Category: Economoney

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Chinese stocks up sharply after Beijing confirms stimulus measures

China stocks up

Chinese stocks continued to rise following state media reports that China’s top leaders have endorsed the government’s recent measures to bolster their economy.

The CSI 300 index in Mainland China continued its rally for a seventh consecutive day, reaching its highest point in about four months, subsequent to a meeting of China’s highest officials confirming the government’s latest economic stimulus actions.

South Korea’s Kospi index surged by 1.9%, driven by advances in semiconductor company SK Hynix, which declared the commencement of mass production of the world’s inaugural 12-layer HBM3E chip, utilised in AI applications.

See SK Hynix Newsroom report here

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U.S. consumer confidence falls the most in three years

U.S. consumer

In September 2024, consumer sentiment plummeted, marking the most significant drop in over three years, driven by escalating concerns over employment and business conditions, according to a report by the Conference Board released on Tuesday 24th September 2024.

The consumer confidence index reportedly fell to 98.7 from 105.6 in August 2024, marking the largest one-month drop since August 2021. This was contrary to the forecast of 104 and a stark contrast to the 132.6 reading in February 2020, just before the Covid pandemic’s onset.

All five components surveyed by the organisation declined this month, with the most significant decrease observed in the age bracket of 35-54 with incomes under $50,000.

Concerning

“Consumer evaluations of the present business conditions have turned negative, and the outlook on the current labour market has further weakened. There is also a growing pessimism about future labour market conditions, business conditions, and income prospects,” the Conference Board’s chief economist reportedly commented.

This significant dip in the confidence index last occurred as inflation began its ascent to the highest point in over four decades.

Following the announcement, stocks experienced temporary declines, and Treasury yields decreased.

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UK’s wealth creators are threatening to exit en masse ahead of proposed tax changes

UK luxury shopping

Labour’s proposal to dismantle the UK’s non-dom tax system may lead to an exodus of the ultra-wealthy, as advisors and research bodies have cautioned.

Switzerland, Monaco, Italy, Greece, Malta, Dubai, and the Caribbean are becoming popular relocation destinations, sensing the apprehension among affluent investors.

Meanwhile, London’s super-prime real estate market could experience a decrease in transactions, although this may present opportunities for wealthy U.S. and other global buyers.

Nearly two-thirds (63%) of affluent investors have indicated they would depart from the U.K. within two years or ‘sooner’ if the Labour government proceeds with its intention to abolish the colonial-era tax concession.

Furthermore, 67% stated they would have chosen not to migrate to Britain initially, as per a recent Oxford Economics study evaluating the impact of these plans.

The UK’s non-dom regime, a tax rule with a 200-year history, allows individuals residing in the UK but domiciled elsewhere to not pay tax on foreign income and capital gains for up to 15 years. As of 2023, an estimated 74,000 people enjoyed the status, up from 68,900 the previous year.

Labour last month set out plans to abolish the status, expanding on a pledge set out in its election manifesto

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UK, Japan and China leave rates unchanged after jumbo U.S. cut

Bank of England holds UK interest rate at 5%

Interest rates are “now gradually on the path down”, the Bank of England governor reportedly said after borrowing costs were held at 5%.

He later reportedly remarked that inflation had “come down a long way” but warned the Bank would need to see more evidence that it will remain low before cutting rates further.

UK inflation is at 2.2%

Bank of Japan holds rate steady at around 0.25%

The Bank of Japan has maintained its benchmark interest rate at approximately 0.25%, marking the highest rate since 2008, following a two-day meeting.

The People’s Bank of China (PBOC) holds rates at 3.35%

The People’s Bank of China (PBOC) unexpectedly held the one-year loan prime rate (LPR) at 3.35%, as well as the five-year LPR at 3.85%.

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London is again Europe’s best stock market!

UK stock market

The London Stock Market has recently been hailed as Europe’s best stock market! 

According to a survey by Bank of America, Wall Street says that the UK is now the most preferred equity market in Europe. 

This positive sentiment comes as the FTSE 100 hit recent highs, reflecting a shift in investor confidence towards the UK stock market.

It’s quite a turnaround, especially considering the challenges the UK market has faced in recent years.

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U.S. cuts interest rate aggressively by 0.50% bringing the Fed rate range to 4.75% – 5.0%

U.S. interest rate

The Federal Open Market Committee (FOMC) has voted to reduce the interest rate by 0.50% after having maintained its benchmark rate within the range of 5.25% to 5.50% since July 2023

The previous rate was the highest seen for 23 years and remained unchanged even though the Fed’s favoured inflation gauge has decreased from 3.3% to 2.5%, and the unemployment rate has climbed from 3.5% to 4.2% during this period.

