25 September 2024
If you are covering the latest news in financial markets, please find below a comment from Lindsay James, investment strategist at Quilter Investors:
“With interest rate cuts being a regular topic of conversation in many central banks these days, China has joined the action with a 0.2% cut to its main policy interest rate, followed up overnight with cuts to its medium-term lending rate of 0.3%, leaving this rate at 2%. This is alongside other measures designed to support both the stock market and the property market. However, in China the backdrop is quite different from the West; a continued economic slowdown alongside price deflation is the main cause instead of hot inflation. This weakness has stemmed partly from sluggish consumer spending following the collapse in the property sector. Investors are concerned not only that the significant overhang of unfinished properties, where would-be buyers pay in full, off plan, will delay any recovery but also that in recent months data on the Chinese economy has been quickly disappearing from view, with growing mistrust in the data that does remain available. Whilst this package of measures will certainly be welcomed, China’s problems cannot be resolved as easily as setting an appropriate level of interest rates. The bigger issues of weak consumer confidence linked to the deeply fractured property market, manufacturing overcapacity, reducing economic and business transparency and trade barriers continue as yet unchallenged.
“Meanwhile, in the UK with the Labour party conference now into the equivalent of the Boxing Day come down, investors may be a little disappointed that more concrete plans appear to be the work of another day. Whilst Chancellor Rachel Reeves offered the strongest hint yet that she will adjust the fiscal rules which effectively govern the size of her spending budget, we will presumably have to wait until the Autumn Budget to see how this works in practise. These rules have been changed six times in nine years, so nothing new there one might think. However, with UK debt to GDP now at 100%, bond investors are unsurprisingly likely to be rather sensitive as to how the UK government calculates its own spending ability. Whilst effective investment is vital to renewing UK economic growth, how it is defined, shaped and ultimately paid for will remain crucial.”
