Global stocks entered September on a high note, recovering from a pullback that saw the S&P 500 index decline by 8.5% as of August 5 from its mid-July record. The markets sold down hastily at the start of last month due to growing concerns about the U.S. growth outlook and the unwinding of the popular Japanese yen carry trade, leading to amplified losses. However, the recovery has been rapid, with the S&P 500 closing the last week of the month just 0.13% shy of its all-time high and the Dow Jones Industrial Average achieving its 30th record close of the year. By the end of September, the S&P 500 was up 21% year-to-date, while the Nasdaq posted an impressive 22.7% gain during the same period.
In a bold move, the Federal Reserve voted to lower interest rates by half a percentage point, marking its first reduction since 2020. Eleven out of twelve members supported this decision, bringing the federal funds rate down to a range of 4.75%-5%. Fed Chair Jerome Powell characterised Wednesday’s substantial rate cut as a “recalibration” rather than a hasty response to an emergency. Investors interpreted this as a sign that the Fed is committed to establishing a new “neutral” stance without necessarily being compelled by a weakening economy.
U.S. Federal Reserve officials have shifted their focus from combating inflation to prioritising support for a labour market that has shown signs of softening. During their meeting on the 18th, policymakers indicated the likelihood of another half-percentage point cut in rates this year, followed by a full-point reduction in 2025, although markets are anticipating a more aggressive approach.
The U.S. consumer price index (CPI) eased to 2.5% year-on-year in August, down from July’s 2.9% pace, while the personal consumption expenditures (PCE) price index dropped to 2.2%, down from 2.5% in July—both marking their lowest levels since February 2021.
Meanwhile, the European Central Bank (ECB) cut its benchmark interest rate by a quarter percentage point to 3.5%. ECB President Christine Lagarde stated that the decision to lower the deposit rate for the second time this year was made unanimously. Eurozone inflation slowed to a three-year low of 2.2% in August, down from 2.6% in July. Concerns about a slowing Eurozone economy have grown, particularly in light of declining industrial output in Germany and Italy. The Stoxx Europe 600 index closed the last week at a record high, with a year-to-date return of 10.36%.
In the UK, the Bank of England refrained from making its second rate cut of the year, focusing on the Labour government’s forthcoming budget next month. This decision buoyed the pound, pushing it to its highest levels since March 2022. UK headline CPI inflation remained stable at 2.2% in August, while core inflation—excluding energy, food, alcohol, and tobacco—rose to 3.6%, up from July’s 3.3%. Service inflation also increased to 5.6% in August, and the FTSE 100 index experienced a decline of 0.5% for the month.
Across the Pacific, Japan’s Nikkei 225 gained nearly 3% in September. Overall, consumer prices rose by 3% year-on-year in August, up from 2.8% in the previous three months, marking the highest level since October 2023. The Bank of Japan maintained its existing policy settings at its recent meeting, opting against further tightening for now, even as it upgraded its economic assessment and core CPI rose to 2.8% in August, as expected.
With the Federal Reserve now in an easing cycle, the yen has strengthened, raising expectations for a potential narrowing of the interest rate gap as the Bank of Japan considers future rate increases. The yen closed the week at 142.15 against the dollar, a significant recovery from a three-decade low of 162.00 reached in early July, prior to the BOJ’s rate hike to 0.25% from a range of 0%-0.1%.
China, the world’s second-largest economy, continues to face challenges from a real estate slump and subdued consumer confidence. In August, retail sales, industrial production, and urban investment all grew at a slower pace than anticipated, missing expectations among economists surveyed by Reuters. The urban unemployment rate surged to a six-month high, while year-on-year home prices fell at their fastest rate in nine years, highlighting the lacklustre momentum of the economy and intensifying calls for the government to implement more fiscal and monetary stimulus measures.
The People’s Bank of China kept its main benchmark lending rate unchanged at its monthly fixing. However, Chinese stock markets experienced one of their strongest weeks in nearly 16 years. The CSI 300 index and the Hang Seng Index were up 15.7% and 13%, respectively, following several announcements in recent days meant to inject confidence, support a weakening economy and energise the stock market. A major injection of stimulus from the central bank and promises of more government support mark the beginning of a more muscular approach from Beijing to righting the economy after months of hesitancy, economists say.
*Disclaimer: This market review is for informational purposes only and does not constitute financial or investment advice. GSB accepts no responsibility for any errors or omissions. Past performance is not indicative of future results. Please consult a qualified financial adviser before making investment decisions.
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