Following the interest rate cut today, 18th September 2024 of 0.50%, the new rate now stands at 4.75% to 5.0%.

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UK inflation sticks at 2.2% unchanged in August 2024

UK inflation

UK inflation was reported at 2.2% for August 2024, according to the Office for National Statistics (ONS) data released on Wednesday 18th August 2024

The consumer price index (CPI) figure aligned with the forecasts of analysts and remained consistent with July’s inflation rate of 2.2%.

Previously, the headline CPI had stabilised at 2% in both May and June 2024, which met the Bank of England’s target rate.

UK inflation data from the ONS
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UK High Street woes continue as 38 shops reportedly close every day

Closing down

In the first half of this year, pharmacies, pubs, and banks accounted for half of the closures on Britain’s High Streets, according to data. A total of 6,945 stores have shut down in 2024, averaging 38 closures per day

Taking new store openings into account, the net closure rate stands at 12 stores per day, a slight increase from the previous year.

Research by accountancy firm PwC reportedly indicates that each week, an average of 18 pharmacies, 16 pubs, and nine banks closed from January to June 2024.

In contrast, only three convenience stores and one café chain have opened, underscoring the significant transformations occurring in town centres.

The previous year recorded a net closure rate of 11 stores per day.

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U.S. PPI wholesale prices rose 0.2% in August 2024

U.S. PPI data

In August 2024, wholesale prices saw an increase that was roughly in line with expectations, marking the final inflation data point before the Federal Reserve’s anticipated interest rate cut due on 18th September 2024

The Bureau of Labor Statistics announced on Thursday 12th September 2024 that the producer price index (PPI), which measures the prices received by producers for goods and services for final demand, increased by 0.2% for the month, matching the consensus estimate.

Excluding food and energy, the PPI experienced a 0.3% increase, slightly above the 0.2% consensus estimate. This core increase persisted even when trade services were removed from the calculation.

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In August 2024 – U.S. consumer prices increased by 0.2% with core inflation exceeding expectations

U.S. CPI statistics

As anticipated in the U.S., prices rose in August 2024, while the annual inflation rate fell to its lowest point since February 2021, according to a Labor Department report on Wednesday 11th September 2024.

This development likely now paves the way for a Federal Reserve interest rate reduction next week but maybe by only 0.25% and not the 0.50% some pundits have predicted.

The consumer price index, which measures a wide array of goods and services costs throughout the U.S. economy, rose by 0.2% for the month, matching the consensus, as reported by the Bureau of Labor Statistics.

This increase brought the year-on-year inflation rate to 2.5%, a decrease of 0.4 percentage points from July 2024 and slightly below the 2.6% prediction.

Nevertheless, the core CPI, which omits the more fluctuating food and energy prices, saw a 0.3% rise for the month, just above the 0.2% projection. The annual core inflation rate stood at 3.2%, consistent with expectations.

Data: U.S. Bureau of Labor Statistics
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UK economy flatlines for second month in a row

UK economic health

The UK’s economy did not experience growth in July 2024, continuing the stagnation from June 2024, as indicated by official data

Analysts had anticipated a modest growth of 0.2% for July. However, the Gross Domestic Product (GDP) fell short of the expectations set by economists surveyed by Reuters, who had predicted a 0.2% increase. Additionally, the country experienced no GDP growth in June 2024.

In July 2024, Britain’s predominant services sector experienced a slight increase of 0.1%, while production and construction outputs declined by 0.8% and 0.4%, respectively.

The UK’s economic growth rose by 0.5% in the three months leading up to July 2024, which was marginally below the expectations of economists and the 0.6% growth seen in the second quarter ending in June.

The services sector received a boost from a summer filled with sports events, including the Euros and the Olympics, despite the downturn in production and construction outputs.

The absence of growth for another month poses a significant challenge for the new Labour government, which has prioritised economic stimulation.

Despite no growth in July 2024, the Office for National Statistics (ONS) noted that the services sector showed strength over the last three months as a whole. Growth was primarily driven by computer programmers and the health sector, which bounced back from June’s strike action.

However, there was a decline in output from the advertising, architecture, and engineering sectors, according to the ONS. Car and machinery firms experienced a particularly challenging month.

While the ONS tracks gross domestic product (GDP) monthly, greater emphasis is placed on the three-month trend. Monthly figures, being preliminary estimates, are often subject to minor revisions as more data becomes available.

