Global financial markets experienced an uneven performance. Investors are spending attention today on a much-anticipated U.S. Federal Reserve decision later this week. The central bank will probably announce its first interest rate cut of the year. This decision was made despite continued inflation, which remains above the 2% target. The Federal Reserve, which is holding its next FOMC meeting and releasing its quarterly economic projections on Wednesday, could deliver a sobering message. These dovish projections are sure to predict at least one, if not two more rate cuts this year and multiple cuts in 2024.
Wall Street eked out modest gains on Monday, creeping higher as investors awaited the Fed’s announcement. Britain’s FTSE 100 remained unchanged, while France’s CAC 40 surged 1.2% and Germany’s DAX rose by 0.5%. In Asia, Australia’s S&P/ASX 200 fell by 0.1%. On the other hand, South Korea’s Kospi rose 0.4%, Hong Kong’s Hang Seng index 0.2% while the Shanghai Composite slid 0.3%.
The halfhearted run of global markets occurs as worries over the strength of China’s economic recovery are increasingly becoming a cause for concern. According to the latest official figures, industrial production in China increased only 5.2% year on year in August. This is the lowest inflation rate in a year, since 5.7% in July and 6.8% in June. Retail sales in China increased by only 3.4%, the slowest rate since last November.
These doubters worry that China’s rapid economic growth may not be sustainable. Yet they contend that the August data does not provide a firm basis for ongoing dynamic growth. Lynn Song of ING Economics stated, “China’s economy continued to slide in August, with all key activity readings falling short of market forecasts once more.” She doubled down on the possibility of “more short-term stimulus” in the form of some kind considering the slowdown that has occurred in recent months.
Compounding these economic challenges, the damage inflicted on China’s economy by U.S. President Donald Trump’s tariff policies remains evident. According to Stephen Innes, managing partner at SPI Asset Management, “The underlying flow is shifting. For years, Beijing leaned on exports as the carry trade that kept growth rolling even as property cracked. With Trump’s tariffs slicing through supply chains, that leg of the trade is gone.”
Even through these storms, eyes have turned to economists on the Federal Reserve’s action and forecast. The expected rate cut is meant to counteract an overall softer trend in growth, while keeping inflationary pressures at bay. Analysts anticipate that the Fed will signal its plan for future moves at this week’s policy meeting.
