As we start a new week, let's take a look at the significant events in the global economy over the past week with our weekly financial update, presented by Bas Kooijman, the CEO and Asset Manager of DHF Capital SA.
The U.S. stock market saw its sharpest decline in 18 months, with the S&P 500 Index dropping significantly, largely driven by concerns over an economic slowdown. Information technology stocks led the declines, as NVIDIA's market value dropped by roughly $300 billion amid rumors of a potential Justice Department antitrust investigation. In addition, energy shares suffered as oil prices fell, while more defensive sectors like utilities, consumer staples, and real estate held up better.
Historically, September has been a volatile month for U.S. stocks, often marking declines. With the S&P 500 seeing average losses in recent years, many investors were concerned that this trend could continue. Labor Day weekend also saw trading volumes increase as many investors returned from summer vacations, further amplifying the downward trend in stocks. Economic data released throughout the week pointed to a slowdown in manufacturing and employment. The Institute for Supply Management (ISM) reported that manufacturing activity contracted for the third consecutive month, raising concerns about broader economic health. Furthermore, the Labor Department reported that job openings fell to their lowest levels since January 2021, signaling potential softness in the labor market. Despite these challenges, the U.S. job market painted a mixed picture. Payrolls increased by 142,000 in August, slightly below expectations, while average hourly earnings rose 0.4%, suggesting wage inflation. However, the unemployment rate ticked down to 4.2%, offering a sliver of optimism amid the broader concerns of an economic slowdown.
In Europe, concerns over global economic growth reverberated throughout the markets, with the pan-European STOXX Europe 600 Index down 3.52% for the week. Major indexes in France, Germany, Italy, and the UK followed suit, posting declines as economic sentiment weakened across the region. Government bond yields in both the Eurozone and the UK fell, reflecting cautious investor behavior.
The European Central Bank (ECB) is also expected to play a key role in the upcoming weeks, with mixed signals from its policymakers regarding potential interest rate cuts. Some members of the ECB's Governing Council, such as Gediminas Simkus, highlighted the likelihood of a rate cut in September, citing slowing inflation and sluggish growth. However, more conservative voices, like Bundesbank’s Joachim Nagel, cautioned against premature easing due to concerns over wage growth and inflation in the services sector.
Germany, Europe's largest economy, faced mixed economic signals. While factory orders unexpectedly rose by 2.9% in July, industrial production fell by 2.4%, driven primarily by weakness in the automotive sector. Both the ifo Institute and the Kiel Institute lowered their growth forecasts for Germany, with the latter predicting a slight economic contraction of 0.1% for the year. These developments fueled ongoing concerns about Europe's ability to bounce back from its current economic challenges.
Asian markets also experienced turbulence, with Japan's stock market posting steep declines. The Nikkei 225 Index fell by 5.8%, and the broader TOPIX Index dropped 4.2%. Semiconductor stocks in Japan tracked the U.S. sell-off, further pressured by the yen’s appreciation against the U.S. dollar, which posed a challenge for Japan’s export-driven companies. Investors were also bracing for potential interest rate hikes from the Bank of Japan (BoJ), which could further complicate the outlook for Japanese companies. Despite the uncertainty, Japan saw some positive economic indicators. Real wage growth rose by 0.4% in July, driven by pay hikes and bonuses, marking the second consecutive month of gains. This bolstered expectations that the BoJ may continue raising rates, even as household spending remained sluggish.
Meanwhile, in China, markets took a hit as weak corporate earnings and economic data dampened sentiment. The Shanghai Composite Index fell by 2.69%, and the CSI 300 dropped by 2.71%. Manufacturing activity contracted for yet another month, with the official purchasing managers' index (PMI) coming in below expectations at 49.1 in August. While some improvements were seen in the non-manufacturing sector, the overall outlook remained challenging as China continued to face a protracted slowdown in its real estate market.
The value of new home sales by China’s top 100 developers dropped by 26.8% year over year in August, accelerating from July’s decline. The prolonged slump in the property sector has raised speculation about further government intervention to stabilize the market. Although Beijing introduced a real estate rescue package earlier this year, its impact appears to have waned, with investors hoping for additional measures to prop up the housing market and broader economy.
In summary, global markets faced a challenging week marked by concerns over economic slowdowns, mixed economic data, and growing caution among investors. As U.S. stocks posted their worst week in months and European and Asian markets struggled with growth concerns, the outlook remains uncertain.