UK economy flatlines in July 2024

UK economy flatlines in July 2024 (Graph and Data ONS)
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China’s exports up by 8.7% in August 2024

Exports data China

August 2024 saw China’s exports increase more than expected however, imports fell short of forecasts

Exports expanded by 8.7% in U.S. dollar terms compared to the previous year, while imports saw a marginal increase of 0.5%.

The export volume of China’s rare earths decreased by 1% from the previous year, imports experienced a more significant drop of 12%.

China’s exports to its major trading partners, the U.S., European Union and Association of Southeast Asian Nations all reportedly rose in August from a year ago.

Exports to the EU grew the most, up by 13% according to preliminary calculations.

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China’s Consumer Price Index (CPI) climbs by 0.6% – less-than-expected

China flag and charts

On Monday 9th September 2024, China announced that its consumer price index (CPI) increased by 0.6% year-on-year in August 2024, falling short of expectations and due mainly to decreasing costs in transportation, home goods, and rents.

The consumer price index was projected to rise by 0.7% year-on-year in August 2024, based on a poll. However, the producer price index experienced a decline of 1.8% year-on-year in August, exceeding the analysts’ forecast of a 1.4% decrease.

China’s inflation rate increased by 0.6% year-on-year, which was below the 0.7% economists had anticipated according to a Reuters poll. Month-on-month, the Consumer Price Index (CPI) saw a rise of 0.4%, also falling short of the expected 0.5%.

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Does the stock market reflect the state of the U.S. economy?

Stock market health monitor

The stock market is often seen as a barometer of economic health, but its relationship with the broader U.S. economy is more nuanced than it might appear.

Although there are links between the two, they do not always correlate. The intricacies of this relationship and its implications for investors and the general public are multifaceted.

The stock market – A snapshot of investor sentiment

The stock market is largely a reflection of investor sentiment and their expectations for future economic performance. When investors feel optimistic, stock prices generally increase. On the other hand, when they are pessimistic, stock prices are likely to decrease. Because the market is driven by sentiment, it can react to factors that don’t immediately affect the real economy, like geopolitical events, interest rate changes, or corporate earnings announcements.

Economic indicators: The real economy

The well-being of the U.S. economy is often assessed using various indicators such as Gross Domestic Product (GDP) growth, unemployment rates, consumer spending, and inflation. These metrics offer a broader perspective on the economic climate. For example, an expanding GDP coupled with low unemployment usually indicates a robust economy, despite any fluctuations in the stock market.

Divergence between the stock market and the economy

Occasionally, the stock market and the economy may move in different directions. For instance, during the COVID-19 pandemic, the stock market swiftly recovered from an initial downturn due to extraordinary fiscal and monetary stimulus measures. In contrast, the wider economy’s recovery was more protracted, marked by persistent high unemployment and substantial disruptions across numerous industries.

Likewise, the stock market might fall even amidst positive economic indicators. This occurs when investors foresee impending difficulties, such as possible increases in interest rates or geopolitical conflicts, that could affect corporate earnings.

Short-term vs. long-term perspectives

The stock market frequently responds to short-term factors and investor behaviours, such as speculation and market sentiment, leading to volatility that may not align with the underlying economic fundamentals. Conversely, economic indicators generally offer a more long-term perspective on the economy’s health.

The broader impact of the stock market

Although the stock market’s performance can influence the economy via wealth effects and corporate investments, it is not the only indicator of economic vitality. The performance of the stock market is significant to many U.S. citizens, especially those with investments through retirement plans.

However, the real economy, as measured by employment, production, and consumption, often has a more direct impact on people’s daily lives.

Conclusion

In conclusion, although the stock market is linked to the U.S. economy, they do not always move in tandem. The stock market reflects investor sentiment and anticipations for the future, yet it may not fully represent the present economic conditions.

Hence, for a thorough assessment of economic health, it is crucial to evaluate various economic indicators in addition to the performance of the stock market.

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Is the ‘eagerly anticipated’ Fed interest rate cut (due in September 2024) – too little too late?

Federal Reserve

Is the U.S. economy already weaker than the headline data suggests and should the U.S. Federal Reserve already be easing?

In the U.S. recent data (Friday 30th August 2024) showed the personal consumption expenditures (PCE) price index, the Federal Reserve’s favored measure of inflation, ticked up 0.2% last month, as expected. The data seems to back a smaller rate cut.

The question of whether the economy is weaker than headline data suggests and if the U.S. Federal Reserve should already be easing is complex.

The gross domestic product (GDP) increased at an annual rate of 3% in Q2 of 2024, which is a positive indicator. However, the U.S. current-account deficit widened, and personal income and outlays show mixed signals with a slight increase in personal income but a higher increase in personal outlays.

