Written by Dominic Williams
In the US, markets had a positive week, with the S&P 500 index returning +1.4% in GBP terms. The latest US jobless claims data, which tracks the number of individuals filing for unemployment benefits for the first time, showed an increase of 33,000 from the previous week, bringing the total to 258,000. This figure surpassed market expectations of 230,000, with the rise largely attributed to increased claims in Michigan, where layoffs occurred in the manufacturing and management sectors, as well as the impact of Hurricane Helene. This data contrasts with recent Non-Farm Payroll figures, which have suggested steady job growth in the US economy. While the US economy has certainly been stronger than many might have anticipated, our team are mindful that the quality of many datapoints, such as the Non-Farm Payrolls, has become lower over time and there are currently many contrasting signals to be aware of.
Annual inflation figures were also released, showing a year-on-year increase of 2.4%, down from August’s figure of 2.5%. This marks the sixth consecutive month of declining inflation in the US. Investors remain confident that the Federal Reserve (Fed) will continue its rate-cutting cycle, with a quarter-point reduction widely expected at the November meeting.
In the UK, GDP growth figures for August showed a 0.2% increase, representing a rebound from the previous two months of stagnant economic growth. Output from the production and construction sectors recovered after declines in July, with additional support from the services sector. It is now forecasted that a mild slowdown in GDP growth is more likely in the second half of the year, rather than another recession.
China saw its annual inflation rate fall to 0.4%, below market expectations of 0.6%. This marks a three-month low for the world’s second-largest economy and highlights the need for additional policy measures to address deflationary risks. China’s economy continues to grapple with deflationary pressures linked to its ongoing property crisis, which has dampened household spending and weakened consumer demand. On Saturday, China’s Minister of Finance announced plans for additional government support in efforts to boost the economy, but did not specify amounts that would be provided. Ahead of the inflation data, the MSCI China equity index dropped by -6.7% in GBP terms over the week, a sharp contrast to its earlier rally which followed on from the initial government stimulus announcements.
In Europe, the MSCI Europe ex-UK index returned +1.1% over the week. However, key structural challenges persist, and the broader economic environment remains subdued. Germany’s Economy Minister recently announced that the country’s economy, Europe’s largest, is now expected to shrink this year, reversing earlier predictions of slight positive growth, this would be the second consecutive annual contraction for the country. This shift underscores some of Germany’s structural challenges, particularly its reliance on manufacturing and the effects of global competition. Germany also reported a decline in its annual inflation rate to 1.6% in September, down from 1.9% in August, driven by a sharp reduction in energy costs and a fall in goods prices. The European Central Bank will likely consider this data in its upcoming interest rate decision, as slowing inflation points to weakening economic activity, making another rate cut increasingly likely.
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