 jobs, down from 111,000 in July and below the forecast of 140,000. This marked the weakest job growth since January 2021, indicating a significant slowdown in the labor market. While hiring has decelerated, only a few sectors, such as professional and business services (-16,000), manufacturing (-8,000), and information services (-4,000), reported job losses. Sectors like education and health services (+29,000), construction (+27,000), and financial activities (+18,000) showed gains. Meanwhile, small businesses with fewer than 50 employees reported a decline in jobs. Despite the slowdown, initial unemployment claims decreased to 227,000, slightly below expectations.
• On 07/09/2024, In August, the U.S. economy added 142,000 nonfarm payroll jobs, slightly below the forecasted 161,000 and up from July’s revised 89,000, signaling a continued labor market slowdown. The unemployment rate dropped to 4.2%, as expected, while the labor force grew by 120,000. Despite this, the labor force participation rate held steady at 62.7%. An alternative unemployment measure, including discouraged and part-time workers, edged up to 7.9%, its highest since October 2021. Employment gains were led by construction (+34,000), healthcare (+31,000), and social assistance (+13,000), while manufacturing saw a loss of 24,000 jobs. Wages rose 0.4% month-over-month and 3.8% year-over-year, slightly above expectations. Previous job reports saw downward revisions, with June and July totals cut by 61,000 and 25,000, respectively, further reflecting a decelerating labor market.
• On 09/09/2024, China’s consumer price index (CPI) rose 0.6% year-on-year in August, missing expectations of 0.7%, as declines in transportation, home goods prices, and rents offset gains. Food prices increased by 2.8%, driven by significant surges in pork (up 16.1%) and vegetable prices (up 21.8%). Despite this, core CPI, which excludes food and energy, rose by just 0.3%, marking a second month of slower growth. China’s CPI remains subdued amid weak domestic demand since the pandemic. Former central bank head Yi Gang highlighted concerns about deflationary pressures, predicting CPI would stay slightly above zero by year-end. Retail sales and industrial data for August will be released soon, with experts calling for more proactive fiscal policies to avoid entrenched deflation.
• On 11/09/2024, The U.K. economy remained stagnant in July, with no growth reported for the second consecutive month, according to flash figures from the Office for National Statistics (ONS). GDP growth came in below expectations, with economists forecasting a 0.2% rise. The services sector showed slight growth of 0.1%, while production and construction output fell by 0.8% and 0.4%, respectively. Over the three months leading to July, the economy grew by 0.5%, slightly below predictions. Finance Minister Rachel Reeves acknowledged the challenges ahead, noting that two quarters of positive growth cannot erase 14 years of stagnation. The upcoming Autumn Statement on October 30 will address these economic difficulties, with Reeves warning of tough measures to address a £22 billion hole in public finances—a claim denied by her predecessor, Jeremy Hunt.
• On 12/09/2024, In August, U.S. inflation fell to its lowest level since February 2021, with the consumer price index (CPI) rising by 0.2%, matching expectations and bringing the annual inflation rate down to 2.5%, below the forecast of 2.6%. However, core CPI, which excludes volatile food and energy prices, rose by 0.3%, slightly higher than the expected 0.2%. This increase in core inflation complicates the Federal Reserve’s plans for interest rate cuts, likely leading to a quarter percentage point reduction at the upcoming meeting, rather than a larger 50 basis point cut. Markets reacted with initial losses but later rebounded, with traders now predicting an 85% chance of the smaller rate cut.
• Mortgage rates fell for the sixth consecutive week, with the average 30-year fixed-rate mortgage rate dropping to 6.29%, its lowest since February 2023, but mortgage demand remained subdued. Despite this decline, total mortgage applications rose only 1.4% for the week, with refinance applications up just 1%, though they were 106% higher than the previous year when demand was historically low. Purchase mortgage applications increased by 2% but were still 3% lower than a year ago, as affordability challenges and limited housing inventory continue to hinder home-buying decisions. While rates continue to decline, the upcoming consumer price index (CPI) report could influence mortgage rates depending on how it impacts expectations for the Federal Reserve’s anticipated rate cut.
• On 14/09/2024, China’s retail sales, industrial production, and urban investment in August all grew at a slower pace than expected, as per data from the National Bureau of Statistics. Retail sales increased by 2.1%, below the anticipated 2.5% and slower than July’s 2.7%. Industrial production rose by 4.5%, lagging behind the forecasted 4.8% and July’s 5.1% growth. Fixed asset investment grew 3.4% year-to-date through August, slightly missing expectations. Unemployment ticked up to 5.3%, attributed to recent graduates entering the job market. Despite these challenges, experts anticipate gradual government stimulus in the fourth quarter to support consumption and real estate.
• On 18/09/2024, UK inflation stayed put in August, matching expectations and the previous month’s reading of 2.2%. While overall inflation is steady, core inflation (excluding food, energy, alcohol, and tobacco) rose to 3.6%. This suggests inflation might be stickier than hoped. The Bank of England is likely to hold interest rates steady at its upcoming meeting, as bets for a rate cut have fallen since the inflation data was released.