Inflation remains above the Federal Reserve’s 2% target but well below the pandemic-era peak. These factors suggest that while there are positive aspects to the U.S. economy, there are also challenges that may warrant caution from the Federal Reserve.

Is the market too focused on forecasting the size of any possible upcoming cut? “The question no one has asked yet is why is the policy rate is still at 5.5% when inflation is down to almost 2.5%? It would most likely be an error to do a ‘bigger’ rate cut in this kind of environment with all the uncertainty that the U.S. economy is facing.

Jobs data trends are also an important factor and play a major role in decision making. Company performance and future performance predictions are critical to help judge policy direction.

Decisions on monetary policy easing would be based on a comprehensive analysis of all economic indicators and trends.

If the FED go BIG on a rate cut some say it could be very dangerous and spook the markets.

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Euro zone inflation falls to 2.2% – a 3-year low

EU inflation drops

Inflation in the Euro zone decreased to a three-year low of 2.2% in August 2024, according to preliminary data from Eurostat released on Friday 30th August 2024

The core inflation rate, which excludes the volatile elements of energy, food, alcohol, and tobacco, dropped to 2.8% in August from July’s 2.9%, aligning with predictions.

Market expectations have fully incorporated a 0.25% rate cut by the ECB in September 2024, following its initial rate reduction in June 2024, with anticipation of an additional 0.25% reduction before year-end.

This follows a slowdown in price increases in Germany, the largest economy in the eurozone, which cooled to an unexpected 2% for the month, according to the index of consumer prices.

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U.S. jobs data revision creates economic concern and political argument

U.S> jobs data revision

Job growth in the US last year was weaker than previously believed, according to a statement from the Labor Department on Wednesday 21st August 2024.

This revelation has intensified the ongoing debate regarding the health of the U.S. economy. The department’s updated figures indicate that there were approximately 818,000 fewer jobs added over the 12 months leading up to March than initially estimated.

This preliminary revision suggests a 30% decrease in the total number of jobs created during that period, marking the most significant adjustment since 2009.

The revised data points to an average monthly job increase of about 174,000, a reduction from the previously estimated 240,000.

Downward revisions affected most sectors, including information, media, technology, retail, manufacturing, and the broad category of professional and business services.

Analysis by Oxford Economics noted that this indicates the job growth for the period relied more heavily on government and education/healthcare sectors than previously understood.

Despite the revisions, hiring remained robust, albeit not at levels sufficient to match the growth of the working-age population.

The U.S. Labor Department issues monthly job creation estimates based on employer surveys and regularly updates these figures as more data becomes available, with an annual reset at the beginning of each year.

The report from Wednesday offered a glimpse into this process, incorporating data from county-level unemployment insurance tax records. This year’s revision is notably larger than those of previous years.

The Biden administration has highlighted strong job growth as evidence that its policies have positioned the U.S. as the world’s leading economy post-pandemic.

However, Republicans have used the latest figures to contend that the Democrats have misled the public about the economic situation. The Republican Party took to social media to announce: “BREAKING: 818,000 jobs that the Biden-Harris administration claimed to have ‘created’ do not actually exist.”

Over the past year, the U.S. has consistently reported robust job growth, defying both economists’ expectations and public sentiment. These gains have been particularly surprising given the highest borrowing costs in a generation, which typically hinder economic growth.

The recent revisions have lent weight to the argument that the labour market is less stable than previously thought, as highlighted by the Republican response.

Analysts believe these new figures will reinforce the case for the U.S. Federal Reserve to lower interest rates at its upcoming September 2024 meeting, a move that is widely anticipated to prevent further weakening of the job market.

These revisions have not caused widespread concern

Despite earlier economic anxieties this month, financial markets have largely absorbed the latest data without significant turmoil.

But that doesn’t mean there will be zero fallout – turmoil may follow. The data believed to be correct is incorrect – so, can we believe the data? Are there cracks appearing in the U.S labour market?

This data helped the U.S. economy – but it wasn’t right?

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All roads lead to Fed rate cut as minutes point to ‘likely’ September 2024 reduction

Fed prediction

No surprise here then as the Fed have been signalling a cut for some time now

The Fed summary stated: “The vast majority” of participants at the July 30-31 meeting “observed that, if the data continued to come in about as expected, it would likely be appropriate to ease policy at the next meeting.”

Markets have fully factored in a rate cut for September, marking the first such move since the initial emergency reductions during the early stages of the Covid crisis.

