Market Report - 07/08/2024
Global market turbulence calms ; UK House prices increase
The turbulence seen in the financial markets so far this week have begun to ease today following comments made by the deputy Governor at the Bank of Japan who has calmed fears that the BoJ could in fact make further hikes to the interest rate.
Since the start of the week Global markets hit panic mode following a flurry of a key events which in turn started a sell off.
Firstly, the BoJ surprisingly raised interest rates prompting the Japanese Yen to surge. This was coupled with last week’s data releases that revealed a weak US Manufacturing report which showed factory activity contracting, there was a jump in the number of Americans filing new applications for unemployment benefits to an 11-month high. Then finally, job creation was down for July with the US Non farm payroll figures lower than expected – adding to the concern that the US economy is slowing down and further casting doubt on global economic growth.
The surprise rate hike from the BoJ caused the Nikkei to suffer it’s worst day since the famous Black Monday crash of 1987. The effects of the surprise decision weren’t limited to just the Japanese stock market, as stocks listed on the FTSE 100, Dow and the Nasdaq all tumbled. Other notable signs of the impact could be seen in Gold and Silver prices which are often assets to rely on as safe havens in troubled times. While Gold prices have climbed significantly in the last 2 years, spot prices were down over 2% on Monday, whilst Silver was down over 5%.
Finally, the VIX index which is used a volatility gauge in the stock market, spiked above 60 for the first time since March 2020, when panic set in and lockdowns were enforced as a result of the coronavirus pandemic.
Today in the UK, new data released by Halifax showed that UK house prices increased by 0.8% in July which was faster than originally expected - This is the first real increase following 3 relatively flat months prior. The general market sentiment around this move is being attributed to last weeks news that the BoE have begun their rate cutting cycle, which in turn provided reductions in mortgage rates.
Elsewhere in the UK, there was more positive news this morning as the ONS announced that UK GDP actually grew by 4.8% in 2022, up from a previous estimate of 4.3%. As a result GBP recovered some of it’s losses seen this week and the FTSE joined the rally as it gained 0.5% in the mornings session.
Whilst there was some positivity in the UK this morning, with social unrest throughout the UK over the weekend and into the new week, investors are leery about the economic outlook for the UK. Some investors are paring back bullish bets on the Pound and waiting for signs of stabilization as well as a better read on how many more times the BoE will cut in 2024.
In the eurozone, robust German data helped the Euro retain some of Monday’s gains. With market turbulence leading investors towards more secure assets, the single currency’s safe-haven status leant EUR modest support. Additionally, the latest German factory orders data showed a significantly stronger than forecast rebound in June, rising by 3.9%.