WEEKLY MARKET RECAP
16 September 2024
Summary for the week ending on Friday, 13 September 2024

MULTI-ASSETSOLUTIONSEMEA & LATAMTHE ECONOMIC AND POLITICAL BACKDROPThe US
The week’s relatively light economic calendar was dominated by the Labor Department’s
inflation reports. On Wednesday, stocks initially headed sharply lower following news that core(less food and energy) consumer inflation rose to 0.3% in August, a tick higher than consensus
expectations. Meanwhile, headline inflation showed an annual increase of 2.5%, well below
July’s increase of 2.9% and its lowest level since early 2021. In any case, the news from chipgiant NVIDIA that offered a positive outlook on artificial intelligence (AI) at an investment
conference seemed to help drive a turnaround later Wednesday morning. It was a busy week
for conferences in general, which seemed to drive sentiment.
Data also arguably suggested some minor glimmers of hope for the troubled housing sector.
The Mortgage Bankers Association reported on Wednesday that the average rate for a 30year, fixed-rate mortgage fell to 6.29%, the lowest level since February 2023 and well below
the 7.21% year-ago level. The association also reported that its index of home loanapplications – a leading signal of home purchases – continued to climb off its August lows.

Yoram Lustig, CFA
Head of Multi-Asset
Solutions, EMEA & Latam

Michael Walsh, FIA, CFA
Solutions Strategist

EuropeThe European Central Bank (ECB) lowered its deposit rate for a second time this year,
announcing a 25 basis-point (bp) cut to 3.5% that was in line with expectations. The movecame amid signs of weakening economic growth and slowing inflation in the eurozone. Thestatement accompanying the announcement emphasised that the ECB remains cautious andindicated that the ECB is not “pre-committing to a particular rate path.”
The updated quarterly forecasts for headline inflation remained unchanged, but core inflation
was revised slightly higher for the next two years due to stronger-than-expected services
prices. The ECB now expects the economy to expand by a percentage point less this year
(0.8%) and in 2025 (1.3%) and 2026 (1.5%).

Eva Wu, CFASolutions Strategist

Matt Bance, CFASolutions Strategist

T. Rowe Price European Economist Tomasz Wieladek said that he believed financial markets were pricing in too muchpolicy easing. While some survey indicators are showing that the economy is beginning to contract, activity in manufacturing
and some other areas are holding up. He notes that labour markets remain tight, and that services inflation has not slowed
below 4.0% since November. In his view, negotiated wages in the eurozone are likely to rise above 4% in the third quarterand could stay at those levels until mid-2025. The potential for volatility in these data series suggest that the ECB is likely
to remain cautious and may look to lower borrowing costs at a quarterly pace.
The UKThe UK economy was unchanged for a second consecutive month in July as manufacturing output contracted. Economists
had expected growth of 0.2%. However, over the three months ended 31 July, inflation-adjusted GDP expanded by 0.5%
sequentially.

FOR INVESTMENT PROFESSIONALS ONLY. NOT FOR FURTHER DISTRIBUTION.

1Pay growth slowed as well, but the labour market appeared to remain tight. Average earnings, excluding bonuses, increased
5.1% from year-ago levels for the three months through July – down from 5.4% in the February-to-April period. Nevertheless,wages are still growing at almost double the rate that the Bank of England judges to be compatible with keeping inflation at2%.
JapanExpectations that the Bank of Japan (BoJ) will raise interest rates again this year were supported by the latest commentsfrom members of the central bank’s board. Junko Nakagawa reiterated that the degree of monetary easing will be adjusted
if the outlook for Japan’s economy and inflation is realised, as the current level of real rates is extremely low. Naoki Tamurasuggested that the short-term rate needs to be raised to at least around 1% in the second half of the BoJ’s projection period
through fiscal 2026 to curb upside inflation risks and maintain price stability.
Despite these hawkish comments, the yield on the 10-year Japanese government bond eased to 0.84% from 0.85% at theend of the previous week – as it tracked US bond yields lower on speculation that the Federal Reserve (Fed) could delivera more aggressive 50bp interest rate cut at its September meeting.
On the economic front, Japan’s second-quarter GDP growth was revised lower. According to final data, the economy
expanded an annualised 2.9% quarter on quarter, less than the 3.1% growth suggested by the preliminary reading andmarket forecasts of 3.2%. The contribution from private consumption and capital expenditure was weaker. In inflation
developments, the consumer goods price index rose 2.5% year on year in August, slowing from the previous month’s 3.0%
and below consensus estimates of 2.8%. The rebound in the yen has caused a sharp fall in import cost growth.
China
China’s consumer price index (CPI) rose 0.6% in August from a year earlier, up from 0.5% in July, but below economists’forecasts. Core inflation, which strips out volatile food and energy costs, increased 0.3%, slowing from July’s 0.4% rise, andmarked the lowest level in over three years. The producer price index (PPI) fell -1.8% from a year ago, lagging forecasts
and deepening from July’s -0.8% drop, extending the deflation in factory gate prices that began in late 2022. The latest data
spurred calls for Beijing to roll out more forceful measures to stave off a negative cycle of falling corporate revenue, wages
and spending that many analysts believe threatens China’s longer-term growth.
Meanwhile, exports exceeded forecasts in August, rising 8.7% from a year earlier, up from 7% growth in July. Imports
expanded a lower-than-expected 0.5% in August, easing from July’s 7.2% gain. The overall trade surplus increased to USD
91.02 billion from USD 84.65 billion in July. China’s exports have been a bright spot for its economy, which is mired in a
prolonged property crisis. However, analysts cautioned that overseas demand could face volatility due to the slowing US
economy and rising trade tensions.
Australia
Australian business conditions and confidence weakened in August. The level of forward orders continued to suggest weakgrowth in domestic demand. Australian consumer confidence, on the other hand, signalled a gradual improvement.
Australian firms’ reported profitability eased further to be around average.

