Written by Ilaria Massei

In the UK, the annual inflation rate dropped to 1.7% in September 2024, with a decline in transport costs making the largest downward contribution. This provided some relief amid concerns that persistently high inflation could limit theBank of England’s ability to reduce interest rates further. UK retail sales unexpectedly increased 0.3% month over month in September, driven mainly by increased sales of computers and telecommunications equipment. Underpinning the uptick in retail sales has been the return of real wage growth and fading worries about mortgage interest rates. The Monetary Policy Committee’s August interest rate cut seems to be quickly stimulating the housing market, with the Royal Institution of Chartered Surveyors’ September survey showing UK house prices rising at their highest annual rate for 2 years. These factors contributed to the FTSE All Share’s gain of +1.3% last week.

Earnings season – when a large percentage of publicly traded companies release their quarterly results, has kicked off in Europe, so far pointing to a slowdown in some key sectors and pushing the MSCI Europe ex-UK down -0.3% last week in GBP terms. Two of the region’s largest stocks, ASML, a leading semiconductor supplier, and LVMH, a luxury goods conglomerate, saw their share prices decline after disappointing earnings. While ASML has benefitted from a surge in demand for AI-related chips, other segments of the semiconductor market remain weaker than expected. LVMH reported a 16% decline in sales in Asia (excluding Japan), where China is the dominant market.

Chinese consumers have reduced their spending due to concerns over their country’s weakening economic outlook and housing market. The Minister of Finance announced plans for additional government fiscal support in an effort to boost the economy, but the market was disappointed that they did not specify the level of support that would be provided and the MSCI China returned -2.5% last week in GBP terms.

While earnings were disappointing in Europe, US tech giants NVIDIA and Apple reached new all-time highs. Nonetheless, away from these dominant behemoths, smaller businesses continue to face mounting financial pressures, with nominal sales growth slowing and the average short-term bank loan interest rate hitting a 24-year high in September, according to data from the National Federation of Independent Business, a research centre that collects Small Business Economic Trends data. This highlights the stark contrast in the economic conditions faced by companies, with small businesses grappling with significant challenges while larger firms continue to prosper. On the employment front, the number of Uber drivers and couriers in the US has been on the rise since 2023. Despite positive signals from Non-Farm Payrolls, which measure the number of paid US workers outside agriculture, government, private households, and nonprofit organisations, companies like Uber appear to be taking on individuals who would typically be treated as unemployed. However, with the number of rides not rising as fast, the capacity for absorption is likely to be limited and could ultimately translate into higher unemployment in the future.

 

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