Overview
September successfully maintained its historical record of being a highly volatile month for financial markets. Equities in the U.S. and China performed well in response to jumbo monetary moves from their central banks (detailed below), while European and Japanese equities declined. It is a well-known fact that any stimulus packages from China generally helps boost European companies’ prospects, however, they were not able to deliver on the so called ‘bazooka’ stimulus package announced by the central bank of China as Euronext 100, the European equities benchmark, declined just under 1% during September. Bonds/Sukuks continue to benefit as falling yields help bonds’ values to increase as newly issued bonds offer lower coupons compared to older bonds. Commodities saw significant price increases in September as dollar weakens amid cut in rates (commodities generally benefit against weakening US dollar). Investors are looking forward to central bank policies, economic data, and geopolitical developments as key drivers for the markets in near future. Financial markets are expecting more rate cuts in the last quarter of this year, which is helping boosting sentiment. In very near-term, US general elections in November this year is expected to be a significant event for the markets.
Looking at the performance of major asset classes, September is known as a highly volatile month for financial markets and this time it was not different too. Equities experienced a mixed behaviour across the word markets. China’s Shanghai index took the lead and provided best returns of over 17% since 2008 as PBoC (the central bank) announced a massive stimulus package to support the crashing property market, the struggling economy, and to boost the stock market through a significant injection of liquidity. The world’s most followed equity benchmark, the S&P 500 index, and the benchmark for shariah-compliant investments, DJ Islamic market index, both surged just over 2% amid a massive cut of 50bps by the US Fed. On the negative side, Japan’s Nikkei 225 index dropped nearly 2% as investors are concerned about rising Yen against US dollar as well as uncertainty over upcoming elections. For European equity markets, Euronext 100 declined by nearly 1% while UK FTSE 100 index lost 1.5% as economies are struggling with very low or no growth. In response to monetary easing initiatives and falling yields, DJ Sukuk Index gained 1.22%. Commodity markets also showed mixed performance with gold rising 5.3% amidst weakening US dollar and geopolitical situation while crude oil dropped over 7% amid over supply concerns. DJ Commodity Index increased by 4% in September as other precious metals like silver, aluminium, platinum, etc., also surged in value. Lastly, UK pound appreciated by 1.9% against US dollar amidst a jumbo rate cut by the Fed.
Market Snapshot
News & Key Events in September
UK
• Annual inflation rate in the UK steadied at 2.2% in August 2024, the same as in July, and in line with expectations.
• The Bank of England kept the Bank Rate unchanged at 5% during its September 2024 meeting, following a 25bps cut in August, the first reduction in over four years. This decision met market expectations, though one member favoured a further 0.25 percentage points cut to 4.75%.
]• The British economy expanded 0.5% on quarter in Q2 2024, slightly below 0.6% in the first estimate and 0.7% in Q1.
• The United Kingdom’s unemployment rate fell to 4.1% from May to July 2024, down from 4.2% in the previous three-month period, aligning with market expectations.
US
• The annual inflation rate in the US slowed for a fifth consecutive month to 2.5% in August 2024, the lowest since February 2021, from 2.9% in July, and below forecasts of 2.6%.
• The Federal Reserve cut the target range for the fed funds rate by a jumbo 50bps to 4.75%-5% in September 2024, the first reduction in borrowing costs since March 2020.
• The US economy grew at an annualized rate of 3% in the second quarter of 2024, unchanged from the second estimate and above an upwardly revised 1.6% expansion in the first quarter.
• The unemployment rate in the United States eased to 4.2% in August of 2024 from the October 2021 high of 4.3% in the prior month, aligning with market expectations.
Europe
• Annual inflation rate in the Eurozone fell to 1.8% in September 2024, the lowest since April 2021, compared to 2.2% in August and forecasts of 1.9%, preliminary estimates showed. Inflation is now below the ECB target of 2%.
• The ECB cut the deposit facility rate by 25 bps to 3.5% to ease monetary policy restrictions, reflecting an updated inflation outlook and better transmission of policy. Also, the interest rates on the main refinancing operations and the marginal lending facility were lowered to 3.65% and 3.90% respectively staring from September 18th.
• The Gross Domestic Product (GDP) In the Euro Area expanded 0.20 percent in the second quarter of 2024 over the previous quarter.
• In a drive to boost a level playing field for EV makers, the meeting between China’s minister of commerce, Wang Wentao, and EU Trade Commissioner Valdis Dombrovskis in Brussels on September 19 came after the EU announced plans in July to levy import duties of up to 36% on some Chinese electric-vehicle (EV) imports, on top of the EU’s standard 10% import duty on cars.
China
• China’s annual inflation rate edged up to 0.6% in August 2024 from 0.5% in July, falling short of market forecasts of 0.7%.
• The Chinese economy grew by a seasonally adjusted 0.7% in Q2 of 2024, after a marginally revised 1.5% increase in Q1.
• China announced a broad range of stimulus measures in the last week of September to support the faltering economy, stabilise the housing sector and restore market confidence. China’s central bank will cut banks’ reserve requirement ratio (RRR) by 50 basis points in the near future, freeing up about 1 trillion yuan ($142.21 billion) for new lending. The central bank will cut the seven-day reverse repo rate by 0.2 percentage points to 1.5%, reduce the interest rates on existing mortgages by 0.5 percentage point on average, and lowered the down-payment ratio to 15% from 25% for second-home buyers national-wide in order to provide some relief to households.
• To provide a boost to the stock market, the bank announced two initiatives. First – a swap programme with an initial size of 500 billion yuan – allows funds, insurers and brokers easier access to funding in order to buy stocks. The second provides up to 300 billion yuan in first batch cheap PBOC loans to commercial banks to help them fund listed companies’ share purchases and buybacks.
Others
• The annual inflation rate in Japan rose to 3.0% in August 2024 from 2.8% in the prior three months, pointing to the highest level since October 2023.
• The Bank of Japan (BoJ) unanimously retained its key short-term interest rate at around 0.25% during its September meeting, keeping it at the highest level since 2008, in line with market consensus.
• The Bank of Russia raised the key rate by 100 bps to 19% in September due to high inflation, which is expected to exceed the 2024 forecast of 6.5-7.0%. Demand is growing faster than supply, prompting further rate hikes to curb inflation and return it to the 4.0-4.5% target by 2025.
• The annual inflation rate in Canada decelerated for the third month to hit 2% in August 2024, the softest since February 2021, slightly below forecasts of 2.1% and reaching the central bank’s target for the first time in over three years.
• Hezbollah Secretary-General Hassan Nasrallah has been assassinated during a massive Israeli attack on southern Beirut, making middle East’s situation more complex.
• Crude oil dropped over 7% in September as Financial Times reported that Saudi Arabia Scraps $100 Oil Price Target (unofficial) to Boost Market Share.
Disclaimer
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