EQUITY MARKETS
Last week, the MSCI All Country World Index (MSCI ACWI) rose 3.1% (15.5% YTD).
In the US, the S&P 500 Index posted a solid gain of 4.1% (19.1% YTD) with stocks largely recovering from the previous
week’s steep losses, which saw the S&P 500 suffering its worst weekly decline since March 2023. Growth stocks outpaced
value shares by a wide margin, helped by strong performance from technology stocks. The technology-heavy Nasdaq
Composite rallied 6.0% (18.4% YTD). The Russell 1000 Growth Index returned 6.0% (21.5% YTD), the Russell 1000 Value
Index 2.0% (13.8% YTD) and the Russell 2000 Index 4.4% (8.7% YTD).

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In Europe, the MSCI Europe ex UK Index ended the week 2.1% higher (9.2% YTD), lifted by an interest rate cut from theECB. Major stock indexes advanced as well. Germany’s DAX Index added 2.2% (11.6% YTD), France’s CAC 40 Index put
on 1.5% (1.8% YTD) and Italy’s FTSE MIB Index increased 0.8% (15.2% YTD). Switzerland’s SMI Index rose 1.1% (11.4%YTD). The euro was little changed versus the US dollar, ending the week at USD 1.11 for EUR.
The FTSE 100 Index tacked on 1.1% (10.2% YTD) and the FTSE 250 Index added 2.0% (8.8% YTD). The British pound
was little changed versus the US dollar, ending the week at USD 1.31 for GBP.
Japan’s stock markets registered negative performance over the week. The TOPIX Index lost -1.0% (10.0% YTD) and theTOPIX Small Index retreated -1.0% (6.5% YTD). The country’s exporters continued to face currency headwinds as the yen
strengthened to JPY 140.9 against the USD, from the prior week’s JPY 142.3 amid a hawkish outlook on the BoJ’s monetarypolicy.
In Australia, the S&P ASX 200 Index rose 1.6% (11.1% YTD) following the strong US equity rally aided by bullish remarks
on AI chip demand from Nvidia’s CEO Jensen Huang. Australian government bond yields continued to abate with the curve
largely unchanged. The Australian dollar strengthened against the US dollar by 0.6%.
Emerging markets and other markets
MSCI Emerging Markets Index was 0.8% higher (8.2% YTD), with a positive contribution to performance from the stock
markets of India, Taiwan, South Korea and Brazil and a negative from that of China.
Chinese stocks declined as weak inflation data spurred concerns about a downward price-wage spiral weighing on theeconomy. The Shanghai Composite Index gave up -2.2% (-6.6% YTD) and the blue-chip CSI 300 Index decreased -2.2%(-5.4% YTD). In Hong Kong, the benchmark Hang Seng Index lost -0.1% (6.2% YTD).
In Hungary, the government reported that inflation in August was 3.4%. This was lower than expected and lower than the4.1% inflation reading for July. According to T. Rowe Price credit analyst Ivan Morozov, the downside surprise was mostly
driven by food and transportation costs. The moderation in core inflation – now at a year-over-year rate of 4.6% – waslimited, although core momentum visibly slowed to a month-over-month rate of 0.2%. While a lower inflation reading could
pave the way for more central bank interest rate cuts, Morozov believes that recent negative fiscal news – specifically Prime
Minister Viktor Orban’s call for higher fiscal spending ahead of the general election in 2026 – and relative forint weakness
versus the euro may discourage the National Bank of Hungary from reducing rates at a faster-than-signalled pace.
In the Czech Republic, the government reported earlier last week that inflation in August was 2.2%, which matched the Julyreading but was higher than expected. According to Morozov, core CPI inflation momentum slightly accelerated on a monthover-month basis. He believes that the disinflation trend in the Czech Republic has ended, and that inflation remains broadly
stable in the 2% to 3% range. That said, he also believes that the central bank will likely continue cutting interest rates
incrementally given the weakness of the economy.

FIXED INCOME MARKETS
Last week, the Bloomberg Global Aggregate Index (hedged to USD) returned 0.4% (4.6% YTD), the Bloomberg Global High
Yield Index (hedged to USD) 0.5% (8.3% YTD) and the Bloomberg Emerging Markets Hard Currency Aggregate Index 0.5%(7.2% YTD).
US Treasury yields ticked lower during the week. The 10-year Treasury yield decreased -6bp to 3.65% from 3.71% (down-23bp YTD), trading at year-to-date lows. The 2-year Treasury yield declined -6bp, ending the week at 3.58% from 3.65%(down -67bp YTD). The slope of the yield curve (10-year yield less 2-year yield) has turned positive.
The US investment-grade corporate bond market appeared quiet but healthy. Thursday saw the week’s only issuance, andshorter-maturity new bonds outperformed. Strong equity gains and anticipation of the Fed cutting rates at next week’s
meeting aided the performance of high yield bonds.

3Over the week, the 10-year German bund yield declined -2bp, ending at 2.15% from 2.17% (up 13bp YTD).
The 10-year UK gilt yield decreased -12bp, ending the week at 3.77% from 3.89% (up 24bp YTD).

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YTD is year to date. GDP is gross domestic product.
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