Cut to the chase

• Emerging markets led global equities higher, advancing +1.3%, with all major equity markets positive in sterling terms
• Gold climbed +4% to new all-time highs above $3,650 oz
• Most bond markets posted positive returns (in local currency), except UK high yield

• Brent crude oil slipped -3.8% in dollar terms

The US economy added just 22,000 jobs in August, much less than the 75,000 expected. June’s data was also revised to show 13,000 jobs were lost that month – the first negative number since December 2020. Whilst healthcare and hospitality are holding up, manufacturing remains weak. Unemployment ticked up to 4.3% from 4.2% – though the headline is still less hiring but not firing. This was the last non-farm payrolls report before the US Federal Reserve (the Fed) meets on 17 September and it adds to market-watchers’ clamor for an interest rate cut. They have near-universally anticipated a 0.25% reduction since Fed Chair Jerome Powell’s recent speech at Jackson Hole, Wyoming. Now there is even chatter of twice that, with consecutive cuts into year-end. The bottom line is that a stalling jobs market suggests the Fed may now be behind the curve. Equity markets have been pricing-in a rate cut and hitting all-time highs recently. Investors risk disappointment if the Fed doesn’t deliver.

Long-term government bond yields hit multi-year highs in the UK and other major European countries before easing back last week. Investors are variously worried about inflation, political crises and fiscal restraint as governments balance their books. The 30-year UK government gilt yield hit 5.75%, its highest level since 1998. Those on 30-year German and French government bonds advanced to their highest levels since the European sovereign debt crisis in 2011. Moves were more muted in the US, after weak US jobs data suggested a rate-cut from the Fed is now more likely. Although inflation remains persistently above target in the UK, rising yields have been caused more by concerns about the government’s finances than inflation expectations. With the ratio of debt-to-GDP having risen notably in many nations, investors fret that low growth, high inflation and high public spending may spark a doom loop: higher debt-interest payments mean governments must borrow yet more money to meet spending commitments and day-to-day requirements, debt-to-GDP levels therefore increase as a result, causing yields to rise (and prices to fall) yet further – all without being able to grow the economy sufficiently. Put simply, bond investors are demanding a higher return as compensation. That said, media speculation of developed nations requiring bailouts is hyperbolic.

China’s President Xi shared his vision for an alternative world order to rival US hegemony at a summit in Tianjin last week. Speaking to more than 20 foreign leaders gathered at the Shanghai Co-operation Organisation, Xi urged the “global south” to pursue stability through genuine multilateralism. Russia’s President Putin and India’s Prime Minister Modi – prominent among so-called BRIC member states – were present. India and China are the biggest buyers of Russia’s heavily-sanctioned oil which became cheaper after Russia invaded Ukraine in 2022. President Trump has wielded tariffs to force foreign policy change and slapped a 50% tariff on India for buying it. Leaders also variously committed to co-operate more on Artificial Intelligence (AI) and support a new development bank, seeded by China with ¥2 billion ($280m). It aims to reduce reliance on the US dollar. Although the summit highlighted ongoing geopolitical tensions, it is unlikely to be meaningful for markets in the near-term.

• The UK Autumn Budget is scheduled for 26 November, with the Chancellor outlining plans to balance spending, borrowing and taxation to put the public finances on a more sustainable path
• UK house prices rose in August for a third straight month, hitting a record average of £299,331 according to Halifax
• UK July retail sales stronger-than-expected: July sales rose +0.6% MoM versus expectations of +0.2%. The Office for National Statistics apologised for errors in its seasonal adjustments, which delayed publication by two weeks
• Eurozone inflation rose to 2.1% from 2.0% in August, above the ECBs 2% target, suggesting Eurozone interest rates may remain on hold
• OPEC+ to boost output: From October, production will rise by 137,000 barrels per day, as markets brace for tighter supply from potential new US sanctions on Russia and its oil buyers 
• Gold hit a record high above $3,650/oz on Friday, as markets priced in a likely Federal Reserve rate cut this month
• Alphabet shares hit record high after a US court rejected calls to break up Google, after a landmark anti-trust court decision. However, the regulators ordered Google to share search data with competitors
• Porsche exits DAX 40: After three years in Germany’s blue-chip index, Porsche will drop into the MDAX on 22 September, as sales weaken under US tariffs and pressure from low cost Chinese EVs
• Burberry re-enters FTSE 100: The luxury brand returns to the UK’s top index on 22 September, a sign its turnaround is gathering pace
• Anthropic hits $183bn valuation: The 4-year-old AI group surged in value after raising $13bn at a venture funding round

Disclaimer

Past performance is not a reliable indicator of future returns. Nothing herein should be construed as a recommendation to hold, buy or sell any security or encourage any investment decision. The mention of any particular asset class, sub-asset class or company does not imply that it is held, or may ever be held, in any product or service.