Q3 2024 Economic and Market Review
Economic Backdrop
Interest rate adjustments have been a central theme this quarter, creating turbulence across bond, equity, and currency markets. The US and UK implemented anticipated base rate reductions of 0.5% and 0.25%, respectively, following the European Central Bank’s earlier move. Optimism around a “soft landing” for the US economy has bolstered global investor sentiment, while the UK’s resilience has defied expectations, sustaining growth forecasts of 1.2% for 2024. However, persistent inflation at 2.2% has raised concerns about prolonged higher interest rates. Political stability, buoyed by Labour’s electoral success, contrasts with challenges in Europe, where economic stagnation and political unrest dominate headlines.
Japan and China have presented contrasting narratives. Japan’s economy is regaining investor confidence after decades of stagnation, while China’s stimulus measures aim to stabilise its struggling property market and deflationary pressures.
Bond Markets
Interest rate cuts drove government bond yields lower, with US 10-year Treasury yields declining from 4.4% to under 3.8%. Similarly, UK bond yields dipped mid-quarter but edged higher later, reflecting the country’s inflation challenges. Fund managers have moderated interest rate risk in anticipation of less pronounced tailwinds, balancing caution with opportunity as markets adjust to evolving monetary policies.
Equity Markets
US equities reached record highs but saw intra-quarter volatility due to mixed economic data. The UK market continued its steady performance, with large-cap companies benefiting from low valuations and active share buybacks. Conversely, growth-oriented funds underperformed, a trend echoed across Europe. In Asia, Chinese equities rebounded sharply, aided by government interventions, while Japanese markets weathered volatility tied to monetary policy shifts and political developments.
Outlook
The quarter underscored the importance of a diversified investment strategy amidst volatility. The current market conditions suggest a lean to high-quality investments and strategic diversification across asset classes and regions, aiming to deliver steady returns in an unpredictable environment.
