Highlights
U.S. equities ended the week lower as investors remained concerned about elevated Treasury yields, renewed tensions between the U.S. and Iran, higher oil prices, and weakness in semiconductor and artificial intelligence (AI) stocks. Mixed results from several retailers also contributed to a cautious market tone. The Dow Jones Industrial Average was the most resilient, declining 0.85% while the S&P 500 and Nasdaq 100 shed 1.43% and 2.45% respectively for the week. Longer-dated U.S. Treasury yields rose sharply early in the week, with the 30-year Treasury yield reaching its highest level since 2007. Concerns about the U.S. fiscal position, along with substantial government and corporate borrowing—including debt associated with AI-related investment—contributed to the pressure on bonds. Higher oil prices, driven by renewed U.S.-Iran tensions, added to worries about inflation. However, treasuries recovered on Wednesday after the Treasury Department announced plans to at least double the size of its long-term debt buyback program. Interestingly, much of that rebound faded later in the week as investors questioned whether the buybacks would be large enough to counter the forces pushing longer-term yields higher. Separately, minutes from the Federal Reserve’s July meeting showed that policymakers generally expected inflation to ease later in the year. Nevertheless, officials emphasized that the inflation outlook remained highly uncertain and that risks were tilted toward higher inflation. On the data front, the latest economic data showed a significant acceleration in U.S. business activity during August. The S&P Global Flash Composite PMI rose to 56.0 from 54.5 in July, reaching its highest level since April 2022. Meanwhile, housing continued to show signs of weakness as high borrowing costs and elevated prices weighed on demand. Pending home sales fell 2.3% in July, reaching their lowest level since January. In Europe, equities also weakened, with the pan-European Euro STOXX 600 declining by 1.39% over the week. Investors were concerned by the global sell-off in government bonds, persistent inflation pressures, and uncertainty over whether the U.S. and Iran could reach a durable peace agreement. Positively, Eurozone business activity strengthened in August, with the flash composite PMI rising to 52.1 from 52.0 in July. New orders increased, while export demand returned to growth for the first time in roughly four and a half years, suggesting greater resilience in the region’s economy. On a separate note, UK’s labour market showed further signs of cooling. The number of employees on payrolls fell by 13,000 in July, marking the sixth consecutive monthly decline. The unemployment rate remained at 4.9% in June, slightly above the 4.8% expected. Moving along to Asia, Japanese equities retreated sharply as renewed Middle East tensions, higher oil prices, and rising bond yields triggered a broader move away from risk assets. The Nikkei 225 dropped 3.93%, while the TOPIX declined 3.10%. The yen remained around JPY 159 per U.S. dollar and continued to trade at historically weak levels. The 10-year Japanese government bond yield climbed to approximately 2.93% early in the week, its highest level in three decades. Expectations for further BoJ tightening and concerns over Japan’s fiscal position, particularly following plans to reduce the consumption tax, contributed to the rise. Finally in China, Chinese equities produced mixed results, with Hong Kong-listed stocks outperforming mainland markets. Investors became increasingly concerned about weakening economic momentum after July data showed a broad slowdown. The Shanghai Composite fell 0.56%, while the CSI 300 declined 1.01%.
Data Highlights
CAD Inflation Rate YoY (Jul) rose +20bps, from 2.8% to 3%, expectations were -10bps softer at 2.9%. CAD Core Inflation Rate YoY (Jul) rose +20bps, from 2.1% to 2.3%, against expectations for 2.2%. GBP Unemployment Rate YoY (Jul) stayed the same at 4.9%; analysts estimated a -10bps decrease to 4.8%. GBP Inflation Rate YoY (Jul) rose +30bps, from 2.6% to 2.9%, in line with consensus. GBP Core Inflation Rate YoY (Jul) stayed the same at 2.6%, against expectations for a -10bps decrease. EUR Inflation Rate YoY (Jul) rose +10bps, from 2.8% to 2.9%, in line with expectations. EUR Core Inflation Rate YoY (Jul) rose +10bps, from 2.4% to 2.5%, as expected. CNY Unemployment Rate (Jul) rose +20bps, from 5% to 5.2%, against consensus for a +10bps increase. JPY Inflation Rate YoY (Jul) rose +30bps, from 1.6% to 1.9%, expectations were -20bps softer at 1.7%. JPY Core Inflation Rate YoY (Jul) rose +20bps, from 1.6% to 1.8%, as expected. AUD Unemployment Rate (Jul) rose +10bps, from 4.4% to 4.5%, consensus was for the figure to remain the unchanged.
Week Ahead
USD GDP Growth Rate QoQ (Q2), USD Core PCE Price Index YoY (Jul), AUD Inflation Rate YoY (Jul) – Wednesday | CAD GDP Growth Rate QoQ (Q2), JPY Unemployment Rate (Jul) – Friday
