The Davy Digest - 23rd September 2024

US equities posted gains for the week as the Federal Reserve began their easing cycle with a 50-basis point interest rate cut. Retail sales data was released in the US, coming in higher than expected at 0.1%, showing the continued strength of the US consumer. European equities were broadly flat while UK equities finished the week lower. In the UK, inflation came in at 2.2% for August, meeting market expectations. The Bank of England met on Thursday, opting not to cut rates, investors expect them to cut rates again in November. The Bank of Japan met on Friday and decided to leave rates unchanged, but most investors still expect another interest rate hike before year end. 

Last week's highlights

	US Retail Sales (17/09) - Increased 0/1% in August, beating expectations. FOMC Meeting and Interest Rate Decision (18/09) - Cut rates by 50bps, as priced. Powell stated the US economy is doing well and is confident inflation is under control.
	German Producer Price Index (20/09) - Producer prices fell 0.8% year-over-year; lower energy prices were the main reason for the decline.
	UK Inflation (CPI) (18/09) - Rose by 2.2% in the 12 months to August, unchanged from July.  Bank of England Meeting (19/09) - Held interest rates at 5% but indicated it may cut borrowing costs in November.
	Bank of Japan Meeting and Interest Rate Decision (20/09) - Left interest rates unchanged. BoJ governor Ueda said that if data continues to evolve as expected, then further rate hikes should be expected.

Next week’s highlights include the release of Core PCE inflation in the US, the Fed’s preferred inflation measure. Jerome Powell spoke confidently at the FOMC press conference last week, stating that inflation is coming down and the labour market is at very solid levels. Next week will see the release of manufacturing & services PMIs in the US, Europe & UK. There has been a general trend of a cyclical upswing in Europe recently, with the most recent figures being boosted by the Olympics in Paris. Finally, Tokyo CPI will be released on Thursday, Japanese inflation has been on an uptrend recently, as strong wage pressures and robust economic growth put upward pressure on prices.

What's on the radar

	US inflation - Core PCE (27/09)  Manufacturing & Services PMIs (23/09)
	Manufacturing & Services PMIs (23/09) Swiss National Bank Meeting (26/09)
	Manufacturing & Services PMIs (23/09)
	Tokyo CPI (26/09) Reserve Bank of Australia meeting (23/09)

Chart of the moment

The Fed goes for 50

Source: Davy, MIPR Bloomberg as of 19/09/2024. US interest rates as reflected by the mid-point of the Federal Funds Rate target range. 
 

• The Fed cut interest rates by 50 basis points (bps) last week, commencing its first easing cycle in more than 4 years.
• Powell spoke confidently at the press conference, stating that inflation is coming down and the labour market is at very solid levels.
• The Fed were able to cut by 50 bps rather than 25 bps due to recent loosening in the labour market, with the unemployment rate rising to 4.2%.
• US equities reacted positively to the news, reaching record levels on Thursday. Tech and small caps performed strongly.
• Going forward, markets expect another 3 cuts before year end with rates bottoming around 2.9% by the end of next summer.