Q3 Review

The third quarter of 2024 produced some favourable returns across most major asset classes as both the UK and US began their rate cutting cycles.  There was also an increase in market volatility during the period.   A combination of weaker economic data in the US and a surprise interest rate hike by the bank of Japan (BoJ), caused a temporary sell off in stock markets in August.

However, the markets were soon reassured by a less hawkish tone from the BoJ who put to bed the prospect of anymore rate hikes in the near future. Volatility in the oil price was high due to ongoing tensions in the Middle East, however, more recently the price has fallen due to concerns that Saudi Arabia would be willing to over produce in order to gain market share from their OPEC peers.  Once again equities displayed resilience, rallying into the end of the quarter following the first of the Fed’s long awaited interest rate cuts and the announcement of a huge stimulus package from China.  Fixed interest returns were also positive over the quarter, supported by falling interest rates.

UK – The UK election result on the 4th July was initially viewed favourable by investors, replacing years of political infighting with a new centre left Government which could potentially offer more stability and growth. The Bank of England (BoE) made the decision to cut interest rates by 0.25% in August, as inflation reduced significantly towards the 2% target.  The BoE then held rates steady at 5% in September, warning that they would need further evidence of inflation remaining low before they decide on the next cut.  Overall the UKs GDP is accelerating faster than the projections laid out in May’s BoE Monetary Policy Report, which is positive.  Consumer confidence did take a dip in September, potentially because of the gloomy outlook presented in the media ahead of October’s budget.  The FTSE All-Share returned 2.3% throughout the quarter.

US – The chairman of the Fed, Jerome Powell’s rhetoric surrounding September’s rate cut, was carefully considered to ensure it was not interpreted by the market as an emergency cut and rather as an insurance policy to ensure a soft landing could be achieved.  Since the 0.50% rate cut in the US, inflation has been in line with expectations and economic data has improved with the recent US employment data looking upbeat.  The S&P500 returned an encouraging 5.9% over the quarter, which was impressive considering the index corrected almost 10% in August. Encouragingly, more companies participated in the recent rally meaning the move was broad-based and not so reliant on the performance of the magnificent 7.

Eurozone – The European Central Bank (ECB) delivered its second rate cut in September bringing the interest rate to 3.5%.  The economic data in the Eurozone confirmed a sluggish recovery so far, with Germany’s manufacturing heavily affected by both weak Chinese demand and cheaper Chinese exports, particularly in electric vehicles.  France’s recent growth has been faring better than Germany’s however, this has begun to slow. France has recently announced plans to sharply reduce Government spending, and whilst these measures should restore some fiscal credibility, it could cause further economic pain for their economy and the Eurozone as a whole. European equities finished up 1.6% over the quarter which was a reflection of the tough economic landscape.

China – Chinese policymakers announced a raft of new stimulus measure with the hope of reviving the faltering economy.  The measures are aimed to boost the country’s real-estate industry which has been in a downturn since 2021.  Since most of the population’s wealth is tied to property, consumers have been less willing to spend after seeing their net worth plummet.  The new measures were initially well received by Asian and Emerging Markets and were viewed as a sign that China is ready to do whatever it takes to support its economy and meet their ambitious 5% growth target in 2024.  As of now there is little detail on the size and focus of any fiscal stimulus, and any news will likely move the market.  Emerging Market equities ended the quarter returning 8.9% and Asian equities returned 10.6%.