Macro Backdrop
In Q2 2024, inflation trends aligned closer to central bank targets, prompting the European Central Bank to cut its base rate by 0.25%, a signal of a strategic shift in monetary policy. However, challenges such as persistent wage inflation and job growth remain, despite a 4% unemployment rate in both the US and UK, leading to a cautious stance on interest rates by major central banks.
Economic Growth
The US economy showed resilience, with a forecasted growth of 2.1% annually. The UK, after a mild recession, experienced stagnant growth, mirroring a broader economic slowdown across major economies, primarily due to deliberate interest rate hikes intended to control inflation.
Political Developments
The upcoming general election in the UK is anticipated to result in a significant victory for the Labour party. Despite this political shift, the market reaction has been muted, with outcomes largely anticipated and priced in.
International Markets
China displayed significant recovery signs with an expected annual growth exceeding 5%, driven by boosts in industrial output and trade. Japan, however, faced economic contraction, despite increased investor confidence, affected by a weakening yen which benefits exporters but harms importers.
Bond Markets
Bond markets experienced volatility, with significant declines in government bond yields later in the quarter due to easing inflation. Forecasts suggest possible rate cuts by the US and UK central banks in the coming months.
Equity Markets
Equity markets continued to advance, with significant contributions from the tech sector in the US and improving investor sentiment in the UK. European markets reacted mildly to the ECB’s rate cut, with political uncertainties in the EU causing some investor apprehension.
Outlook
The market continues to be marked by volatility, driven by elections, ongoing conflicts, and central bank policies. This uncertain environment highlights the importance of a diversified investment approach, with a strong emphasis on stabilising returns through well-diversified portfolios.
