Highlights
Global stock markets maintained the state of euphoria, notching a second consecutive week of gains. Expectations that the Federal Reserve will soon start interest rate cuts and an assumption that the ECB will continue cutting rates, albeit less aggressively than the Fed, boosted market sentiment leading to the S&P 500 and the Nasdaq composite briefly reaching new all-time-highs. Tariff and trade news generally took a back seat to economic data and rate cut speculation for much of the week, although Monday brought news that the U.S. and China had agreed to extend the deadline for higher tariffs for another 90 days while a broader deal is negotiated. On Tuesday, the Bureau of Labor Statistics (BLS) reported its highly anticipated July consumer price index inflation data showing that headline inflation cooled modestly in July, with month-over-month inflation dropping to 0.2% from June’s reading of 0.3%, driven by declines in grocery and energy costs. This resulted in stocks rallying and expectations for a September rate cut jumped following the report, as investors seemed to take the lack of a sharp, tariff-driven acceleration in price pressures as a sign that the Federal Reserve will be able to lower borrowing costs at its next meeting. Goods prices haven’t risen much yet due to tariffs, but importer surveys suggest increases are coming soon which greatly complicates the Fed’s interest rate path. In addition to this, the BLS reported that its producer price index (PPI)—a separate measure of inflation that gauges price increases at the wholesale level—reaccelerated in July after holding steady in the prior month, rising 0.9% compared with estimates for around a 0.2% increase. This release caused stocks to give back some of their weekly gains and prompted analysts to dial down the probability of a September rate cut. Markets now look ahead to the Jackson Hole symposium for fresh policy cues from the Fed Chair while investors also keep a look out for the results of the high-level talks between President Trump and President Putin in Alaska over a ceasefire agreement—or a complete end to the war—between Russia and Ukraine. Over in Asia, Japanese stock markets registered strong gains over a holiday-shortened week. Both indexes reached record-high levels during the period, with Japan’s better-than-expected economic growth in the second quarter lifting sentiment. A strong Japanese corporate earnings season and an improving global trade outlook, given signs of easing U.S.-China trade tensions, lent further support. The bullish theme was mirrored in mainland China, with market sentiment bolstered by the agreement by the U.S. and China to renew a tariff pause on each other’s products until November. On the economic data front, China’s statistics bureau reported that consumer price growth was flat year-on-year in July, dropping from June’s modest uptick that snapped a four-month streak of declines.
Data highlights:
The Consumer price index in the U.S rose was reported at 2.7% year-on-year in July. This came in lower than the 2.8% forecast by analysts. Retail sales in the U.S reduced to 3.9% year-on-year compared to 4.4% prior. Unemployment in the U.K for June held steady at 4.7% which also matched market expectations. U.K GDP grew by 1.2% for Q2, higher than the 1% forecast by analysts. In the Eurozone the employment changed by 0.7% year-on-year for Q2, which exceeded the 0.6% expectation. China’s unemployment rate for July increased to 5.2%, which came in higher than the 5.1% forecasted by analysts. In Japan the GDP grew by 1% on a year-on-year basis for Q2, far exceeding the 0.4% expectation by analysts. The reserve bank of Australia cut the interest rate by 25 basis points to 3.6%, matching the expectations by analysts. Unemployment rate in Australia for July dropped to 4.2% compared to 4.3% for the previous month.
Week ahead:
Canada Inflation Rate – Tuesday | U.K Inflation Rate, Eurozone Consumer Price Index, New Zealand Interest Rate Decision – Wednesday | Japan Inflation Rate, U.K Retail sales – Friday
