KUWAIT: US business activity remained steady in September, with the S&P Global Composite PMI at 54.4, slightly down from 54.6 in August, indicating continued private sector expansion. However, average prices for goods and services rose at their fastest rate in six months, suggesting potential inflationary pressures. The prices paid by businesses for inputs reached a one-year high of 59.1, while the prices charged by businesses increased to 54.7 from 52.9 in August.

Consumer confidence in the US fell more than expected in September, with the Conference Board’s index sliding to 98.7, down from 105.6 last month, the biggest one-month decline since August 2021. Consumers cited concerns about the labor market as a major source of worry in the survey. Additionally, inflation concerns continued to be a sticking point in the mind of consumers, with the one-year inflation outlook rising to 5.2 percent. The survey was done prior to the Federal Reserve’s decision to cut interest rates by 50 bps last week.

The Bureau of Economic Analysis’ third estimate for US second-quarter GDP remained unchanged from their second estimate, confirming 3 percent annualized growth, significantly higher than the 1.4 percent growth in the first quarter. While this reading reflects past data, projections indicate steady economic growth continuing into the third quarter. The Atlanta Fed’s GDPNow tracker currently forecasts 2.9 percent annualized growth for the third quarter, which ends in September.

Inflation gauge down

New applications for US unemployment benefits unexpectedly fell by 4,000 to 218,000 in the week ending September 21, signaling continued low layoffs and easing concerns about the labor market. Economists had expected 225,000 claims. The data coincided with the government’s household survey for September’s unemployment rate. The jobless rate fell to 4.2 percent in August, down from 4.3 percent in July. Despite the rise in unemployment from 3.4 percent in April 2023, driven by increased immigration and labor supply, fears of rapid labor market deterioration have lessened.

In August, inflation moved closer to the Federal Reserve’s target, which could ease the way for future interest rate cuts. The personal consumption expenditures (PCE) price index, a key measure of US inflation, rose by 0.1 percent, bringing the 12-month inflation rate to 2.2 percent, down from 2.5 percent in July, the lowest since February 2021. Core PCE, excluding food and energy, also rose 0.1 percent, with a year-over-year increase of 2.7 percent. Although inflation showed progress, personal spending and income grew less than expected, with both rising by 0.2 percent. Last week, the Fed lowered its benchmark interest rate and shifted focus from fighting inflation to supporting the labor market, hinting at further rate cuts this year and in 2025, though markets anticipate a more aggressive approach. The US Dollar index closed the week at 100.42.

Eurozone PMI down

Eurozone business activity unexpectedly contracted in September, with the services sector stagnating and manufacturing’s decline worsening. Germany’s economic downturn deepened, and France returned to contraction after a temporary boost from the August Olympics. The HCOB’s preliminary composite PMI for the eurozone dropped to 48.9, below the 50 threshold that indicates growth, signaling contraction for the first time since February. This was worse than the Reuters poll’s prediction of a modest decline to 50.5. Demand fell at its fastest rate in eight months, with new business and services PMIs falling below expectations. Manufacturing continued its decline, with the output index dropping to 44.5. The EUR/USD currency pair closed the week at 1.1163.

The Swiss National Bank (SNB) reduced its interest rate by 25 basis points to 1.00 percent, following similar moves by the European Central Bank and US Federal Reserve. This marks the SNB’s third rate cut this year, enabled by sharply cooling inflation in Switzerland, which fell to 1.1 percent in August and has remained within the bank’s 0-2 percent target range for 15 months. Outgoing SNB Chairman Thomas Jordan signaled that further rate cuts may be necessary to maintain price stability. The SNB also lowered its inflation forecasts for 2025 and 2026, predicting a 0.6 percent rise in Q2 2027. The USD/CHF currency pair closed the week at 0.8405.

British businesses experienced slower growth in September, with some firms expressing concerns about potential higher taxes, according to a survey. The UK S&P Global Composite PMI dropped to 52.9 from 53.8, below forecasts but still above the 50 level that indicates growth. Economists viewed the data as signaling a return to more sustainable growth after a post-recession rebound earlier in the year, contrasting with weaker performance in the euro zone. The Bank of England is waiting for clearer signs of inflation before considering further interest rate cuts, following a reduction in August. The GBP/USD currency pair closed the week at 1.3373.

RBA holds rate

The Reserve Bank of Australia (RBA) kept its cash rate at 4.35 percent in its September meeting, marking the seventh consecutive hold, in line with market expectations. The RBA acknowledged that inflation, especially the trimmed mean measure, remains high and may not return to the 2-3 percent target until 2026. The board emphasized vigilance regarding inflation risks but maintained a data-driven approach. They noted that the current monetary policy stance would remain restrictive for some time. While household consumption is expected to improve in the second half of 2024, the recovery may be slower, potentially leading to subdued economic growth and a weakening labor market.

In the 12 months to August, Australia’s monthly consumer price index (CPI) indicator increased by 2.7 percent. Annual inflation was 2.7 percent in August, down from 3.5 percent in July, and is the lowest reading since August 2021. The key price increases were in housing (+2.6 percent), food and non-alcoholic beverages (+3.4 percent), and alcohol and tobacco (+6.6 percent), while transport saw a decrease (-1.1 percent). Excluding volatile items like fuel, fruit, vegetables, and holiday travel, CPI inflation rose to 3 percent in August, down from 3.7 percent in July. Annual Trimmed mean inflation, which excluded both the falls in automotive fuel and electricity, alongside other large price rises and falls, was 3.4 percent in August, down from 3.8 percent in July. The AUD/USD currency pair closed the week at 0.6902.

PBOC stimulus

On Tuesday, the People’s Bank of China (PBOC) announced extensive monetary stimulus and property market support measures aimed at revitalizing the economy, which is facing significant deflationary pressures and risks missing the 5 percent growth target for 2024. Key measures include a 50-basis point reduction in banks’ reserve requirement ratios in the near future, which would release approximately 1 trillion yuan ($142 billion) for lending, and a cut in the seven-day reverse repo rate to 1.5 percent from 1.7 percent. Additionally, the support package reduced the minimum down payment for second homes from 25 percent to 15 percent. Despite these efforts, many analysts indicate that further fiscal stimulus is necessary to bolster real economic activity and restore consumer confidence. The USD/CNY currency pair closed the week at 7.0110.

In Tokyo, core inflation in September matched the Bank of Japan’s (BOJ) 2 percent target, signaling progress toward potential interest rate hikes. The Tokyo core consumer price index (CPI), excluding fresh food costs, rose 2.0 percent year-over-year, down from 2.4 percent in August due to government subsidies for utility bills. This data is seen as an indicator of national inflation trends. Service prices also grew, reflecting rising labor costs. BOJ Governor Kazuo Ueda indicated the bank may continue raising rates if inflation stabilizes at 2 percent but will monitor global economic uncertainties given Japan’s fragile recovery. The USD/JPY currency pair closed the week at 142.19.

Kuwait

USD/KWD closed last week at 0.30500.