ACM Update 19-08-24
The UK economy has enjoyed a “Goldilocks” first half of 2024, according to a Bloomberg report last week. The latest set of economic performance figures showed plenty to be positive about, including the strongest growth of all the G7 economies in the first six months of the year.
Despite a busy week of data last week, we are back to the August lull for the coming few days. The main highlights will be the minutes from the latest Federal Reserve & ECB meetings, plus the central bankers summer get together at the Jackson Hole Symposium in Wyoming.
There were four significant UK data releases last week, providing the latest insights into the state of play. Unemployment was the first up, featuring a surprise drop in the overall unemployment rate down to 4.2%, from 4.4% last month. The metric had in fact been expected to tick back up slightly, so the drop was good news.
Wage growth is also beginning to cool which will be a well-received by the Bank of England in their battle against inflation. The latest ONS (Office for National Statistics) figures saw a drop down to 5.4% in the three months to July.
On the negative side of the coin though was data relating to Claimant Count numbers and the overall number of vacancies in the economy. The former saw its highest monthly rise since June 2020. The latter saw the estimated number of vacancies falling by 26,000 to 884,000 in the quarter to July. Overall, this was a good set of figures, with wage growth slowing good news for the Bank of England.
UK inflation saw its first rise of 2024 in the July figures, released early on Wednesday. This showed a bounce back up to 2.2%, having been on target at 2.0% for the previous two months. The bounce up was somewhat predicted, with gas and electricity prices falling by less than they did a year previously. It also falls in line with the Bank of England’s own forecasts, which expect inflation to go back up to 2.75% in the coming months, before dipping under 2% in early 2025.
Thursday morning then saw economic growth numbers, in the form of GDP. Despite recording zero growth in June, the economy grew by 0.6% in Q2, to back up the 0.7% in Q1. The numbers now seem to prove that the shallow recession at the end of 2023 is a thing of the past, but high interest rates are still forecast to put a bit of a squeeze on growth in the second half of the year. Sir Keir Starmer meanwhile is still pledging to “take the brakes off Britain”, economically speaking.
Spending on the high street definitely seems to have improved, which was confirmed by Friday’s Retail Sales release for July. The figures suggested a bounce back of 0.5% in the month, largely attributed to summer discounts and the Euro 2024 football tournament. That said, the figure still doesn’t reverse the (upwardly revised) -0.9% fall in June.
So overall, jobs data saw positive moves, the economy grew by more than any of the other G7 countries in the first half of the year, inflation went up but by less than feared, and retail sales rebounded. The figures are likely to provide a more stable footing for not only the new Labour Government, but also the members of the Bank of England’s Monetary Policy Committee. A “Goldilocks moment” indeed.
Bailey & Co will take reassurance from these figures, which will give them the option to cut again in September, should they feel the need to do so. Markets have now fully priced in two more rate cuts from the remaining three meetings of 2024. Further figures will be released before the next MPC meeting, on 19th September.
Sterling enjoyed a very positive week against the US Dollar, in light of the strong figures. The pound moved up by around 1.5% and achieved its highest versus the Dollar in roughly a month.
Movements on the pair can be seen in the chart below:
The other side of the above chart last week was US-Dollar related news. The latest CPI inflation data from the US arrived on Wednesday, which showed the annualised metric had slowed to 2.9% in July. This fractionally beat the forecast and was the first time the figure has been under 3% in over three years.
Following on from recent concerns about a lack of Fed action in their most recent meeting, the figure gives them the green light to look at cutting interest rates in their own September meeting. With recent jobs figures showing signs of a slowdown, such a cut is looking more and more likely to materialise. Many Fed officials have been waiting for “a little more data” for some time now, and arguably they got that from these figures.
Indeed, one of those waiting has been Atlanta Fed member Raphael Bostic who spoke last week in an FT article. Following on from the inflation data, he commented that he is “open” to a September rate cut and that policymakers should be aware of the jobs market slowdown too. He wants to ensure though that the Fed don’t have to cut rates then raise them again, so a cut isn’t a guarantee for him yet.
