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.
U.S. stocks reached new record highs last week, driven by optimism around China’s economic stimulus and advancements in artificial intelligence (AI). The Dow Jones Industrial Average and the S&P 500 Index saw significant gains, with chemicals, materials, and technology stocks performing particularly well. Increased demand for copper, often seen as an indicator of global economic health, added to this positive sentiment. Tech stocks surged, buoyed by speculation of a takeover of Intel and strong performance from Micron Technology, whose upbeat forecast for AI demand fueled sector-wide gains.
On the economic realm, U.S. consumer confidence took a hit in August, according to the Conference Board’s index, which fell to 98.7—its lowest in two years. A decline in consumer sentiment regarding labor market conditions also raised concerns, with some fearing it could be a precursor to a recession. Meanwhile, the housing market showed mixed signals. While new home sales in August dropped by 4.7%, refinancing activity surged as mortgage rates began to fall. The Mortgage Bankers’ Association reported the highest level of refinancing activity since April 2022. Inflation data offered some positive news as the core personal consumption expenditures (PCE) price index, the Federal Reserve's preferred inflation gauge, rose only 0.1% in August, bringing the year-over-year increase to 2.2%. This is close to the Fed’s long-term target of 2.0%, alleviating some concerns about rising inflation.
In the bond market, the yield on the 10-year U.S. Treasury note remained largely unchanged, while strong demand for municipal and corporate bonds, particularly those with short maturities, reflected cautious investor optimism. Despite new high-yield bond issuances, the market traded mostly flat for the week. European stocks experienced a strong rebound, with the pan-European STOXX 600 Index rising by 2.69%. This surge came as slowing business activity in the eurozone fueled hopes for interest rate cuts, and China’s stimulus measures further boosted sentiment. Major European markets also saw notable gains, including Germany’s DAX, France’s CAC 40, and Italy’s FTSE MIB. However, economic indicators in Europe showed some troubling signs. The eurozone's purchasing managers’ index (PMI) fell to 48.9 in September, indicating a contraction in business activity as new orders slowed. Germany, Europe’s largest economy, showed the steepest decline in business activity in seven months, heightening concerns about a potential recession. The Paris Olympics had temporarily boosted economic activity, but its effects have since faded.
In contrast, the UK showed more resilience. The Flash UK PMI Composite Output Index remained in expansion territory at 52.9, although it did mark a slight decline from August. Inflation in the UK also eased, reaching a 42-month low, offering some relief to businesses and consumers alike.
Germany faced additional challenges as business and consumer confidence continued to fall. The ifo Institute’s business climate index dropped to 85.4 in September, signaling a broad-based decline across most sectors except construction. Consumer confidence remained weak but stabilized slightly.
Asian markets, particularly in China and Japan, also showed signs of recovery, driven largely by China’s new stimulus measures. The Shanghai Composite Index soared 12.8%, and the CSI 300 Index surged 15.7%, marking their best weekly performance since the 2008 financial crisis. These gains were fueled by a series of interventions from the People’s Bank of China (PBOC), including cutting the reserve requirement ratio for most banks and reducing key short-term interest rates.
China’s measures aim to address the country’s sluggish economic growth and weakening property market. The government also announced a reduction in the down payment ratio for second-home buyers and plans to issue special sovereign bonds worth RMB 2 trillion ($284.4 billion) to boost domestic consumption. While these measures are expected to improve short-term economic activity, experts believe they may not be sufficient to sustain long-term growth.
Japan’s stock markets also benefitted from the positive sentiment around China’s recovery, with the Nikkei 225 Index rising 5.6% and the TOPIX Index gaining 3.7%. Japan’s reliance on exports to China meant that any boost in Chinese demand could have a significant impact on its economy. The Bank of Japan’s (BoJ) dovish stance and the weak yen further supported market optimism. However, Japan's core consumer price index (CPI) showed a year-over-year increase of 2.0% in September, signaling ongoing inflation pressures.
Overall, while global markets experienced gains, the broader economic picture remains mixed, with signs of slowing business activity in Europe and concerns about long-term growth in China. Nonetheless, the immediate response to stimulus measures and easing inflation has been positive, offering a sense of cautious optimism among investors.