US shares rallied as a 50-bps rate cut from the Federal Reserve boosted hopes of a soft landing for the US economy. Central banks, including those in South Africa, Turkey and Indonesia, also either reduced rates or made dovish hints this week – but Brazil bucked the trend and raised rates.
Geopolitical tensions in the Middle East became even more elevated after thousands of pagers that were used by Hezbollah simultaneously exploded. There was a second wave of explosions the following day, as walkie talkies detonated. Israel launched arial attacks on southern Lebanon, killing several Hezbollah leaders.
UK
The FTSE 100 eased 0.5% over the week.
The Bank of England held interest rates at 5% but indicated it may lower borrowing costs again as soon as November.
GfK’s measures of UK consumer confidence fell seven points to -20 in September, the largest monthly drop in almost a year and taking the index back to January’s level, as households fear a painful Budget at the end of next month.
UK headline inflation remained at 2.2% in August, but core inflation increased to 3.6% from 3.3% in July.
UK retail sales unexpectedly jumped 1% in August, following an upwardly revised 0.7% rise in July, as sales were boosted by warmer weather and end-of-season sales.
US
The S&P 500 rose 1.2% over the week, hitting a fresh all-time high, while the Nasdaq gained 1.4%.
The US Federal Reserve (Fed) cut rates by a larger-than-usual 50 bps, marking its first rate cut in more than four years, and signalled more reductions would follow. Policymakers indicated rates were likely to fall another 50bps by the end of the year, to 4.25-4.5%. However, futures markets were pricing in that the Fed would make nearly 75 bps of cuts.
Europe
The Eurofirst 300 slid 0.4% over the week.
Norway’s central bank kept rates on hold.
Mercedes-Benz lowered its full-year profit outlook on the back of a “further deterioration” in trade with China, echoing similar warnings from BMW and Porsche this year.
Danish drugmaker Novo Nordisk was hit by reports that the company’s weight-loss drug, Ozempic, would “very likely” be the target of price reduction negotiations with the US government as part of its Medicare programme.
Japan
The Nikkei 225 jumped 2.1% over the week.
The Bank of Japan kept interest rates on hold and said the Japanese economy would likely keep growing at a pace above its potential growth rate “as a virtuous cycle from income to spending gradually intensifies”. However, it also warned that “high uncertainties” remain in the outlook for activity and prices.
Japanese core inflation rose 2.8% year on year in August, up from 2.7% in July. Headline inflation rose 3.0%, matching consensus and up from the prior month’s 2.8%.
Pacific Basin ex Japan
Chinese industrial production rose 4.5% from a year earlier, down from July’s 5.1% increase amid weaker commodity prices and auto sales.
Chinese retail sales expanded a below-consensus 2.1% from a year ago, easing from July’s 2.7% rise.
Fixed asset investment in China rose a lower-than-expected 3.4% in the January to August period, down from the 3.6% expansion recorded in the first seven months this year, while property investment fell 10.2% year on year.
Emerging Markets
The MSCI EM Index rallied 2.3% over the week.
India has overtaken China’s weighting in the MSCI ACWI.
The South African Reserve Bank cut interest rates for the first time in four years, reducing rates from 8.25% to 8%.
The Indonesian central bank started its easing cycle with a 25bps cut to 6%.
Turkey’s central bank dropped a key reference to a need for further tightening in its latest monetary policy statement.
Amid rising inflation and growth forecasts, Brazil’s central bank raised its Selic rate by 25 bps to 10.75%, marking the first rate hike in two years.
Mexico’s ruling party secured support for radical constitutional changes in which judges will be elected, a move that investors fear will undermine the rule of law.
Bonds
The yield on the 10-year US Treasury bond rose 8 bps over the week to 3.74%, while 2-year yields closed the week virtually unchanged.
The yield on the 10-year German Bund closed the week up 6bps at 2.31%.
Commodities
Gold topped $2,600 per ounce, hitting a new all-time high, as expectations of interest rate cuts and increasing geopolitical tensions enhanced the appeal of the precious metal.
Currencies
The British pound reached its highest level against the US dollar in two-and-a-half years after the Bank of England held its key lending rate at 5%.