• On 19/09/2024, The Federal Reserve implemented its first interest rate cut since the Covid pandemic, reducing the benchmark rate by 0.5 percentage points, bringing it to a range of 4.75% to 5%. The cut, aimed at preventing a labor market slowdown amidst softening inflation and jobs data, exceeded earlier expectations of a smaller reduction. This is the largest non-emergency rate cut since the 2008 financial crisis. The Fed’s “dot plot” projects further cuts, totaling up to 50 basis points by the end of 2024. The decision reflects growing confidence in reaching a 2% inflation target without significant unemployment spikes. Despite the positive reaction, with an initial stock market rise, markets ended the day slightly lower, and Treasury yields rose. Fed Chair Jerome Powell emphasized the central bank’s commitment to restoring price stability.
• On 20/09/2024, The Bank of Japan (BOJ) kept its benchmark interest rate steady at around 0.25%, the highest since 2008, following a two-day meeting, aligning with expectations from a Reuters poll. While another rate hike is anticipated by the end of the year, the BOJ is cautiously attempting to normalize its monetary policy without harming Japan’s economy. The BOJ noted moderate economic recovery but acknowledged some weaknesses, predicting continued growth and rising core inflation through fiscal year 2025. Market reactions were muted, with government bond yields slightly down and the yen nearly flat. Governor Kazuo Ueda indicated future rate increases would depend on economic and inflation trends.
• On 24/09/2024, Australia’s central bank, the Reserve Bank of Australia (RBA), kept its interest rates unchanged at 4.35% following its September policy meeting, maintaining a restrictive stance to combat inflation. This decision, in line with market expectations, contrasts with the recent rate cut by the U.S. Federal Reserve. The RBA emphasized the need to remain cautious about inflation risks, especially with core inflation still elevated at 3.9% last quarter, despite improvements in the labor market. The Australian dollar strengthened, and expectations of a rate cut by December dropped to 59%. Investors are now focusing on upcoming inflation data for further insights.
• On 25/09/2024, Australia’s inflation rate dropped to its lowest in three years, with headline consumer price inflation falling to 2.7% in August, aided by government rebates and cheaper petrol. While this offers some relief for households, the Reserve Bank of Australia (RBA) is unlikely to cut interest rates soon, as Governor Michele Bullock emphasized the need for sustained reductions in inflation before any decision. Underlying inflation, or the trimmed mean, also declined to 3.4%. However, with the RBA awaiting comprehensive data from the September quarter, interest rate cuts are still speculative, though economists suggest rates could be lowered by the year’s end if inflation trends continue downward.
• On 26/09/2024, The Swiss National Bank (SNB) reduced its key interest rate by 25 basis points to 1.0%, marking its third rate cut of 2024. This move follows similar actions by the European Central Bank and the U.S. Federal Reserve, with the latter recently cutting rates by 50 basis points. Swiss inflation remains subdued, with only a 1.1% annual increase in August. The Swiss franc strengthened following the rate cut, leading to concerns from Swiss manufacturers about the negative impact on exports. The SNB cited the appreciation of the franc as a key factor in its decision and signaled that further cuts might be necessary to maintain price stability.
• Homeowners are taking advantage of falling mortgage rates, leading to a surge in refinancing applications. Refinancing demand increased by 20% last week and is up 175% compared to the same period last year, as mortgage rates hit two-year lows. The average interest rate for a 30-year fixed-rate mortgage dropped to 6.13%, its eighth consecutive week of decline, while FHA rates dipped below 6%. This drop boosted the refinance share of applications to 55.7%, though overall activity remains modest compared to past refinancing booms. Homebuying demand also saw a slight 1% increase, despite high prices and limited housing supply.
• China’s central bank, the People’s Bank of China (PBOC), lowered the rate on 300 billion yuan ($42.66 billion) of one-year medium-term lending facility (MLF) loans from 2.30% to 2.00% on Wednesday, aligning with broader policy easing measures aimed at boosting the struggling economy. This marked the first time bid rates were disclosed, ranging from 1.90% to 2.30%, highlighting the varied mid- and long-term funding needs of financial institutions. The move reflects the PBOC’s commitment to enhancing transparency in monetary policy, with the MLF auction result distinguished from open market operations.
  
• On 28/09/2024, In August, U.S. inflation moved closer to the Federal Reserve’s 2% target, as the personal consumption expenditures (PCE) price index, the Fed’s preferred measure, rose 0.1% for the month, bringing the annual rate to 2.2%—the lowest since February 2021. Core PCE, excluding food and energy, also rose by 0.1%, with a 12-month rate of 2.7%, matching July’s figure and in line with expectations. Personal income and spending both increased by 0.2%, though below estimates of 0.4% and 0.3%. Despite weaker spending and income figures, markets reacted positively, with stock futures rising and Treasury yields falling, as the data suggested inflation is under control without signaling a sharp economic decline.
• On 30/09/2024, Shares of Chinese property developers surged on Monday after major cities announced new measures to boost homebuyer sentiment, following recent central bank policy stimulus. Guangzhou removed all restrictions on home purchases, while Shanghai reduced the required tax-paying period from three years to one and lowered the down-payment ratios for first and second homes to around 15% and 25%, respectively. Shenzhen also eased restrictions, allowing families and individuals to buy additional homes under certain conditions, such as migrant families with two or more children being eligible to purchase two homes.