Global Market Review – September 2024

Global equity markets remained volatile in September, but closed higher after slower inflation allowed the US Federal Reserve to start cutting interest rates. This raised hopes of a soft landing in the global economy, which should support continued earnings growth, especially of less cyclical stocks.

Global equities gained 1.8% in USD terms, but fell 0.6% in AUD terms upon US dollar weakness.

Stocks tumble in early September

Share markets again came under pressure in the first week of the month, falling 4.0% in the US, led by highly valued tech stocks. This reflected fears the global economy was slowing faster than had been previously expected. US sentiment was impacted by fewer new jobs, falling vacancies, less construction spending, weaker vehicle sales and lower manufacturing new orders.

Eurozone retail sales fell upon weak consumer confidence, while producer prices continued to fall in the face of tepid demand from its key market China. This reflects high levels of unsold property, (August house prices fell 5.3% year-on-year), persistent youth unemployment, unfavourable demographics and weak consumer spending. China’s export growth strengthened, but this risks rising trade tensions.

Lower interest rates send share prices soaring

US inflation fell to a three-year low of 2.5% in August from its previous 2.9%. This signalled inflation is back under control and likely to return to its 2.0% target over the coming months.

This paved the way for the US Federal Reserve (Fed) to make its first interest rate reduction in over four years, cutting by 0.50% to a range of 4.75% – 5.00%. It forecast rates would reach 2.75% – 3.00% by 2026, confirming the shift in the Fed’s priority from controlling inflation to protecting jobs.

This approach was reflected globally, with 0.25% interest rate cuts in Canada (to 4.25%), the Eurozone (3.50%), Sweden (3.25%) and Switzerland (1.00%).

September’s US presidential debate was seen as having slightly boosted the chances of Democrat Kamala Harris winning in November. This would be more likely to bring predictable policy making, stable inflation and lower long-term interest rates, which are positive for share prices. US equities recovered to finish September around 2.0% higher.

China announced plans to reboot its stagnant economy, through monetary measures to encourage bank lending and real estate investment. It also announced fiscal measures to support those on the lowest incomes. This was well received by investors, with China’s share markets soaring almost 20% over September.

Australia’s slowdown raises hopes of rate cuts

Economic data shows the Australian economy continue to slow under the weight of interest rates, which the Reserve Bank of Australia  (RBA) indicates will not fall this year. August inflation fell to 2.7%, but mainly due to the government’s energy rebates, leading the RBA to hold rates at 4.35%.

Job advertisements, consumer confidence and building permits all signalled slower growth, although the economy created 47,500 new jobs in August and unemployment remained stuck at just 4.2%.

China’s stimulus programme sent the price of iron ore soaring, gaining 10% in September, mostly on the last day of the month. This pushed the Australian dollar up to just under US$0.70. Resources sector strength helped Australia’s share market increase 2.20% in September.

High interest rates and poor affordability led Australia’s housing market to continue slowing as more supply entered the market. Prices rose just 0.5% in September.

Outlook

• ‘Higher for longer’ interest rates have slowed the global economy but services inflation persists
• Interest rates are expected to fall further this year across most developed economies, except Japan and probably Australia
• Slower consumer spending and weaker industrial output are impacting the earnings of some cyclical companies
• Geo-political risks remain elevated
• Stocks able to grow earnings through the business cycle should outperform as the economy slows