Other US-focused releases showed signs of encouragement also. As with the UK, July’s Retail Sales figures showed an increase of 1.0%, bouncing back from a poor June. This marked the biggest monthly growth since January 2023’s numbers. Weekly Unemployment claims continued to come back to a more “normal” level, recording 227,000 and their lowest in five weeks.
In the ever-changing world of predicting US interest rates for the remainder of the year, after the latest round of inflation data, financial markets have fully priced in a 25 basis point cut in September, followed by a further 75 basis points by the end of the year. Therefore suggesting one meeting will deliver a “jumbo” 0.5%. The Dollar lost ground to both Sterling and the Euro, as expectations are re-aligned to the looming rate cuts.
For the Eurozone, another broadly quiet August week went past with most of the continent enjoying a summer holiday. There were also bank holidays in many countries of the bloc in the second half of the week too.
Of the data that was released, Flash GDP for Q2 came in showing a growth of 0.3%. This would match the Q1 figure continues to be a step in the right direction. Whilst the ECB will be happy to see further growth, it will still be nervous about the impact higher interest rates are having on the economy. A September rate cut here is therefore possible, but less certain than in the US.
The latest economic confidence figure for the bloc doesn’t look as rosy though. Whilst still on the “optimistic” side of the scales, the ZEW economic sentiment figure for the Eurozone as a whole recorded its lowest figure since November, in falling well short of forecast.
Generally, the single currency was driven by news elsewhere causing movement. The Sterling-Euro chart for last week can be seen below:
The week ahead:
Monday – US Democratic National Convention (19th-22nd)
Tuesday – Eurozone Final CPI exp 2.6% (10:00 UK time), Canada CPI inflation (13:30), Fed Bostic speech (18:35)
Wednesday – Federal Reserve Meeting Minutes (19:00)
Thursday – FRA/GER/EUR/UK/US Manufacturing & Services PMIs (08:15-14:45), ECB Meeting Minutes (12:30), Jackson Hole Symposium (Day 1)
Friday – Canada Retail Sales (13:30), Fed Powell speech (15:00), BoE Bailey speech (20:00), Jackson Hole Symposium (Day 2)
After a week packed with UK data, we have little from British shores this week. The events of major significance are all from elsewhere, but still have the potential to provide movement.
For Europe, the latest CPI inflation reading is expected to show the metric sat at 2.6%. Worse than in the UK, but better than in the US. However, the Eurozone economy is stagnant at best and struggling for its 0.3% quarterly growth. The latest Manufacturing & Services PMI figures will also paint a picture as to how those sectors are performing.
The minutes from the latest ECB meeting are released on Thursday lunchtime and will show any discussions regarding ongoing policy for 2024. Such opinions or sentiment towards further cuts will likely harm the Euro.
The UK is having a quieter few days in terms of economic events, or at least that is what the current calendar is suggesting. Aside from the UK equivalent PMI figures, we have an Andrew Bailey speech late on Friday evening. The Bank of England Governor is at the central bankers “away day”, (three days to be precise), at the Jackson Hole Symposium in Wyoming.
Despite the event taking place in tranquil surroundings, expect plenty of hype about what is being said by the heads of the world’s biggest central banks. The Dollar has weakened further this morning, on expectations that Fed Chairman Jerome Powell is going to confirm that interest rate cuts are coming when he speaks at the conference.
Debate has moved from “will they” to “by how much” in light of recent economic data. His 16:00 (UK) speech on Friday afternoon will thus be pivotal. That is if Wednesday evening’s Federal Reserve meeting minutes haven’t delivered that information already.
A strong week for sterling last week, could well be backed up by more if events fall the right way. With a divergence in monetary policy possible, a Fed rate cut and a Bank of England hold in September could well further boost the pound. As always, things don’t always materialise as expected, so keeping in touch with the team is crucial. Do reach out to your Aston point of contact regarding any requirements.
Have a great week.
