Q3 2024 review: Emerging markets and US lead third-quarter rally
The third quarter saw positive returns across major asset classes - but it was not plain sailing for all.
UK investors saw only a 0.1% gain in September and appeared to lose 0.7% over the full third quarter due to a resurgent Pound Sterling, which rallied 5.8% over the period and held back returns in global assets.
A rapid rally in Chinese stocks - with key benchmarks up over 30% since mid-September - allowed emerging markets to lead the way, rising 6.4% in September and 7.8% over the quarter. This, after the Chinese government announced a range of stimulus measures and cut key interest rates to bolster consumer spending and the challenged property sector.
Several major central banks initiated interest rate cuts for the first time in years, boosting confidence that the slowing global economy could see a soft landing. The Federal Reserve cut by 0.5% and spurred US stocks to close the period at a record high, rising 2% over the month and 5.5% over the quarter.
UK and Japanese stocks were the laggards, with Japanese stocks down 5.8% and UK stocks up only 1.3% over the quarter, however both of these countries have been affected by rallying currencies which held back corporate profits and stock market performance. Sterling hit its highest in more than two years with the Bank of England set to cut interest rates slower than most global peers, while the Japanese Yen rallied nearly 12% over the quarter after ending a long period of easy money with interest rate hikes and a new, more hawkish, Prime Minister.
European equities posted a 1.7% gain in Q3, reflecting the ongoing challenges in the eurozone's economic recovery. Economic indicators highlighted the slow pace of growth, particularly in Germany, where the country's heavy dependence on manufacturing has become a hindrance.
Elsewhere, gold continued its rally to new all-time highs, up 13.3% over the quarter, while oil prices fell 15.3% over the period despite the ongoing tension in the Middle East, with demand appearing to struggle while supply continues to expand.
Assets in Focus
Bond yields
Past performance is not a reliable indicator of current or future returns. Source: Fundment
Areas to watch
The impact of interest rate cuts in Europe, the US and UK are being monitored, with underlying demand appearing to be softening.
Attention will remain firmly focussed on the two candidates vying to be US President in the coming weeks, with the election due 5 November.
Tensions in the Middle East are rising with Hezbollah and Israel trading blows in recent days; markets are hoping a wider regional war can be avoided.
Rachel Reeves is set to announce her first UK Budget as Chancellor, with a range of tax hikes mooted to allow for increased spending on key services.
News - UK
Core Consumer Price Inflation rose to 3.6% YoY in August, from 3.1% previously, with Services inflation remaining stubbornly high at 5.6% YoY growth.
The Bank of England held rates steady at its latest meeting - contrasting with the ECB and Federal Reserve - as UK inflation appeared to remain embedded.
The Composite PMI confidence survey remained steady in September, coming in at 52.9 from 53.8 previously, with stable demand providing an encouraging backdrop.
News - US
Core Consumer Price Inflation picked up to 0.3% MoM in August, and 3.2% YoY, the firmest pace in four months as housing costs rose faster than anticipated.
Nonfarm payrolls rose by 142k in July which, while positive, continue to come in below the rate required to provide sufficient jobs for new labour market entrants.
The Federal Reserve cut the key base rate by 0.5% in its first cut in more than four years and indicated further cuts are expected, as a weakening economy spurred policy makers into action.
News - China
Retail sales dropped to 2.1% YoY growth while Industrial production dropped to 4.5% YoY growth in August, both well below forecast and raising concerns for the target growth rate.
China’s Central Bank cut the one-year borrowing facility interest rate by 0.3% to 2% - the largest cut since the tool was introduced in 2016 - while the Governor also announced a broad stimulus package to boost growth.
The Caixin Manufacturing PMI declined to 49.3 in September from 50.4 previously, the weakest reading in over a year as the outlook and new order levels weakened.
News - Europe
The ECB cut the key deposit rate to 3.5% from 3.75% as inflation continued to cool and concerns about the economy grew, with further cuts expected before year-end.
Veteran negotiator Michel Barnier was appointed as Prime Minister of France, declaring a centrist position in an attempt to maintain a broad coalition in a fractured parliament.
The Composite PMI confidence indicator unexpectedly dropped to 48.9 in September (from 51.0), hitting an eight-month low as weakening demand appeared to affect a broad range of companies.
Elsewhere…
Israel and Hezbollah traded escalating blows against each other throughout the month, raising tensions across the Middle East and risking global supply chains.
Japan’s ruling party picked Shigeru Ishiba as its next leader, with the Yen rallying and stocks falling in the aftermath amid expectations of fiscal consolidation and a more hawkish foreign policy.