FUNDAMENTAL REVIEW FOR THE WEEK (23 - 27 September 2024)

The current week is expected to be quiet in terms of significant economic events, with major financial reports scheduled for next week. The lack of major events and market uncertainty create the risk of a potential decline in the stock section. At the moment, several key "pillars" that have supported the markets until recently - excess savings, confidence in economic growth and the revolution in artificial intelligence technologies - are now "failing". The reason is the general uncertainty about the economic situation on the Western continent that reigns in the market.

The recent 50 basis point rate cut by the Federal Reserve did little to support confidence among financial players. Investors continue to express doubt and skepticism about the motives of this move, especially in light of recession fears. Large capital holders may prefer to wait for a more significant drop in stock prices to buy them on the dip, especially if a recession occurs. Conversely, if the economy continues to grow slowly, the Fed may extend the rate cut cycle for a longer period, thereby eliminating the effect of stock market growth on cheap loans.

The worst-case scenario for the Western economy, namely stagflation, when inflation grows along with the economic downturn, is also possible. This scenario may become especially likely given the risk of escalation of the conflict in the Middle East. A serious war in the region could lead to higher oil prices and disruption of supply chains, increasing inflationary pressure and at the same time slowing economic growth.

Key economic data of the week

The most important report of the week will be the US PCE inflation report on Friday. Although these figures can be calculated fairly accurately now (based on earlier reports on the consumer price index and producer price index), the nuances of the report itself are important here, namely small differences in rounding can affect the market reaction. Also noteworthy is the US data due out on Thursday - Q2 GDP and durable goods orders, although markets may pay significantly less attention to these than to inflation.

Several Federal Reserve members are expected to speak during the week, including Chairman Jerome Powell on Thursday. However, Powell's speech is unlikely to have much of an impact on prices, as he is only set to deliver the opening remarks at a Treasury Market Conference, which will be a recorded speech.

Portfolio Rebalancing at Quarter-End

The most significant market activity could come from profit-taking and portfolio rebalancing at the US monthly, quarterly and fiscal year-end closes. This could trigger sharp market moves beginning on Thursday, with correlations between asset classes potentially breaking down for a time.