Economic and Market Overview
Generally summer months (Q3) can be relatively quiet period for financial markets but this year has been somewhat eventful with central bank policy changes, elections in Europe, escalation in Russia-Ukraine conflict, the continuation of genocide in Gaza by Israeli forces (over 41,000 people killed) and moreover, the conflict spreading across the region as Israeli forces target high profile individuals across the region and enter Lebanon for ground offensive. The macroeconomic situation remains challenging whilst political uncertainties are ever present and growing, which certainly make decision making difficult for policy makers. Nevertheless, the impact of politics on the markets has been muted thus far, as all asset classes (i.e., equities, bonds/sukuks, commodities) performed well during Q3 with the backdrop of cooling inflationary pressures and a shift towards easing monetary policy. Equities in the U.S. and China performed well in response to reduction in policy rates from the respective central banks, while European and Japanese equities declined mainly driven by domestic macroeconomic environment. Bonds/sukuks also rallied as falling yields helped sukuk values rise as newly issued bonds/sukuks become less attractive compared to older bonds/sukuks. Commodities, especially precious metals, saw significant price increases during Q3 as dollar weakens amid move monetary policy easing from the Fed. Economic commentators are expecting more rate cuts in Q4 of this year, which is helping the sentiment to remain positive, albeit macroeconomic challenges and heightened political uncertainty remains a possible risk to the market.
Inflation continued to soften in Q3, following the trend set by previous quarters. Moreover, jobs market also showed signs of cooling. Therefore, favorable macroeconomic data provided room for central banks to start cutting interest rates, and that is what all major economies did as both UK and Euro Area cut rates by 25bps while US delivered 50bps rate cut. China also announced a broad range of stimulus measures towards the end of Q3 to support the faltering economy, stabilise the housing sector, and restore stock market confidence. Although there are still concerns over GDP growth rates in developed countries as well as in China, however, the start of rate cutting cycle should overtime help economies by encouraging consumptions through lowering borrowing costs, both for consumers and corporates.

Looking at the performance of major asset classes in Q3, gold led the gains as yellow metal delivered 13% return, and just under 28% since start of the year, as the bet for the safe heaven increased amid weakening US dollar and worsening geopolitical situation, particularly in the Middle East. However, crude oil prices fell over 18%, contributing to negative performance of DJ Commodity Index during the quarter. Equity markets broadly delivered mixed performance led by China Shanghai surging by 11.4% followed by US S&P 500 and DJ Islamic Markets Index rising by 5.6% and 4.3%, respectively, amid start of the easing monetary policies across the globe. The UK FTSE 100 increased by 1.8% while Europe’s Euronext 100 and Japan’s Nikkei 225 dropped by 0.8% and 4.3%, respectively, driven by macroeconomic concerns as UK GBP appreciated 5.8% against US dollar and Japan tightened monetary policy. Lastly, DJ sukuk index ended the quarter with 4.6% increase in value as yields fell sharply during Q3 (bonds’ values increase as yields fall and vice versa).
Performance of Global Assets Q3 2024

In Q3, the 10-year yield curve started going down sharply with clear signals from the policy makers that rate cutting cycle is going to start soon and then eventually the Fed delivered a sizable rate cut of 50bps in its September meeting. Moreover, the Fed signalled more rate cuts in the last quarter of the year and in coming years too. The falling yield curve helped bonds/sukuks rally as bonds’ values rose, whilst yields fell. Markets are currently assigning a two-thirds chance that the Fed will opt for a more modest 25 basis point reduction in November.
10-Year Treasury Yields

Geopolitical situation captured headlines in Q3 as Ukrainian forces turned from defensive mode to offensive by entering Russian territory and the assassination of Hezbollah’s Secretary-General Hassan Nasrallah during an Israeli attack on southern Beirut. In retaliation, Iran launched its missiles on Israeli military bases, making Middle East situation more complex. The war on Gaza continues and there is an increasing risk of war spreading to other countries like Iran and Lebanon. Meanwhile, the trade war between US and China became even more intense as US widened the chip export restrictions, whilst planning to start a probe against tech companies that violated the chip export restrictions.
Key News & Events in Q3 2024
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 25 bps 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. Government spending and exports were revised lower while investment increased more.
• The Labour Party secured a historic win in the U.K.’s general election in July and gained a supermajority in the British parliament, Keir Starmer Became Next Prime Minister.
• 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 sizable 50bps to 4.75%-5% in September 2024, the first reduction in borrowing costs since March 2020. While the decision to cut rates was anticipated, there was speculation about whether the central bank would choose a more conservative 25 bps reduction instead.
• 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 US 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.
• 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.
• Unemployment rate in the Euro Area remained unchanged at 6.40 percent in August.
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%. Still, it was the highest print since February, marking the 7th straight month of consumer inflation amid supply issues due to flaming heat and pouring rains.
• China announced a broad range of stimulus measures in September to support the struggling economy and the stock market. China’s central bank will cut banks’ reserve requirement ratio (RRR) by 50 basis points soon to boost bank lending. Moreover, 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 dropped the down-payment ratio to 15% from 25% for second-home buyers national-wide to support property sector.
• To bring the animal spirit back in the stock market, the bank announced two initiatives. First, a swap programme with an initial size of 500 billion yuan that will allows funds, insurers and brokers easier access to liquidity 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 buybacks.
• The Chinese economy grew by a seasonally adjusted 0.7% in Q2 of 2024, after a marginally revised 1.5% increase in Q1.
• China’s surveyed unemployment rate was at 5.3% in August 2024, compared with market expectations and July’s reading of 5.2%.
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