Bassanese Bites: 50 more in ’24 – September 23 2024
Global markets
Global equities rose further last week following a well-anticipated 0.5% rate cut by the US Federal Reserve. Reassuring US labour market data added to the optimism.
What was once considered an unlikely prospect – unless US recession risks were intensifying – the 0.5% Fed rate cut came to be largely expected by the market by the time of the announcement, as evident from post-event profit taking in both bond and equity markets.
What was impressive is that the Fed managed to cut rates by more than the usual 0.25% move without (as I feared) scaring the horses. The Fed effectively indicated it was so confident about the inflation outlook that it could take out added insurance against an undesired growth downturn. It was an ‘insurance’ cut rather than an emergency ‘fire hose’ to douse the the expanding flames of recession.
In terms of forecasts, the Fed nudged up and down its unemployment and inflation expectations respectively, though the outlook remains consistent with a soft landing. It expects the unemployment rate to lift from 4.2% to 4.4% by year-end (compared to a June expectation of 4.0%) and hold at that level till end-25. Core inflation is expected to hold steady at 2.6% by year-end (June expectation 2.8%), though ease further to 2.2% by end-25.
The Fed’s ‘dot plot’ suggests another 0.5% lowering in rates this year, 1% in 2025, and a further 0.5% in 2026.
Indeed, last week’s economic data provided further reassurance that recession risks remain contained. August retail spending remained firm, and weekly jobless claims held at impressively low levels. With still firm growth and low/falling inflation, this is as close to a goldilocks or ‘sweet spot’ US economic environment as you’re likely to see. This bodes well for many investment markets, including fixed-rate bonds, equities and gold.
In other key global news, the Bank of England left rates on hold – having cut rates only the previous month. This is consistent with the current ECB approach of re-normalising rates in a measured way, such as only moving every other meeting.
Although NZ Q2 GDP was a bit better than feared (declining by 0.2% rather than 0.4% as the market expected) – it was still weak enough to keep the RBNZ on a more aggressive rate cut path, with expected 0.25% rate cuts in both October and November.
Global week ahead
Markets may well consolidate a little in coming weeks given all the……….
