Global News Update: 16-21 September 2024

United States

Economic Growth: The Federal Reserve cut interest rates by 50 basis points, marking its first easing cycle since the pandemic. This move aims to pre-empt economic weakness and potential recession risks. Despite this, economic indicators remain mixed, with retail sales unexpectedly rising by 0.1% in August, supported by online purchases.

Jobs: Labor market data suggested some cooling, as evidenced by weaker payroll additions and ongoing concerns about employment trends influencing the Fed's decision-making.

Debt Securities: The US 10-year Treasury yields edged up, reflecting cautious optimism among investors. The Fed's rate cut caused the dollar to fluctuate, eventually paring losses as Chair Jay Powell clarified that the move did not signal a new aggressive policy trend.

AI: Intel and AWS co-invested in a new AI fabric chip, and OpenAI introduced its "Strawberry" model, designed for complex problem-solving. Microsoft and BlackRock also announced a $30 billion AI investment fund, while regulatory issues over AI's impact on insurance and education are emerging.

Inflation: The Fed cut rates in response to slowing inflation, which fell to 2.5% in August. The Fed's concern over inflation and economic stability remains high, with further cuts possible if conditions worsen.

Recession Risks: Despite the rate cut, concerns persist over a potential recession, with mixed economic data and divergent views among Fed officials on inflation and consumer strength.

United Kingdom

Economic Growth: UK GDP stagnated, and economic growth remains weak, with Brexit continuing to affect trade. Austerity and fiscal tightening concerns are high, with the Treasury facing a £22 billion fiscal gap.

Jobs: The employment situation is challenging, with jobcentres shifting focus from benefit policing to employment assistance. Wage growth slowed, and unemployment has not shown significant improvement.

Debt Securities: The Bank of England held rates at 5%, but future cuts are likely given the stable inflation rate of 2.2% in August. The fiscal outlook remains uncertain amid ongoing political and economic challenges.

ESG: The UK offshore oil and gas industry met its 2027 emissions target four years early, reducing pollution by over 25% in five years. This is a significant achievement, though new EU carbon emissions standards could present further challenges for the industry.

Inflation: Consumer prices rose by 2.2% year-on-year, with mixed pressures from different sectors. The BoE may reduce rates as soon as November to support growth.

Eurozone

Economic Growth: Germany's GDP contracted by 0.1% in Q2, and broader European economic performance remains fragile. The ECB signaled potential further rate cuts, with inflation expected to stabilize at 2% next year.

Debt Securities: ECB officials, including Klaas Knot and François Villeroy de Galhau, indicated that rate cuts would continue, but not as rapidly as recent hikes. Borrowing costs are expected to settle at 2% after additional cuts.

Inflation: Inflation remains a concern, but progress has been made, with the ECB aiming to bring inflation down to its 2% target by 2025.

Japan

Economic Growth: Japan's economic outlook is stable but cautious. The government maintained its view of moderate recovery, despite a rise in bankruptcies and a slowing pace of corporate price increases.

Inflation: Core consumer prices rose by 2.8% year-on-year in August, slightly up from 2.7% in July. This increase was primarily due to higher processed food costs, but the Bank of Japan is not expected to make immediate changes to its policy stance.

Debt Securities: Investors remain wary, with the swaps market pricing in a limited chance of a rate hike this year, despite earlier expectations of a December adjustment.

Canada

Jobs: Unemployment rose to 6.6%, the highest since 2017, excluding the pandemic. Job gains were primarily in part-time positions, indicating a weak labor market.

Economic Growth: Manufacturing sales increased by 1.1% MoM in August, and retail sales were expected to rise by 0.6% MoM, reflecting some resilience in the consumer sector.

Australia

Jobs: Employment rose by 47,500, exceeding forecasts of 26,000, with the unemployment rate steady at 4.2%. The labor market showed resilience, reducing the likelihood of an immediate rate cut by the Reserve Bank.

Debt Securities: The yield on three-year government bonds increased as traders adjusted expectations for future rate movements.

China

Trade: The People's Bank of China paused gold purchases after 18 months, maintaining reserves at 72.8 million troy ounces. Export controls on semiconductor materials threaten Western supply chains.

Economic Growth: China's economic stability is under scrutiny as trade barriers and geopolitical tensions with the US and EU persist.

Switzerland

Debt Securities: The Swiss National Bank is under pressure to follow the Fed's rate cut, as Swiss watchmakers urge the government to curb the strength of the franc, which is hurting exports.

Global Markets and Commodities

Gold and Oil: Gold surged to over $2,600 per ounce due to geopolitical tensions and Fed easing concerns. WTI crude oil prices remained stable.

Dollar and Yen: The dollar fluctuated amid Fed policy shifts, while the yen weakened as the Bank of Japan took a cautious stance on rate hikes.