Noise before the storm
Noise before
the storm
As we approach the most anticipated budget in the UK for some years, and an election in the US that remains too close to call, you might be forgiven for thinking that things would be calmer this month. However, October has been a remarkably active month, regardless of these looming events.
European Central Bank cuts interest rates
The European Central Bank (ECB) has taken a significant step to stimulate the eurozone economy by implementing a third interest rate cut this year. This marks the first consecutive rate reduction since the euro crisis of 2011, reflecting the ECB's determination to address the ongoing economic challenges.
The decision to lower interest rates comes in response to mounting evidence that inflation is decelerating within the eurozone and increasing signs of economic slowdown, particularly in Germany. By reducing borrowing costs, the ECB aims to encourage investment, spending and lending, thereby boosting economic growth.
European Central Bank key deposit rate since the first rise of the current rate cycle:
Source: Artorius, Bloomberg
This latest rate cut is a strategic move by the ECB to counteract the potential for a prolonged economic downturn and maintain price stability within the eurozone. “The latest data is all heading in the same direction, downwards, and points to more sluggish growth,” said Christine Lagard, ECB President.
Shifting US interest rate expectations
Recent economic data in the US has led to a shift in expectations of the speed and scale of interest rate cuts by the Federal Reserve (Fed). While there had been anticipation of another significant reduction in borrowing costs, the release of stronger than expected US jobs data and comments from Fed officials (suggesting a preference for a more gradual pace of rate cuts) have tempered these expectations.
Expected Federal Reserve target rate: According to market expectations, the anticipated Federal Reserve target rate has shifted higher in the past week.
Source: Artorius, Bloomberg
This shift in sentiment reflects the ongoing assessment of economic conditions and the delicate balancing act faced by the Fed in determining the appropriate monetary policy stance.
Earnings season gears up
As earnings season unfolds across Europe and the United States, investor attention is primarily focused on the large technology stocks in the US. Most of these companies are scheduled to report their financial results prior to the upcoming US election. While these tech giants are expected to deliver strong year-over-year growth, the rest of the S&P 500 is anticipated to report near-zero growth numbers.
While the market awaits these highly anticipated announcements, companies that have already disclosed their earnings have presented a mixed picture. Although only a small percentage of companies have reported so far, the current trend emerging is one of better-than-expected results. However, the degree to which these results have exceeded expectations has fallen compared to the long-term average of historic outperformance.
Companies such as Starbucks and ASML, a European company that builds machines to make computer chips, have made headlines with poor performance. In contrast, Tesla has seen a significant jump in its share price following better-than-expected results and higher predicted sales for next year.
Beyond the headlines
Despite the imminent UK budget and the looming US election dominating headlines, it's crucial to recognise that numerous economic and market factors are at play and should be carefully considered in the lead-up to these significant events. While these political developments undoubtedly hold considerable influence investors must remain vigilant and assess the broader economic landscape to make informed decisions. At Artorius, while we are aware of these events, we are staying invested and taking a long-term view with our discretionary portfolios.
Josh Young de Ferrer ,
Portfolio Manager
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Important Information
All expressions of opinion reflect the judgment of Artorius at 25th October 2024 and are subject to change, without notice. Information has been obtained from sources considered reliable, but we do not guarantee that the foregoing report is accurate or complete; we do not accept any liability for any errors or omissions, nor for any actions taken based on its content. The value of an investment and the income from it could go down as well as up. The return at the end of the investment period is not guaranteed and you may get back less than you originally invested. Past performance is not a reliable indicator of future results. Nothing in this document is intended to be, or should be construed as, regulated advice. Artorius provides this document in good faith and for information purposes only. Reliance should not be placed on the information contained within this document when taking individual investments or strategic decisions.
Artorius Wealth Management Limited is authorised and regulated by the Financial Conduct Authority. Artorius is a trading name of Artorius Wealth Management Limited.
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