US markets ended the month on the front foot after more economic data which seemed to cement the interest rate cut narrative.
August was a turbulent month, especially in comparison to the usual summer lull, after a jobs report which heightened recessionary fears. However, subsequent data showed the figure to be something of an outlier, although memories of last month will be fresh ahead of the latest non-farms payroll report this Friday, where it is expected that 163000 jobs will have been added in August compared to 114000 in July and where the unemployment rate is estimated to have eased to 4.2% from 4.3% previously.
For the time being, though, a sense of calm prevails and today’s Labor Day holiday in the US will give some more breathing space. Friday’s Personal Consumption Expenditures index, reportedly the Federal Reserve’s preferred inflation gauge, rose by 0.2% on a monthly basis as expected, annualised to 2.6% which was a shade beneath estimates of 2.7%. Furthermore, US consumer spending bounced solidly in July, adding 0.5% compared to 0.3% the previous month, providing another fillip given the importance of the consumer to economic growth. Both releases underscored the increasingly possibility of the ideal soft landing which the Fed has been pursuing over the last year or so.
The main indices reflect the market’s recovery after a poor start to last month, with the Dow Jones hitting yet another record on Friday to stand ahead by 10.3% in the year to date. The S&P500 also posted a gain for the month and is now up by 18.4% this year. Meanwhile, the Nasdaq suffered a weekly loss given the overhang of Nvidia’s share price performance but also managed a monthly gain to lead to a year to date performance of a positive 18%.
Asian markets were mixed overnight reflecting the differing fortunes of the region’s main powerhouses. In China, shares slipped after a report showing a slowdown in house price growth, which came in alongside the latest manufacturing release which showed a decline to 49.1 from a previous 49.4, keeping this particular part of the economy in contractionary territory. The number was weaker than expected and could well revive calls for the authorities to take more stimulative action, which remains unlikely given the country’s multi-decade rather than short-term strategy for economic growth.
In contrast, the Nikkei was marginally higher after capital spending by Japanese companies rose in the April-June quarter by 7.4% compared to the previous year, pointing to further signs of an economic recovery after a significant period of stagnation. This week will herald the latest GDP release, an indicator of growth which it is hoped will build on the positive results from the first two quarters.
The UK’s premier index drifted in early trade, despite the prospect of more M&A activity both underpinning share price performances while also confirming the fact that international institutions have been casting the slide rule over UK corporates. Given cheap valuations on a historical basis as well as in comparison to many developed markets elsewhere, the UK has inevitably become something of a hunting ground. The latest potential target in the premier index is Rightmove (LON:RMV), after comments from Australia’s REA Group that it was considering making an offer having identified a “transformational opportunity” in combining the two online property websites. After a delayed start to enable price equilibrium, Rightmove shares opened up by around 24% as investors await further details of a concrete bid.
Elsewhere Barratt Developments (LON:BDEV) rose ahead of its full-year numbers this week on the back of a broker upgrade. However, the latest data emerging from China yet again weighed on the mining sector, let alone piling more pressure if it were needed on Burberry, whose relegation from the premier index is expected to be confirmed this week. The combined headwinds were enough to push the FTSE100 lower, although in the year to date the index has nonetheless managed a respectable 8.3% gain.