Asset Management: Monthly Macro Insights - October 2024

The global economy grapples with a faltering goods sector and higher geopolitical risks. Nonetheless, investors remain confident that an accelerated policy easing would interact with supportive financial conditions to safeguard the resilience of the global economy, especially since China recently announced a coordinated set of monetary and fiscal measures.

Momentum fades through Q3-24…

According to the latest S&P Global PMI, the rate of global economic expansion slowed to an eight-month low in September. At 52, the composite PMI suggests the global economy remains resilient, yet the index has tumbled almost -2 pts since May. Four-month declines of this magnitude do happen during extended expansions, although not often, and the broader message of momentum loss could upset investors’ optimism.

… but monetary easing preserves optimism

Eurozone inflation slowed to 1.8 per cent in September according to the flash estimates, below the ECB’s 2 per cent target for the first time since 2021 amid falling energy costs. However, core inflation remained elevated at 2.7 per cent, as services inflation declined marginally to 4 per cent, suggesting domestic price pressures are strong. That said, concerns about the economy are on the rise, which has boosted rate cut bets at the next ECB meeting on 17 October.

Meanwhile, in lowering rates 50bp and signalling further moves at the next meetings, the Fed marked a material shift in its perception of macroeconomic risk, with the labour market now being at the centre of its attention. Yet, recent data have been mixed, and it is unclear how much the bond market will have to revise down its expectations regarding monetary easing.

China’s policy mix astounds investors

China’s August activity data have been weak. Against the backdrop of continued property downturn and subdued growth, China’s government announced a set of additional policy support. Furthermore, fiscal policy is likely to play an increasingly important role to support the economy. It remains to be seen whether the new set of measures will live up to the hopes raised by this change of direction.