The week ahead 23 September 2024 - Global Interest rates on a downwards trajectory
What to watch out for in the UK economy and property market this week.
The US Federal Reserve surprised the financial markets with a 50 bps cut in its policy interest rate last week. Wall Street forecasters had predicted a smaller 25 bps reduction, and equity markets rallied on the news. Given the Fed is the last of the major western central banks to begin cutting interest rates in this new cycle, they may have concluded there was a need to catch up in order to shore up the US dollar. In contrast, the Bank of England left the Base Rate unchanged last week, after having cut rates in August. Rate setters backed away from another cut after services inflation increased from 5.2% in July to 5.6% in August. Nevertheless, we are still forecasting at least one more Base Rate cut this year, probably at the Bank’s November meeting.
Overall, the global economy now appears firmly established in a new interest rates cycle, and one where we are at the beginning of the cutting phase. This is good news for property, as investors will consider this new trend alongside recent evidence real estate pricing is levelling out, prompting the question: are we approaching a turning point for the market? If we set aside downturn years, for commercial property Q4 is typically the strongest quarter for investment sales, as investors move to spend allocated funds before year end. The pattern of recovery will vary across geographies and sub-sectors, but speaking generally, we believe there is a growing possibility of a strong fourth quarter in 2024 for property investment sales.
This week sees the release of early ‘flash’ PMI figures for most of the leading global economies. The UK PMI data has been relatively punchy lately, although other evidence points to activity slowing during the summer. Consequently, we are expecting the index to decline slightly, but remain well above the 50 mark which indicates growth. On Friday, US inflation figures will be released and we are forecasting a decline, which we believe will strengthen the case for a further interest rate cut by the Fed later this year.
Things to watch for this week
Monday, 23rd September
UK ‘Flash’ Composite PMI, September
Previous: 53.8
Forecast: 53.4
Based on recent evidence pointing to growth slowing over the summer, we are predicting a modest decline in the PMI figure for September.
Friday, 27th September
US PCE Inflation, y-on-y, August
Previous: 2.5%
Forecast: 2.3%
This is the key inflation measure that the US Federal Reserve benchmarks against for policy decisions. In line with other inflation indices, we are forecasting a decline for August.
Euro Area Economic Sentiment Index, September
Previous: 96.6
Forecast: 96.2
This indicator is a difficult call for September, given the recent contrast between the strength of economies like Spain and Italy compared to the weakness seen in countries like Germany. We are forecasting a small decline, but an upside surprise is possible.
