September 2024 market commentary

September proved to be a volatile month for major equity markets as encouraging news from central banks was offset by political uncertainty and sluggish economic data in some quarters. Concerns about the content of the forthcoming October budget seemed to take the shine off the Bank of England’s 0.25% base rate cut as the FTSE 100 ended the month down 1.54%. A second rate cut in the eurozone came alongside evidence of slowing economic activity in the bloc and the Euro STOXX 50 finished with a modest gain of 0.93%. The long-anticipated start of the Federal Reserve’s rate cutting cycle helped the S&P 500 to a 2.14% monthly increase, though investor caution may amplify in the run up to November’s US election. Asian stocks rallied during the second half of the month as policymakers in China announced a raft of new stimulus measures and the Japanese central bank struck a more conciliatory tone after their August interest rate hike.

(All returns are sourced from FactSet and are reported as total return in local currency for the period 02/09/2024 — 30/09/2024)

September market summary

Forecasting that inflation would rise to 2.5% later in the year, the Bank of England voted by a majority to hold the base interest rate at 5%. Governor Andrew Bailey nevertheless stated that rates would be reduced over time if the economy progressed in line with the central bank’s expectations. Persistent wage growth had previously reinforced the Bank’s cautious stance on future cuts, though there were signs at the end of the month that the UK labour market might be cooling. Falling inflation and lower rates also prompted credit rating agency Moody’s to upgrade its outlook for the UK banking system from “negative” to “stable”. 

Revised economic data from the Office for National Statistics (ONS) showed that the UK economy grew at a much faster rate in 2023 than originally estimated, however the ONS also revised down their GDP growth estimate for Q2 2024 from 0.6% to 0.5%. UK consumer confidence fell sharply in September as households and investors considered the implications of a “badly damaged economy” and prepared for a painful autumn budget.

After cutting the benchmark interest rate by 0.50%, Federal Reserve chair Jerome Powell remarked that the US economy was in “solid shape” with improving growth prospects and a recovering labour market. With the Fed focusing less on stimulating the economy or preventing recession, Powell said that officials would be “recalibrating” the key interest rate and that further cuts would follow if the current evolution of the economy held course. Policy easing was also influenced by increasing US unemployment which drifted above 4% during Q3.

Inflation in the eurozone dropped below its 2% target to 1.8%, fuelling fears that additional pressure could be heaped onto a slowing regional economy. Consequently, the European Central Bank delivered a second base rate cut taking interest rates down to 3.5%. Regional GDP was revised down for Q2, and significant growth disparities were observed across member states – many of the bloc’s major economies either contracted or recorded minimal growth. Falling household expenditure and rising imports also impacted negatively on eurozone growth.

World Trade Organization head calls for global carbon pricing system to prevent trade disputes 

Director general of the World Trade Organization (WTO), Ngozi Okonjo-Iweala, announced that the WTO was working with the UN, the International Monetary Fund and the Organisation for Economic Co-operation and Development to implement a global, interoperable carbon pricing system for trade following the launch of the EU’s carbon border adjustment mechanism (CBAM).

Effective from 2026, the CBAM aims to create a level playing field between goods manufactured within the EU (and subject to the region’s carbon trading scheme) and those imported from jurisdictions with weaker regulation on decarbonisation. Levies will be imposed on imported goods adjusted to the EU’s carbon price. The move has already triggered complaints from trading partners that it burdens poorer nations with additional costs and administrative complications. India’s commerce minister has threatened to challenge the EU’s “bias, discrimination and unfairness” at the WTO, and other developing countries fear being priced out of important European markets.

The World Trade Organization’s working group aims to make regional carbon pricing fair and establish stronger safeguards against carbon arbitrage, preventing large-scale emitters from moving to lower-priced jurisdictions.

Okonjo-Iweala praised the EU’s commitment to addressing climate change but said its approach could disrupt trade efficiencies and stifle economic growth. She argued that developing countries who contributed little to global emissions viewed regional tariff schemes like the CBAM as protectionist mechanisms and that the logical step is for a global carbon pricing system to align existing pricing regimes and reduce trade frictions. The WTO’s working group aims to make regional carbon pricing fair and establish stronger safeguards against carbon arbitrage, preventing large-scale emitters from moving to lower-priced jurisdictions.

Global insurers face spiralling costs from surge in climate-related natural catastrophes 

Data analytics and technology provider Verisk reported that the average annual loss from global natural catastrophes had reached a new high of $151 billion. Verisk’s annual Global Modelled Catastrophe Losses Report provides insurance and reinsurance businesses with worldwide loss indexes and advanced risk modelling to plan for and gauge the scale of future geopolitical and climate-related risks. News of the rise in the annual average came as actual insurable losses averaged over $100 billion for the fifth consecutive year. Verisk also expected annual exposure growth to increase by 7.2% through the effects of inflation on property rebuilding costs in modelled countries.

Natural catastrophe risk modellers have focused more on the accumulative costs of “secondary” threats such as storms and wildfires which are beginning to rival the losses incurred by hurricanes and earthquakes.

The core drivers for record natural catastrophe losses are rapid urban expansion, the impacts and variability of climate change, and the increasing frequency of extreme weather events combined with economic and social inflation. Urban expansion has led to rising property exposure in areas vulnerable to natural catastrophes and weather extremes. Climate change is increasing the frequency and intensity of extreme weather events, but variability and changes in the types and scale of exposure are proving challenging for insurers. Consequently, natural catastrophe risk modellers have focused more on the accumulative costs of “secondary” threats such as storms and wildfires which are beginning to rival the losses incurred by hurricanes and earthquakes – recent record level thunderstorms in the US alone contributed over $57 billion to total insured losses. 

Watch Greenbank’s Green Shoots webinar ‘Can we insure against climate risk’ here.

Advanced technologies offer opportunities for growth in plastic recycling markets 

Demand for recycled polymers is growing with increasing consumer awareness of the environmental impacts of plastic pollutants and packaging waste. With traditional mechanical recycling solutions struggling to meet demand, advanced technologies offer recycling markets opportunities to increase capacity, expand the range of recyclable plastics, and produce versatile and high-value new materials. Process solutions such as methanolysis can break down and recycle low-quality or contaminated polyester-based plastics that are unsuitable for repurposing in mechanical recycling plants.

With many countries also setting ambitious short-term recycling targets, new data from BloombergNEF and Barclays Research suggests advanced technologies are upscaling to help reduce a potential 214m metric tonne recycling capacity shortfall by 2030. Global installed advanced recycling capacity reached an all-time high in 2024 and is expected to account for almost 6m metric tonnes of plastic inputs annually by 2030. Sixty advanced recycling facilities worldwide have been commissioned to date with 60 more scheduled to be operational by 2030. The regional concentration of capacity is also expected to shift with Asian markets set to upscale advanced recycling towards 2030.

Mechanical processes still dominate recycling volumes and are forecast to reach 80m metric tonnes of capacity by 2030. However, with the world producing around 300m metric tonnes of plastic waste annually, there’s a clear need for increased global investment in all forms of recycling capacity.

Advanced technologies offer recycling markets opportunities to increase capacity, expand the range of recyclable plastics, and produce versatile and high-value new materials.