Market snapshot: month set to end on a sparkling note

Global markets are set to end September on a sparkling note, with the Chinese authorities finally stepping up to the plate and with the main US indices continuing to test new record highs.

The benchmark S&P 500 closed at yet another previously unseen level, bringing its gains in the year to date to 20.4%, while the other main indices are certainly not dragging their feet, with rises of 11.9% and 21.2% for the Dow Jones and the Nasdaq respectively. The latest boon to sentiment came in the form of several positive economic releases, which seem to put the possibility of a soft landing firmly in place and further fuel to the AI fire in the form of Micron Technology Inc (NASDAQ:MU), whose shares rose by around 16% following a strong set of quarterly numbers and upbeat outlook.

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Weekly jobless claims fell by more than expected, suggesting that the labour market remains steady, while durable goods orders held steady versus an expected decline. Second-quarter GDP was unrevised at a robust 3% and, with few obvious cracks appearing in the economy at present, the Federal Reserve’s aggressive 0.5% interest rate cut increasingly looks like a pre-emptive move to maintain momentum. In the meantime, the strength of this set of data has had an impact on expectations for the next cut in November, with a reduction of 0.25% currently looking more likely than another outsize 0.5% decrease.

The next part of the jigsaw follows later today with the release of the Fed’s preferred inflation gauge, the Personal Consumption Expenditures index, where the core number is expected to have risen by 0.2% on a monthly basis, annualised to 2.7%. Should the release confirm these numbers, markets would be set for another positive day in the final full week of trading in September, although a larger than expected increase could unhinge the overriding positive momentum which is currently in place.

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In Asia, China has been the shining light this week. With investors having assumed that the authorities were asleep at the wheel this year in the face of a faltering economy and consequently leaving those markets, the response has been huge if a little belated. The cumulative stimulus package, which has been announced each day this week, aims to target the financial market, the property sector and general consumption with a mixture of increased spending and easier monetary policy. The fact that this action was both necessary and overdue came in the form of an August release showing that industrial profits had fallen by almost 18% year-on-year.

There will, of course, be a time lag between the announcement of the stimulus package and its effects washing through to the economy, but the very fact that the authorities have moved away from their previous inertia has energised both domestic and international markets alike. Chinese blue-chips, for example, are set for a weekly gain of some 14%, the highest since around the time of the global financial crisis in 2008, while the positive reverberations have extended to most commodity prices and sectors with a high Chinese exposure worldwide.

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In UK markets, the mood was also positive but rather more subdued. The premier index crept higher, led by some further selective buying interest in the mining sector, while Prudential (LSE:PRU) saw the benefit of a double whammy with its shares adding around 3%. Quite apart from the afterglow of the China effect, the group announced a partnership with BSI, the sixth-largest bank in Indonesia by assets, thus consolidating its presence in the region. The gain lifts the performance of the FTSE 100 to a positive 7.3% so far this year and less than 2% from its May record high.

The FTSE 250 fared slightly better at the open, with the likes of Burberry Group (LSE:BRBY) and Fidelity China riding the Asian wave. More broadly, the resilience of the UK economy and a surge in M&A activity based on the cheap historical valuations of many of its constituents have offset current concerns on the fallout from the upcoming Budget at the end of October. The index is now up by more than 7% this year, with the possibility of more monetary easing providing a potentially strong foundation for further gains.