Morning has come with the first rays of Sun

In the first week of September, asset prices acted in a pretty conventional way to what has been the trend over the past months. The dollar ended the week higher, stocks fell, and the Nasdaq index was impacted by the fall in Apple’s share price. The Russell 2000 underperformed the S&P 500, oil continues to rise as a mixture of supply cuts and lower inventories support the price. Commodities in general weakened in response to the stronger dollar, and government bond yields rose modestly. Gold finished the week lower again as real yields and a stronger dollar dulls its attractiveness. The Vix finished the week largely unchanged, however, there was a report out suggesting some portfolio managers are looking to protect themselves against a correction.

The results of the monthly S&P Global Purchasing Manager surveys indicate a further slowdown in the global economy. As a result of the apparent resilience of the US economy, it is forecast to grow at an annualised rate of around 2% in the third quarter. The PMI reading for developed economies did not make a particularly pretty reading as the index slipped into contraction for the first time in 7 months. Inflation rates according to S&P Global remain stubbornly high.

The ECB meet this week followed by the big one, the Federal Reserve, the following week. The ECB is faced with the twin enemies of any central banker. Weakening growth and above-target inflation. Weakening economic growth should bring prices down eventually, so that would argue for leaving rates unchanged, hiking again could assist the process further but would risk a deeper downturn. The odds seem evenly split between a 25 basis point hike, and unchanged. Christine Lagarde’s press conference on the outlook for the economy and how that might influence the ECB going forward is probably of the most interest.

Aside from the slightly stronger claims report last week, overall there have been signs the jobs market in the US has been easing, which should in turn allow the Fed to hold interest rates where they are at next week’s meeting.

Ahead of next week’s meeting, there will be enough data that could swing the eventual outcome one way or another. Headline consumer prices are expected to have risen by 3.6 per cent last month, accelerating for the second consecutive month, the core index is likely to have increased by 4.3 per cent, the least since September 2021. Alongside this report, we get US retail sales, industrial production, consumer sentiment, business inventories, the NY Empire State Manufacturing Index, and the government’s monthly budget statement.

The UK will release a series of economic reports that will offer some insights into the strength or otherwise of the economy. This includes unemployment, wage growth, GDP for August, trade balance and industrial production.

Stock sentiment indicators appear to suggest money managers are neither bullish nor bearish at present, somewhere neutral. Having said that retail investors according to the AAII sentiment survey have been gradually getting more bullish. Fund flow data suggests that monies are continuing to flow away from both bonds and equities and into short-term cash deposits. A weaker Asian market will flow into a lower opening for Europe.