Weekly market news and views from the Managed Portfolio Service team.
In brief
- China’s golden week coincides with golden returns for oil
- US economy continues to signal resilience.
Risk off in one asset class
It’s never easy sitting here writing that equity and fixed income markets have barely moved on the back of an escalating war in the middle-east, considering the displacement of millions of people. Yet the harsh reality is that the region is linked by one major commodity. Oil rallied this week as Joe Biden pointed to Israeli attacks likley targetting refineries in Iran, with risk that trade coming through the Straight of Hormuz could be significantly disrupted. Brent Crude now trades around $78 a barrel, up 10% this week, but down from the highs of $90 a barrel in March. Much of what had driven the oil price down until recently was worries that the global economy is slowing and consumption could fall. Notable is the continued rally in the price of Gold. Gold has been seen as a store of value, albeit volatile, and has continued to push record highs on geoplitical concerns.
In the US, the macro-economics look very positive, The services sector provided its best outlook in a year in the latest survey data. At the time of writing it’s the non-farm payrolls which we await to give an indication of the expansion of jobs in the US. A higher than expected number could see bond yields push up from here and reduce the likelihood of a large number of interest rate cuts into 2025.
In Europe, the continued theme of weak manufacturing but reasonable services data continues. The hope is that the Chinese holiday, Golden Week, could benefit European firms as Chinese demand is boosted.
There were positive signs within China as the manufacturing and services data pointed to a small recovery at the beginning of the week. Although the Chinese market was closed, shares in Hong Kong have rallied once again. The stimulus annouced last week in China boosted the equity market, not just resulting in a Golden Week but a Golden Month and a positive return in the three months to the end of September. While this is a positive step, as we wrote last week, challenges do remain for that economy.
In the short term, the strength of the US economy provides positives for global consumption, yet fixed income volatility is likely to be high with so many rate cuts already priced into US government bonds.
We’ve just written our monthly market review and soon to provide our quarterly updates for the solutions which will provide more information on the quarter as a whole.
Looking ahead
Next week will see some of the large US banks announcing third quarter results. Focus on non-performing loans and net interest margins will be scrutinised by analysts. The Reserve Bank of Australia will publish its meeting minutes alongside those of the FOMC (Federal Open Market Committee). Although analysts will pick over the words and tone used, actual US core inflatio for August is likely to be the hot topic, jostling with the inflation readings from China to evidence any signs of the economy rebounding.
