The Federal Reserve has finally cut its interest rates for the first time since March 2020, beginning the long-awaited "Fed pivot". With an oversized 50-basis-point rate cut, the Fed appears to be prioritising the labour market, given the rise in unemployment in the U.S. to 4.2%, rather than maintaining its previous focus on controlling inflation. This decision reflects growing concerns about the economic slowdown and suggests the Fed is now aiming to support the broader economy by moving interest rates back to neutral levels.

This global trend toward easing monetary policy is not limited to the U.S., as central banks across Europe are also shifting their stance. The Bank of England initiated its own easing cycle with a 25-basis-point cut in August. The European Central Bank followed suit in September with its second rate cut, lowering rates to 3.5%, while the Swiss National Bank reduced its key rate for the third consecutive time, bringing it down by 0.25% to 1%.

Economic growth in the Eurozone began slowing in early summer 2024 and recent data confirms this downward trajectory. While Q2 brought a modest 0.2% q/q GDP growth, largely driven by net exports, the September flash composite PMI fell into contraction territory at 48.9, highlighting the decline in manufacturing activity and its spillover into the services sector.

Germany, once the economic powerhouse of the Eurozone, has become its weakest link. Its industrial sector struggles with declining demand from China, increased competition from cheaper Chinese exports, and energy supply challenges worsened by sanctions on Russia. Economists are now expecting that Germany's economy will stagnate at best for the remainder of 2024.

Meanwhile, in France, the brief economic boost from the “Olympic effect” in August has faded away, leaving the country, along with Germany, facing economic contraction. Italy and Spain have shown resilience, with strong service sector activity helping to offset the broader European slowdown. Still, the overall growth in the Eurozone remains weak and underperforms expectations​.

Total U.S. debt explodes again, reaching $35.7 trillion on October 1, up $345 billion from September 27. This figure becomes more alarming when looked at in its relationship to US GDP. In 2008, the U.S. federal debt was $9.4 trillion while the U.S. GDP was $14.7 trillion, resulting in a debt-to-GDP ratio of 64%. Now, with public debt sitting at $35.7 trillion and GDP at $29 trillion, the debt-to-GDP ratio has skyrocketed to 122%, making the U.S. the country with the 6^th highest ratio in the world.

The story of the end of the quarter was the deployment of China’s massive stimulus package. After years of stagnation and a slow recovery post-pandemic, Chinese authorities finally decided to "go big" to stabilise the struggling property market and support the country's economy.

A key component of the plan is the People's Bank of China (PBOC) cutting mortgage rates for individual borrowers and lowering the reserve requirement ratio (RRR) for banks by 0.50 percentage points. Additionally, the minimum down payment for second-home purchases has been reduced from 25% to 15%. Further cuts to the RRR, potentially between 0.25 to 0.5 percentage points, are being considered for later this year, though these adjustments will not apply to smaller banks. Lastly, the government has proposed a $113 billion market stabilisation fund, representing less than 1% of China's total stock market capitalisation, to bolster the financial sector.

These measures triggered an immediate 4.3% surge in the CSI 300 index after the stimulus package announce and Asia ex-Japan was the top performing major region, returning 10.6% over the quarter.

During the third quarter of the year, developed market equities delivered a strong 6.5% return. Geopolitical tensions in the Middle East and Europe, along with a revision in U.S. employment data and concerns about the "Yen Carry Trade" posed challenges during the quarter. Nonetheless, the S&P 500 maintained its upward momentum, adding 5.9% over the quarter. Small-cap stocks led the way with a notable 9.5% increase, while global REITs delivered a remarkable 16.2% gain.

European markets, however, showed more muted growth. The UK posted a modest 2.3% increase, while the broader European market, excluding the UK, edged up by 1.6%. The Eurozone’s economic recovery continues to struggle, with Germany’s manufacturing sector facing headwinds from weak Chinese demand and increased competition from lower-cost Chinese exports.

In Asia, Japanese stocks dropped 4.9%, hit by the Bank of Japan’s July rate hike and Governor Ueda’s signals of more hikes to come. A weak U.S. labour market report and narrowing U.S.-Japan interest rate differentials led to a sharp yen appreciation and the unwinding of carry trades.

Sentiment in the equity market has continued to pick up throughout Q3 and is now through the roof. U.S. equity futures positioning by investors (excl. market-makers) just hit a net long of approx. $290 billion, the most on record. This net long positioning by investors has more than doubled since the beginning of the year, and currently sits at a level over twice as high as those seen during previous peaks in early 2018 and 2020. This sentiment is further highlighted by the Fear & Greed Index reaching levels of “extreme greed” for the first time since March. With U.S. household stock allocation also hitting new highs, investors appear to be all-in on stocks.

Bulls are thriving as Q3 has been favourable to equity markets. The quarter ended on a high note, with the S&P500 posting a green September for the first time in 5 years. The bull market also appears to continue broadening (a prediction we made for 2024), with 337 stocks outperforming the S&P500 in Q3. Overall, 394 stocks were positive in Q3, with the index closing at 5.3% for the quarter. With tech stocks struggling, it was value stocks that took the lead in the third quarter. US value stocks managed to outperform growth by 7% points, with small caps rallying in anticipation of lower rates to come.

Fixed income markets performed strongly in Q3 2024, largely driven by the anticipation of lower interest rates, and increasing confidence of a soft landing for the economy. The changing outlook on interest rates boosted government bonds, with U.S. Treasuries returning 4.7%, while European sovereign bonds gained 4.0% during the quarter.

Investment-grade (IG) credit spreads narrowed slightly by the end of the quarter, resulting in a 6.3% quarterly return. High-yield bonds followed a similar trend, leading to gains of 5.3% in the U.S. and 3.5% in Europe. Emerging market debt saw a strong rally, gaining 6.1% and ranking near the top of fixed income sector performances year-to-date.

In the third quarter of 2024, commodity markets experienced relatively muted performance overall, returning just 0.7%. Amid ongoing concerns about the global economy, energy markets took a hit: Brent Crude oil prices fell by 17% largely driven by weakening demand in China, compounded by OPEC+ easing production cuts later in the year.

Meanwhile, the precious metals market performed well. Gold’s new all-time highs rally continues, soaring over 11% over the quarter. This rally is now supported by the U.S. Federal Reserve's rate-cutting cycle, which historically has led to strong gains in the following months. Similarly, silver rose more than 6%.

Copper saw only a marginal increase of approximately 1% in Q3 2024, following a mid-year surge driven by rising demand from the energy transition and power needs for AI-related data centers. As a metal widely used in various industrial processes and products, copper prices faced pressure from concerns about declining demand for industrial materials in China.

After posting spectacular gains at the start of the year following the approval of its first spot ETFs, bitcoin performed rather modestly in the third quarter, returning 5.24%. This relative stagnation can be explained by a slowdown in investor enthusiasm after the initial euphoria linked to the approval of ETFs.

Meanwhile, ether suffered losses of over 20%. Interest in ether also waned after the launch of Ethereum ETFs, which failed to generate the hoped-for enthusiasm, and investors preferred to turn to safer havens in the face of market uncertainty.