Market Review – July 2024

UK

An impending trilemma? Politics continued to garner headlines during June during the run-up to the General Election. Ahead of the election, however, the Institute for Fiscal Studies criticised the principal political parties for “ducking” key issues over tax and spending and warned that the winning party will face an immediate “trilemma” of raising taxes, cutting spending, or increasing borrowing. The FTSE 100 Index fell by 1.3% during June but rose by 5.6% over the first six months of the year. Meanwhile, the FTSE 250 Index fell by 2.1% over the month but climbed by 3% during the first half of 2024.

On-target inflation: the UK’s rate of inflation achieved its 2% target for the first time since July 2021 during May. The consumer price index rose at an annualised rate of 2% during the month, compared with April’s rate of 2.3%, although inflation in the services sector remained stubbornly high. The Bank of England held its key base rate at 5.25%, but the prospects of a cut appear to be growing, with several members of the Monetary Policy Committee either voting for a cut or admitting that their vote for no change had proved “finely balanced”.

Growth stagnates in April: the UK economy flatlined during April, dampened by the impact of rainy weather; however, the rate of growth in the first quarter was revised up from 0.6% to 0.7%, boosted by stronger activity in the services sector. The rate of unemployment rose to 4.4% over the three months to April, and the number of job vacancies continued to decline. Nevertheless, growth in average earnings remained relatively strong. Consumer confidence improved for a third consecutive month in June, according to GfK, and retail sales rose by 2.9% during May, lifted by increased footfall, improved weather and discounting.

FTSE reshuffle: cybersecurity company Darktrace, LondonMetric Property, and housebuilder Vistry were promoted to the FTSE 100 Index during June, replacing Ocado, RS Group, and St James’s Place, which moved to the mid-cap FTSE 250 Index.

ISAs drive growth in sales: net retail sales of UK-domiciled funds reached their highest level since August 2021 in April, according to the Investment Association. Sales totalled £2.8 billion during the month, fuelled by ISA subscriptions. The Global sector was the best-selling sector; in contrast, the UK All Companies sector suffered outflows of £997 million.

 

Global

Snap election for France: in a landmark year – notable for the sheer number of elections around the world – share prices in Europe were knocked during June by French President Emmanuel Macron’s surprise announcement of a snap poll.  Uncertainty drove the CAC 40 Index down by 6.4% over the month, while Germany’s Dax Index fell by 1.4%.

ECB cuts: in a widely expected move, the European Central Bank (ECB) announced a cut of 25 basis points in its key interest rate, reducing it to 3.75%. ECB President Christine Lagarde said the inflation outlook had improved “markedly” but remained cautious, warning that inflation was likely to stay above target “well into next year”. Nevertheless, she commented: “Overall, our confidence in the path ahead … has been increasing”. The eurozone’s rate of inflation rose from 2.4% year on year in April to 2.6% in May

Tech sector surges ahead: in the US, the technology sector experienced a rollercoaster month as chip maker Nvidia first fell sharply on profit taking and then rebounded alongside other mega-cap peers. Over June as a whole, the technology-heavy Nasdaq Index rose by 6%, while the Dow Jones Industrial Average Index climbed by 1.1%.

Just one cut this year? The Federal Reserve (Fed) maintained its key federal funds rate at a range of 5.25% to 5.5% in June and indicated that it is set to cut rates just once this year. Despite acknowledging that inflationary pressures had “eased substantially”, Fed Chair Jerome Powell maintained that inflation remains too high, and warned that policymakers need “more good data to bolster our confidence”. The annualised rate of consumer price inflation eased from 3.4% in April to 3.3% in May but remained well over its 2% target. Nevertheless, the personal consumption expenditures index fell to 2.6% in May, fuelling expectations of a cut this year.

Yen weakness continues: Japan’s headline rate of inflation rose by 2.8% year on year compared with 2.5% in April, while core inflation climbed by 2.5% compared with 2.2%. At their June meeting, Bank of Japan policymakers pondered the possibility of an interest rate increase but opted to maintain the country’s key rate at 0% to 0.1%. Elsewhere, persistent weakness in the yen sparked speculation that the country’s authorities might intervene once again to prop up the currency. The Nikkei 225 Index rose by 2.8% during June.

As ever, if you have any questions regarding your investments, please do not hesitate to contact us by calling +44 (0) 7917 390 344  or emailing me at richardbrazier@culverfinancial.co.uk and we will be happy to talk to you.