Weak US Labour Report Triggers Market Overreaction to Potential Rate Cuts

Exclusive insight for TMI subscribers! Northern Trust Asset Management share a monthly market commentary for treasurers.

Eurozone Market Update

Eurozone inflation eased to 2.2% in August, the lowest in three years, down from 2.6% in July. Core inflation dipped to 2.8%, influenced by weaker energy prices, while services inflation rose to 4.2%, raising concerns for the ECB. Germany’s harmonised inflation fell to 2.0%, France’s to 2.2%, and Spain’s to 2.4%, boosting investor confidence in further ECB rate cuts. ECB officials discussed potential rate moves, with Governor Klaas Knot emphasising the need for more data before deciding on a September cut. The euro area’s flash composite Purchasing Managers’ Index (PMI) entered expansionary territory at 51.2. On a sector level, services PMI rose to 53.3 from 51.9, but manufacturing PMI was still dragging at 45.8. France’s composite PMI jumped 3.6 to 52.7, with services PMI up to 55.0, a two-year high following the Olympics boost. However, there is still a significant drag in Germany, which recorded a composite PMI of 48.5.

_{Source: Bloomberg, data as of 30 August 2024}

UK Market Update

Annual UK headline inflation rose to 2.2% in July, while core inflation fell to 3.3%. Services inflation unexpectedly dropped to 5.2%, raising to 42% the probability of a 25 bps rate cut at the BoE’s September meeting. However, we still expect the next cut to be in November, as the subsequent inflation and labour prints fall before the September meeting. The labour market showed resilience, with unemployment down to 4.2% and wage growth slowing to 5.4%. GDP grew by 0.6%, while PMI figures for August indicated stronger-than-expected growth. This more robust growth, coupled with the rise in private sector output and the fast pace of employment growth, could concern the more hawkish members of the BoE, who have highlighted the upside risk of inflation if growth remains strong, making a case for a pause at the next monetary policy meeting.

Download our Free Treasury App for mobile and tablet to read articles – no log in required.

Download Version Download Version