September 10, 2024

“US markets saw a modest rebound yesterday after a rough end to last week. Despite a cautious start to the week and lingering concerns from weaker-than-expected payroll data, the S&P 500 gained ground. Meanwhile, today’s UK labour market updates showed positive employment data, leading to a slight strengthening of sterling.”

Tim Hallinan – Trading Director

USD

Rising risks in the US stock market are prompting increased demand for portfolio hedging, with investors navigating economic uncertainty, evolving Federal Reserve policy, and the upcoming presidential election. The Cboe Volatility Index (VIX) currently stands around 20, above its 2024 average of 14.8, reflecting heightened concern. Political uncertainties are compounding fears of a slowing economy and potential interest rate cuts by the Fed. Despite the S&P 500 recording its steepest weekly decline since March 2023, the index remains up nearly 15% year-to-date. Meanwhile, Fed Governor Barr is expected to announce a reduction in the biggest banks’ capital hike under the latest Basel plan, cutting it from 19% to 9%. Later tonight, Kamala Harris and Donald Trump will face off in their first live debate at 9 pm ET, which could influence the direction of the race.

GBP

UK unemployment rate eased to 4.1% in the three months to July, aligning with expectations. Employment figures surpassed forecasts with an increase of 265,000 jobs, though average weekly earnings rose by 4.0% year-on-year, slightly below the anticipated 4.1%. Meanwhile, wage growth has slowed, with annual earnings excluding bonuses falling to 5.1% from 5.4% previously. Including bonuses, wage growth dropped to 4%, partly due to large one-off public sector payments last year. Additionally, payrolled employment saw a decline of 6,000 in July and 59,000 in August, along with a reduction in job vacancies. The BoE is awaiting clearer signs of reduced pay pressures before considering further interest rate cuts. While the current data indicates a cooling labour market, it is unlikely to prompt an immediate rate cut in September.

EUR

This week’s key focus is the European Central Bank’s interest rate decision on Thursday, 12 September, with expectations for an unusual rate cut mix. Yesterday, the euro area’s Sentix index fell to -15.4, indicating continued weak investor sentiment due to Germany’s struggling economy. Former ECB president Mario Draghi’s report called for significant EU investment increases to boost competitiveness, though major reforms seem unlikely due to political and budgetary challenges. Today, Germany will release its final August inflation data, focusing on the ‘LIMI’ indicator of domestic inflation. Norway’s August core inflation report is expected at 3.0% y/y, affected by reduced kindergarten prices, with an adjusted figure of 3.2% anticipated, below Norges Bank’s 3.6% forecast. Sweden will also publish July activity data at 8:00 CET, providing an initial gauge for Q3 GDP.

Markets

European futures were steady with the dollar holding onto its gains, as traders awaited US inflation data due this week for clues on the size of the Federal Reserve’s coming interest-rate cut. A key Asian equity index was little changed, while shares in mainland China and South Korea declined. Tokyo and Sydney notched modest gains following a positive session in US equities that was fuelled by renewed dip-buying. US futures dipped slightly. Benchmark Treasuries yields also ticked lower, while the dollar advanced to extend gains for a third session.

Main Economic Events (All Times CET)

8:00am: UK Claimant Count Change, Wage Growth, & Unemployment Rate
12:00pm: US NFIB Small Business Index

To learn more about Ballinger Group, please visit our website or our LinkedIn page.