Week ending 02 August 2024
The Bank of England cut interest rates: The Fed held theirs but hinted at cuts in September.
Weekly Market Commentary
Week ending 02 August
Mixed earnings results for some of the Magnificent 7: Microsoft, Meta and Apple were positive however Amazon shares fell.
Tensions mount in the Middle East: Oil prices rise as a result.
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Market Review
The US Federal Reserve kept interest rates on hold this week, however Chair Jerome Powell strongly hinted at cutting rates in September. Meanwhile, the Bank of England cut interest rates from 5.25% to 5%.
Governor Bailey noted that inflationary pressures remain elevated, giving them “pause for thought”. The market still expects another two rate cuts in the UK before the end of the year. In Japan, the central bank raised interest rates from 0.10% to 0.25% – the highest rate since 2008.
There were mixed earnings results from four of the Magnificent 7 this week. Microsoft’s earnings beat analysts’ estimates but its closely watched Azure cloud computing service
failed to meet expectations. Meta, Facebook’s parent company, performed well as it beat earnings expectations, with revenue up 22% from last year. Amazon shares fell after its profit forecast disappointed, suggesting the company is spending more than anticipated on Artificial Intelligence (AI). Apple noted a return to revenue growth last quarter and topped analysts’ estimates.
Equities in the developed markets fell across the week.
US initial unemployment claims hit a one-year high and continued contractions in manufacturing sectors weighed on sentiment in the US and Europe. Meanwhile in the Middle East tensions increased, with oil prices rising on the latest news.
Outlook
Central banks are warming to the idea of rate cuts. The Fed hinted that its first rate cut could come in September, while the Bank of England became the latest central bank to start cutting rates. Investors and central banks alike continue to focus on key data points that could provide insight into the relative health of economies, while corporate earnings will be in focus over the next few weeks as well.
Chart of the Week
UK services inflation and how it impacts the economy. The chart shows that UK services inflation, which is largely influenced by wage growth, is running at a rate of 5.7% year-on-year. As wages increase, consumer spending typically follows suit. The increase in spending can stimulate business activity, enabling companies to sell more products and services. However, it can also trigger
higher inflation.
The Bank of England has reiterated its desire for wages to fall so that UK inflation can sustainably return to its
2% target. Although they did cut rates this week, the central bank may not be out of the woods just yet until wages cool from the growth rates seen.
What This Means for You
With the latest updates seen across the globe, there’s continued evidence that maintaining a well-diversified, long-term thinking to your investment approach rather than reacting to market swings is key. By staying committed to carefully
considered plans, investors can navigate through periods of volatility and uncertainty.
Has provided the commentary within this document.
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NOTE THE FOLLOWING
This guide is for general information and is not intended to address your personal and financial requirements and should not be deemed or treated as constituting financial advice. Nor does this guide constitute tax or legal advice and should not be relied upon as such. Tax treatment of investments and legal advice depends on the individual circumstances of each client and may be subject to change in the future. For further guidance on the matters discussed in this guide please speak to Shane Fox, who is a regulated financial adviser. Our services relate to certain investments whose prices are dependent on fluctuations in the financial markets beyond our control. Investments and the income from them may go down as well as up and you may get back less than the amount invested. Past performance cannot be used as a reliable prediction of future performance.
SAMANTHA HAGON