Following its worst weekly decline in 18 months, the S&P 500 index recovered with a 4.02% rise in dollar terms.  The US Federal Reserve has made it clear that the time for a policy rate cut has arrived, however the magnitude of the cut remains an open question with the Federal Open Market Committee meeting this week. 

Treasury yields edged lower during the week with the yield on the benchmark 10-year Treasury note trading at year-to-date lows, closing on Friday at 3.66%. Futures markets continue to price in at least a 25-basis point cut with a circa 50% chance a 50-basis-point cut.  US headline inflation as measured by the Consumer Price Index (CPI) fell to 2.5% year-on-year, in-line with expectations, whilst the core rate which excludes food and energy components was marginally above forecasts. The Inflation-adjusted median household income in the US rose to $80,610 in 2023, up 4% from the 2022 estimate and close to the pre-COVID peak in 2019, according to the Census Bureau’s release on Tuesday. 

As expected, the European Central Bank (ECB) cut interest rates by 25 basis points to 3.5%, its second rate cut in three months. Growth in the euro area has remained weak, with industrial production in Germany a particular drag. The MSCI Europe ex UK index rose 2.07% in local currency during the week, lagging returns made in the US. 

Elsewhere, the UK’s FTSE 100 index returned a modest 1.12% as economic growth stagnated for a second month in a row according to the latest gross domestic product monthly estimate, whilst wage growth edged lower. In Japan, the Nikkei 225 saw a more modest 0.5% local currency return as the Yen strengthened ahead of this coming week’s Bank of Japan policy meeting. 

In commodities, the price of a barrel of West Texas Intermediate crude oil fell to $68.72, whilst gold rose above $2,500/oz for the first time on expectations that the Federal Reserve is approaching a landmark interest rate cut.

Week Ahead

Source: Bloomberg, 16/09/24

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