Our latest monthly investment update for September 2024 examines how the global investment markets, economy, and commodities perform.
The FTSE 100 index of leading UK company shares closed at the end of August at 8,376.63, up 8.65 points or 0.1% during the month.
Busy week ahead
Global share markets edged lower on Monday as investors prepared for a busy week of economic data, culminating in a US jobs report that could influence the size of an anticipated interest rate cut this month.
According to Monday’s data, recent survey data revealed that Chinese manufacturing activity dropped to a six-month low in August, and eurozone factories continue to face challenges.
Political uncertainty added to the mix, with gains for populist parties in German state elections unsettling European markets. Meanwhile, a holiday in the United States and Canada led to reduced trading volumes.
Europe’s STOXX 600 index fell by 0.26% after reaching a record high on Friday. Germany’s DAX dropped by 0.11%, and Britain’s FTSE 100 declined by 0.1%.
“European equities have opened on a weaker footing due to disappointing economic data from China,” said Aneeka Gupta, equity strategist at WisdomTree. “The industrials and consumer discretionary sectors led the declines.”
The dollar index, which measures the currency against six others, dipped slightly to 101.73 after hitting a two-week high overnight. The US dollar also rose 0.5% against the yen, reaching 146.95.
Tech firms
In August, the market values of major tech firms dropped due to growing concerns about rising artificial intelligence infrastructure costs and increasing recession risks, making these stocks more vulnerable in a market downturn.
Alphabet Inc.’s market value declined 4.7%, driven by a slowdown in YouTube’s advertising sales, which raised concerns about its earnings. The drop was further influenced by a US judge ruling that Google violated antitrust laws and new competition from OpenAI, which is developing an AI-based search engine prototype.
Amazon.com Inc. experienced a 4.5% decline in market value due to a slowdown in online sales.
Tesla’s market capitalisation decreased by 7.7% following weaker Q2 earnings and news that Canada plans to impose a 100% tariff on Chinese-made electric vehicles. Tesla began shipping Shanghai-made EVs to Canada last year, and Ottawa’s plans have raised concerns about the potential impact on profits if exports shift to its higher-cost US production base.
Nvidia’s market value also fell in late August by 7.7%, reaching $2.92 trillion, after it projected third-quarter gross margins below market expectations and reported revenues that only met expectations, disappointing investors who had hoped for a stronger performance.
Stable oil prices
Oil prices stabilised as traders balanced the anticipated production increase from OPEC+ next month against reduced output in Libya while also considering economic challenges in China.
Brent crude for November hovered around $77 a barrel after a drop of over 2% on Friday. West Texas Intermediate steadied just below $74, with lower trading volumes expected due to the US holiday on Monday.
According to sources involved in the talks, the Organisation of Petroleum Exporting Countries and its allies plan to add 180,000 barrels per day as they continue to gradually restore production levels that were cut back in 2022.
Over the weekend, Chinese data revealed a fourth consecutive month of factory activity contraction in August, along with a worsening residential property slump, raising doubts about whether the world’s largest crude importer can meet its economic growth target this year. India’s diesel sales also saw a significant decline last month.
Oil prices have surrendered most of their gains this year as the outlook for ample supply and signs of economic slowdowns, particularly in the US, have weighed on the market. Volatility has increased in recent weeks, with crude futures experiencing some of the largest intraday swings in months.
Manufacturing uptick
The UK’s manufacturing sector experienced its fastest growth in over two years last month, as inflationary pressures on businesses and consumers began to ease, according to new data.
The S&P Global UK manufacturing PMI survey recorded a reading of 52.5 for August, slightly up from 52.1 in July. This figure, the highest in 26 months, met analysts’ expectations.
A PMI reading above 50 indicates sector growth, while a score below 50 suggests contraction.
Rob Dobson, director at S&P Global Market Intelligence, commented: “The UK manufacturing sector continued to positively contribute to overall economic growth in August. The growth is widespread across manufacturing, with the investment goods sector leading the way.”
Winter support
The government has announced an extension to the Household Support Fund, which is intended to alleviate cost-of-living pressures during the winter months.
The funds will be allocated to local councils, which can provide small payments to households in need.
This extension follows criticism of the Labour government’s decision to end winter fuel payments for 10 million pensioners in England and Wales.
Work and Pensions Secretary Liz Kendall stated that the new Household Support Fund will be launched in the coming weeks. “Pensioners and others facing difficulties with the cost of living during the colder months should contact their local council to explore available support,” she advised.
Windfall tax
The UK’s oil and gas industry has warned that raising the windfall tax could undermine the government’s primary objective of economic growth. Offshore Energies UK (OEUK) stated that the proposed increase would significantly reduce investment in the sector, potentially costing the UK economy £13 billion between 2025 and 2029 and putting 35,000 jobs at risk.
This caution comes alongside concerns from a major business group, which noted that discussions around tax increases and employment rights have “dented confidence in the business environment” in the UK.
A Treasury spokesperson affirmed the government’s commitment to maintaining a “constructive dialogue” with the oil and gas industry regarding changes to the windfall tax.
The Energy Profits Levy (EPL), the official name for the windfall tax, is set to rise from 35% to 38% on 1 November, targeting profits made by oil and gas companies in the UK. North Sea operators are already subject to higher taxation, paying 30% corporation tax on profits in addition to a supplementary 10% rate.
Cash demand
The Post Office managed a record £3.7 billion in cash transactions in July, with customers either depositing or withdrawing funds, surpassing previous records set in May, April, and December.
This surge in cash handling coincides with the continued closure of bank branches, which has shown no sign of slowing. Since 2015, over 6,000 branches have shut down, averaging around 50 closures each month.
In response, banking hubs are gradually being introduced to provide similar services. Currently, around 70 hubs are operational, with 100 expected to be in place by Christmas. These hubs aim to ensure access to cash for those who need it and allow small businesses to deposit their earnings.
However, with hubs and post offices only offering basic banking services, the widespread closure of branches is likely to remain a contentious issue for the foreseeable future.
Market Data
£1 buys $1.3147 or €1.1875. Gold is $2,513.35 an ounce, and UK natural gas futures are 93.83p/therm, up from 89.75p/therm at the start of August. The UK 10-year gilt yield is 4.034%, up from 3.910% at the start of August.
