The Davy Digest - 14th October 2024

US equities posted gains last week despite inflation data for September coming in slightly higher than expected. US CPI came in at 2.4% year over year (YoY) vs 2.3% expected. Core CPI (excluding food & energy) came in at 3.3% vs 3.2% expected. The data did not lead to much change in rate cut expectations with markets still expecting two cuts before year end. In Europe, equities also finished higher for the week as investors looked forward to this week’s ECB meeting. Eurozone retail sales were released on Monday, showing signs of a modest recovery in August at 0.2% YoY. In Germany, factory orders fell 5.8% in August compared to the previous month, indicating further weakness in the manufacturing sector. In the UK, GDP figures released on Friday showed that the UK economy returned to growth in August after two months of stagnation. In Japan, real wages fell 0.6% on an annual basis, the decline was expected and should not hamper the central bank's plans for additional rate hikes. China’s stock markets reopened sharply higher after the Golden Week holiday but the rally lost steam as the week went on as investors await more details of fiscal support from the Chinese government.

Last week's highlights

	FOMC Minutes (09/10) - Revealed that “a substantial majority of participants” supported a 0.5% cut, considering the "progress on inflation and the balance of risks" against the labour market.  US Inflation (CPI) (10/10) – Inflation rose 2.4% YoY, slightly above expectations.
	Eurozone Retail Sales (07/10) - Rose by 0.2% in August, following stagnation in July. 0.8% increase on a yearly basis. German Industrial Production (08/10) - Rose by 2.9% in August, largely driven by an increase in automotive industry output. German HICP Inflation (11/10) - Fell to 1.8% YoY in September.
	UK GDP (10/10) - Increase of 0.2% in August, following two months of stagnation.
	Japan Labour Cash Earnings (07/10) - Rose by 3% YoY, down from 3.4% in July. Real wages fell 0.6% in August YoY. Central Bank Meetings: India, Korea and NZ – The Reserve Bank of India kept its interest rate unchanged, as expected. The Bank of Korea cut by 25 basis points to 3.25%. NZ cut rates by 50 basis points, seeing the kiwi dollar tumble 0.9%.

Looking ahead to next week, retail sales will be released in the US. The most recent report showed that consumer spending weakened in August with retail sales slowing to a near-flat level. In Europe, the ECB will meet on Thursday with markets expecting a 25 basis point rate cut. Inflation has been easing in the Eurozone while weak PMI surveys have caused growth concerns, especially in Germany. In the UK, several data points will be released including unemployment, retail sales and inflation. The UK has been battling persistent inflation in the services sector, this prevented the Bank of England from cutting rates at their September meeting. Markets are expecting the next rate cut in the UK to come at the start of November. Finally, in China, Q3 GDP will be released on Friday. Investors are still waiting on further stimulus details after a Ministry of Finance press conference on Saturday pledged more spending but gave few new figures.

What's on the radar

	US Retail Sales (17/10)
	ECB Meeting (17/10)
	UK Unemployment (15/10) UK Inflation (CPI) (16/10) UK Retail Sales (18/10)
	China Q3 GDP (18/10)

Chart of the moment

The downward trend is your friend

Source: Davy, Bloomberg as of 10/10/2024.
 

• US inflation came in marginally higher at 2.4% year over year vs 2.3% expected while core CPI (excluding food & energy) came in at 3.3% vs 3.2% expected.
• Even though rents continued to pick up, they did so at a more moderate pace, which could pave the way for a more sustained easing in inflation. 
• The reaction in markets was muted with US equities edging lower after the announcement. 
• Futures markets are still expecting two more interest rate cuts from the Fed before year end. 
• There had been some concern in recent weeks that inflationary impulses could be revived through rising oil prices. Those worries have been offset by rising crude inventories in the US.