Highlights
Market bulls charged on in the week, with the U.S. S&P 500 index notching its fourth positive week of the past five weeks with a 1.59% gain while the tech-heavy Nasdaq Composite added 1.86% to mark its second consecutive week of gains. The Dow Jones Industrial Average, S&P 500 Index, and Nasdaq Composite all notched new record highs during the week, although the Dow and S&P 500 both pulled back modestly in a relatively quiet trading session on Friday. Financial markets reacted sharply to the revision of employment figures for the 12 months up to April 1 of this year. The data showed that employment in the U.S. had increased by only about half of what was initially reported. Since April 1, job growth has slowed even further, virtually flattening out. August’s CPI report showed consumer prices rising 0.4% month-on-month, slightly above forecasts, while the annual rate held at 2.9%, perfectly in line with projections. The BLS also reported that its August producer price index (PPI), a separate measure of inflation that gauge’s price increases at the wholesale level, unexpectedly decelerated to a 2.6% year-over-year increase versus 3.1% in the prior month. On a core basis, wholesale price inflation accelerated modestly to 2.8% from 2.7% in July. At the same time, jobless claims surged by 27K to 263K, the highest since 2021, spotlighting further cracks in employment. Markets now price in around a 92% probability of a 25-basis-point cut at the Fed’s September 17 meeting, with odds of a larger half-point reduction also gaining traction. Across the Atlantic Pond, the pan-European STOXX Europe 600 Index ended 1.59% higher amid expectations that the U.S. Federal Reserve is poised to lower interest rates. The European Central Bank (ECB) held its key deposit rate at 2%, as expected. ECB President Christine Lagarde reiterated that the eurozone was “in a good place” with inflation at 2%. The central bank also slightly raised its forecasts for inflation and economic growth this year, which financial markets interpreted as a signal that the current rate-cutting cycle was over. The ECB now projects 2.1% inflation in 2025 and 1.7% in 2026 while the central bank also expects the economy to expand 1.2% this year compared with its previous estimate of 0.9% growth. Asian markets also joined in the bullish charge with the Japanese Nikkei 225 Index surging 4.07% and the broader TOPIX up 1.78%. Markets appeared to take in stride the announcement by Prime Minister Shigeru Ishiba that he intends to resign, following sizable losses in two general elections within the space of 12 months. There was some speculation that heightened political uncertainty could lead to a delay in further monetary policy tightening by the Bank of Japan (BoJ), but many investors continued to converge around the view that the central bank could still raise interest rates this year, as the economy and prices develop in line with its forecasts. The BoJ’s next monetary policy announcement will be on September 19, with the bank widely expected to hold rates steady as it assesses the ongoing impact of U.S. tariffs.
Data Highlights
The U.S. Consumer Price Index for August rose 2.9% year-on-year, matching forecasts and slightly higher than the previous 2.7%. The European Central Bank kept its key interest rate unchanged at 2.15%, in line with analyst’s forecasts. U.K. GDP for July recorded flat growth at 0.0% month-on-month, lower than the 0.4% prior reading and matching market expectations. China recorded an inflation rate of -0.4% in August, lower than the -0.2% market expectations.
Week Ahead
U.K Unemployment Rate, Canada Inflation rate– Tuesday | U.K Inflation rate, Eurozone Consumer Price Index, Canada Interest rate decision, U.S Interest rate decision – Wednesday | U.K Interest rate decision – Thursday |Japan Interest rate decision – Friday
