True Potential Morning Markets

Today our Portfolio Manager, Matt Henderson, provides commentary on the market holding a 72% expectation that the Federal Reserve will cut US interest rates by 0.5% this week. With further insight into how equities and yields are reacting and what could this mean for markets in the future and more importantly, your money?

Jeff Casson, Chief Investment Officer, looks to the week ahead with the upcoming release of data across global markets. The Federal Reserve faces a decision on interest rates cuts and whether it will be a 0.25% cut as markets expect or a 0.5% cut. In contrast, the Bank of England which meets later this week and is expected to hold interest rates after an initial cut in August as inflation numbers are expected to trend higher. After market volatility following their shift in policy, the Bank of Japan expects to hold while keeping an eye on the data to understand whether further cuts can be on the cards later this year.

George Bell, Portfolio Manager and Faye Graham, Investment analyst, look at what was a positive week for equities and bonds with some real strength in the data from most major markets. The European Central Bank delivered on expectations of a second interest rate cut which now sits at 3.5%. In the US the market has a firm view that we will see an interest rate cut from the Federal Reserve on September 18th, this would mark the start of the cutting cycle with an expectation of seeing rates at around 3% by this time next year. With some market reaction to the Presidential debate, we get commentary on the key areas which may have caused movement. We finish on the UK where with near historic lows of unemployment in the labour market demonstrate a resilience which is important in preventing a drawdown on economic expansion.

Today, Sebastian Mackay, Investment Director, looks at the August inflation data for the US and its implication for imminent interest rate decisions. There’s still a question of whether it will be a 0.25% or a 0.5% cut but regardless of the Federal Reserve’s decision, this cut is just the beginning of what is expected to be a cycle of cuts that takes interest rates down to below 3% by the end of 2025. For a global context, the European Central Bank meets today with an expectation of a further 0.25% cut and the Bank of England meet next week where even though there is a no cut expectation, a further one or two cuts are expected before the end of the year. In summary the overall global direction for equity markets is currently one of positivity.

George Bell, Portfolio Manager, talks about the US inflation report releasing later today and what key aspects could mean for interest rate policy. Of particular interest to the Federal Reserve will be the core inflation reading. We also get a health check on the UK from reports in this morning that point to a stalling of the economy with zero growth registered in July.

Today, Kevin Kidney, Head of Asset Allocation, looks at the official UK employment data for the 3 months through to June which shows growth in both full-time and part-time jobs. Of key importance to inflation-watchers will be the deceleration in wage growth, it may seem counterintuitive, but lower wage growth allows more room for the Bank of England to lower interest rates further. For wider context, the UK now has lower unemployment, lower inflation and higher wage growth than the US.

As we look to the week ahead, Jeff Casson, Chief Investment Officer, turns our attention from the US to Europe and the potential for another interest rate cut from the European Central Bank. With most data pointing to a weakening economic backdrop, expectations are for a further 0.25% cut and the market will be wanting to hear any signals as to the trajectory of further cuts in the coming months. In the US, the focus will revert to inflation with the upcoming CPI report this Wednesday, but the markets will pay particular attention to the next Presidential debate on the 10th to asses both candidates who are separated by a fine margin. We finish up with China and the credit data which will give the market the first option to asses the impact from July policy changes.

This week, Kevin Kidney, Head of Asset Allocation, and Matt Henderson, Portfolio Manager, focus on US employment and its swift movement back towards a healthy balance, which was confirmed earlier in the week with the Job Openings and Labour Turnover data. The market reaction from an equities perspective was negative but bonds rallied, providing an offset which demonstrates the importance of multi-asset diversification in investing. We finish with the Non-Farm Payroll data and a look back over the 50 year average for US jobs growth which helps provide context for the normalisation that we’re seeing.

Today, Kevin Kidney, Head of Asset Allocation, looks at the slowing of the US ‘jobs’ economy as the Job Openings and Labour Turnover Survey (JOLTS) data which provides why the reasons remain constructive. The survey from the Bureau of Statistics has three key areas, job openings, hires, and quits and is a timely indicator of the health of the US labour market. This leads us into tomorrow’s US Non-Farm Payrolls data, the main employment survey, will there be evidence that the job market has fully recovered? 

Today, Chris Leyland, Investment Director, looks at US manufacturing data which despite moving in a positive direction, came in below expectations yesterday and remained in contractionary territory. Despite political uncertainty with upcoming elections and 5 months of contractionary figures, the prospect of interest cuts from the Federal Reserve is expected to lift manufacturing. Elsewhere, equity markets had a particularly weak day but UK and US sovereign bonds rallied which highlights the importance of diversification.