Market Overview

Summary of world markets in September

Equity markets dipped early in September, dragged lower by concerns about the outlook for the US economy that were compounded by disappointing employment data and sharp declines in technology share prices, including Nvidia. By the end of the month, however, US equity indices had reached new highs, boosted by a much-trailed cut in interest rates.

Politics hit sentiment: Concerns over the possible measures contained in the new Labour Government’s Autumn Budget – which is scheduled to take place on 30 October – undermined sentiment in the UK during September, with investors, consumers and businesses all showing signs of unease. In particular, the British Retail Consortium  warned that UK consumer sentiment had deteriorated, commenting: “Negative publicity surrounding the state of the UK’s finances appears to have damaged confidence in the economic outlook, particularly among older generations.” Over September as a whole, the FTSE 100 Index  fell by 1.7% while the FTSE 250 Index  edged 0.2% lower.

Inflation set to pick up: As expected, the Bank of England (BoE) maintained its key base rate  at 5% at the Monetary Policy Committee’s September meeting. Sterling  strengthened following the central bank’s decision, reaching its highest level against the US dollar since early 2022. The annualised rate of consumer price inflation  remained at 2.2% during August. Looking ahead, the British Chambers of Commerce (BCC)  expects inflationary pressures to intensify over the rest of 2024, forcing the BoE to adopt a cautious approach and implement a series of rate cuts of 10 basis points each. The BCC warned that the UK economy is “unlikely to be heading into the fast lane any time soon.”

OECD upgrades its expectations for the UK: The Organisation for Economic Cooperation & Development (OECD)  upgraded its forecast for UK economic growth from 0.7% to 1.1% this year, and from 0.25 to 1.2% next year. The OECD also expects inflationary pressures to pick up, predicting that the UK will see rates of 2.7% this year and 2.4% in 2025. Elsewhere, the ONS reported that the UK economy  had expanded more slowly than first estimated during the second quarter of 2024, posting growth of 0.5% instead of 0.6%. Activity in the production and construction sectors proved weaker than initially calculated. The rate of unemployment  fell from 4.2% to 4.1% over the three months to July, and average earnings (excluding bonuses) rose by 5.1% over the same period, reaching their lowest growth rate since the second quarter of 2022.

US markets reach fresh highs: Equity markets dipped  early in September, dragged lower by concerns about the outlook for the US economy that were compounded by disappointing employment data and sharp dips in technology share prices, including Nvidia . By the end of the month, however, US equity indices had reached new highs, boosted by a much-trailed cut in interest rates, while Chinese equities  surged following stimulus measures, and Japanese share prices slumped amid expectations of a tighter monetary backdrop.

Fed cuts by 50 basis points: The Federal Reserve (Fed) implemented its first cut in interest rates for over four years1 during September, reducing the federal funds rate1 by a half a percentage point to a range of 4.75% to 5%. Inflationary pressures continued to ease in the US: the annualised rate of consumer price inflation  fell to 2.5% in August, representing the lowest 12-month growth since February 2021. In a statement, the Fed confirmed that it had “greater confidence that inflation is moving sustainably towards 2%”. The Dow Jones Industrial Average Index  rose by 1.8% in September and registered seven new closing highs during the month, taking the total so far this year to 33.

ECB expected to cut again: Business sentiment  in Germany declined for a fourth consecutive month during September, according to the Ifo Institute’s Business Climate Index, with the manufacturing index falling to its lowest level since July 2020. Meanwhile, European Central Bank President Christine Lagarde  stoked expectations of another cut in eurozone interest rates when policymakers meet in October, commenting that recent developments had strengthened the central bank’s confidence that inflation will return to target in a timely manner. Nevertheless, she acknowledged that Europe’s economic recovery continues to face headwinds. Over September, the Dax Index rose by 2.2%.

China surges: In a bid  to boost China’s faltering economy, the country’s government set out measures to improve consumption, while the People’s Bank of China announced a package designed to support China’s real estate sector. The news sent Chinese share prices soaring, and the Shanghai Composite Index  jumped by 17.4% over the month. In contrast, Japanese share prices  dropped at the end of the month over concerns that incoming Prime Minister Shigeru Ishiba would support a policy of higher interest rates. The Nikkei 225 Index fell by 1.9% over September.