See more about Fed rate cut signals here

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U.S. and China reportedly reach agreement to cooperate on financial stability

U.S. & China flags

The U.S. and China recently signed an agreement to cooperate on financial stability. This agreement was part of a meeting of the U.S. – China Financial Working Group held in Shanghai. 

The discussions were reportedly described as professional, pragmatic, candid, and constructive.

The agreement includes measures for both countries to collaborate on capital markets, cross-border payments, and monetary policy. Representatives from various financial institutions and regulatory bodies from both nations participated in the meeting.

This cooperation aims to enhance financial stability and address potential financial risks more effectively. It’s a significant step towards fostering economic collaboration between the two largest economies in the world.

See full report here

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People leave New Zealand in record numbers seeking better opportunities

Leaving New Zealand

Record numbers of people are leaving New Zealand as unemployment increases, interest rates stay elevated, and economic growth remains weak, according to government statistics.

Statistics New Zealand’s data released on Tuesday 13th August 2024 indicates that 131,200 individuals left New Zealand in the year ending June 2024, tentatively the highest annual figure on record. Approximately one-third of these individuals were bound for Australia.

Although net migration is still high, economists anticipate a decline as fewer foreign nationals show interest in moving to New Zealand due to the weaker economy.

The statistics reveal that 80,174 of those who left were citizens, nearly twice the number that left before the Covid-19 pandemic.

During the pandemic, New Zealanders abroad returned in large numbers, spurred by the government’s response to the crisis.

However, for some, the appeal of the 5.3 million-strong country has waned. Economists note that New Zealanders, vexed by living costs, high interest rates, and limited job prospects, are considering relocation to Australia, the UK, and other countries.

New Zealand’s economy is floundering following the central bank’s 521 basis point increase in cash rates, the most substantial hike since the official cash rate’s inception in 1999.

The economy grew by only 0.2% in the first quarter, unemployment climbed to 4.7% in the second quarter, and inflation continues to be high at 3.3%.

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UK retailers reported a 0.5% rebound in July 2024

Retail UK

UK retail sales up

The rise came after a significant drop in sales volumes, which track the amount purchased, in June due to unfavorable weather affecting demand.

Last month, department stores and retailers of sports equipment saw an uptick in the volume of goods sold thanks to the Euro football tournament.

However, the Office for National Statistics (ONS), which provided the data, noted that it was a challenging month for clothing and furniture retailers, with fuel sales declining even as prices at the pump decreased.

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Nikkei rises 3% to lead gains in Asia

Japan shares

Japanese stocks led gains across Asia on Friday 16th August 2024, poised for their best week in four years, with the Nikkei 225 climbing over 3% following a Wall Street rally.

The surge came as new economic data alleviated concerns of a U.S. recession.

In the U.S., retail sales saw a 1% increase in July, significantly exceeding the Dow Jones estimate of a 0.3% rise. Additionally, weekly jobless claims experienced a decline.

The rise in the Nikkei came after the biggest fall in history just days ago where it hit historic lows last seen in 1987 making it a remarkably fast recovery.

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U.S. consumer spending improved in July 2024 as retail sales increased by 1% – better than forecast

U.S. retail

In July 2024, U.S. consumer spending exceeded expectations, and inflation pressures continued to ease, as reported by the U.S. Department of Commerce on Thursday 15th August 2024.

Retail sales in the U.S. rose by 1% for the month, with advanced figures adjusted for seasonality but not for inflation. This surpassed the 0.3% increase anticipated. The initially flat reported sales for June 2024 were revised to a 0.2% decrease.

Removing auto-related items, sales saw a 0.4% rise, which was substantially more favourable than the predicted 0.1%.

The number of weekly jobless claims fell to 227,000, a drop of 7,000 from the preceding week, and was below the forecasted 235,000.

Markets have responded positively to all this good news, and together with other favourable developments, it appears increasingly likely that the Federal Reserve will have no reason other than to cut rates in September 2024.

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UK economy grows 0.6% in second quarter 2024

UK GDP growth

The U.K. economy grew by 0.6% in the second quarter of 2024, the Office for National Statistics said Thursday 15th August 2024, in line with expectations.

The data release follows an expansion of 0.7% in the first quarter of 2024.

Economic growth was flat in June, in line with forecasts.

The UK economy has shown modest yet consistent growth each month this year, marking an exit from a mild ‘technical’ recession. Additionally, GDP remained unchanged in April, influenced by wet weather that impacted retail sales and construction activity.

Growth was led by the services sector, in particular the IT industry, legal services and scientific research.

ONS data for UK economic growth