For information purposes only. The views and opinions expressed here are those of the author at the time of writing and can change; they may not represent the views of Premier Miton and should not be taken as statements of fact, nor should they be relied upon for making investment decisions.
In brief
- Equity markets grind higher ahead of Jackson Hole symposium.
- The Olympics boost the French economy and consumer confidence.
- UK tax receipts fall as spending rises – a change to fiscal regime is likely.
Building up to something
The holiday season is upon us. Well, that’s the intepretation of the financial markets this week. Equity markets gradually moved higher ahead of the Federal Reserve’s annual central bank Jackson Hole summit (August 22-24) and participants looking out for hints of interest rate changes ahead. A September rate cut is highly probable in the US, the Fed’s committee minutes released on Wednesday implied.
There have been few signs from economic data releases to change market direction. On Thursday US initial jobless claims data for the week ending August 17 (showing those claiming unemployment benefit) rose to 232,000. It sounds high but was a normal reading.
The European Central Bank held rates at current levels, with wage inflation pressures remaining but supported by company profits. The French services sector survey highlighted a clear benefit to the economy from the Olympics – a boost to consumer confidence following fractious elections in July.
In the UK, more questions will be asked of the Labour government after tax receipts dropped and spending increased. Pressure is building on the Chancellor as economists begin to forecast tax hikes this winter. It is worth noting the UK economy is one of the fastest growing in Europe following two quarters of strong growth. This supports our allocation here.
As we look to Asia, the Friday morning inflation reading of 2.7% for the year in Japan improved confidence. The economy continues on the path to growth and change. While the currency strengthened marginally, markets continue to bounce around on an upward trajectory.
While developed market regions have been buoyed by the outlook of easier monetary policy, the economic outlook in China continues to be weaker. Oil tends to reflect signs of economic expansion from the major economies, and this week Chinese data suggested the oil refineries in the region continue to experience lower demand. This has fed into the pricing of other commodities throughout 2024, such as coal and steel. It is the basics of supply and demand: when demand is low, prices are unlikely to move higher. The recent decision to reduce emerging markets exposure in our higher risk mandates has been vindicated so far.
Looking ahead
At the time of writing we await comments from the central bankers at Jackson Hole. There’s no doubt expectations for easier monetary policy and tighter fiscal policy will be analysed by markets into next week. Currently markets aren’t expecting any bad news from the Kansas City Fed, so lets hope it’s a bit boring!
Next week there is a copius amount of economic data due to be released from around the world. The normal path to growth is supporting equity markets at this time and analysts will not want any change to that narrative.
Ian Rees, Head of Multi-Manager Team; David Thornton, Fund Manager; Nick Kelsall, Fund Manager; Chris Robinson, MPS Investment Director
