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Lloyd Adams, of Team Asset Management, offers this week’s market review
With US inflation easing, job numbers still climbing and recession fears fading, the world’s largest economy might be entering its “Goldilocks Zone”, where conditions are “just right” for sustained growth.
However, sceptical bears remain on edge. While overall inflation in August hit its lowest level since early 2021, core inflation (excluding food and energy) rose slightly more than expected and remains ahead of the Federal Reserve target. Elsewhere, the opposite is true in China, where economic woes persist with producer prices contracting in August, signalling a slower-than-expected recovery for the world’s second-largest economy.
Closer to home, European stocks rose on Friday as investors digested the European Central Bank’s latest rate cut. However, the European Union faces an uphill battle, needing an additional 800 billion euros annually to meet its climate and competitiveness goals, according to a report by former ECB president Mario Draghi. The report warns that weak growth compared to the US and China could undermine the EU’s geopolitical standing and decarbonisation targets.
The UK economy remained stagnant in July, marking the second month without growth, according to the Office for National Statistics. While the services sector saw modest gains, production and construction both declined. Chancellor Rachel Reeves acknowledged significant challenges, citing a large public finance deficit, and warned that potential tax hikes to be announced in her autumn statement could dampen consumer spending. The Bank of England is expected to continue cutting rates in the coming months, although some members of the Monetary Policy Committee may wish to see what is in the statement before committing to further cuts.
In the corporate world, a few winners stood out. Locally domiciled Centamin PLC, operator of the Sukari gold mine in Egypt, saw its stock in the UK market soar by a third after accepting a takeover offer from AngloGold Ashanti. Palantir, known for its artificial intelligence and data analytics, rose nearly 20% after news of its inclusion in the S&P 500 index and expanded defence partnerships.
Broadcom, the US chipmaker, gained 22% after posting stronger-than-expected quarterly results, driven by robust sales and earnings. Nvidia shares surged 8% after chief executive Jensen Huang revealed “incredible” demand for its AI-focused chips, stating that “everything is sold out”. Huang emphasised Nvidia’s role in AI infrastructure for major cloud providers like Microsoft and Amazon, highlighting the strong return on investment for customers.
But not all were winners. Market bears would cite Ally Financial, a major provider of auto and personal financing, as evidence of an impending US recession. The shares fell 16% after reporting worsening credit issues, particularly in the auto sector, as rising living costs and a weakening job market led to more payment delays. UK-based Rentokil Initial, a global leader in hygiene and pest control, dropped 19%, hurt by slowing growth in North America, a stronger pound and rising material costs. BMW slid 6% after lowering its full-year targets owing to vehicle recalls, sluggish demand in China and stronger competition in the motorcycle market.
In commodities, oil prices fluctuated early in the week because of US recession concerns, but supply disruptions from Hurricane Francine in the Gulf of Mexico sparked a rebound. Meanwhile, copper prices surged, supported by a weakening US dollar, softer central bank policies and anticipated economic support from Beijing. Gold remained strong, hitting another new all-time high as Central Bank purchases continue.
This week, all eyes will be on the US Federal Open Market Committee’s upcoming interest rate decision. A 25- or 50-basis-point rate cut is expected tonight. Money markets are currently discounting a 59% probability of a half-point cut, though this could signal deeper recession concerns. Of less consequence is the Bank of Japan’s decision, which is expected to keep rates steady, following recent market turbulence.
