Highlights
U.S. equity markets ended the week mixed as investors balanced softer inflation data and reduced expectations for further Federal Reserve tightening against higher oil prices, uncertainty surrounding the Strait of Hormuz, and weaker consumer indicators. The S&P 500 gained 0.36%, ending around 0.2% below its record high, while the Nasdaq 100 advanced 1.09%. Conversely, the Dow ended the week on a lower note, down 0.56% for the week. Inflation was one of the week’s main market drivers. The Bureau of Labor Statistics reported that consumer prices increased 0.1% in July, bringing annual inflation to 3.4%. Both figures were in line with expectations. July marked the second consecutive month in which both headline and core inflation eased on an annual basis. Each measure declined by 0.1 percentage point from June. In addition to this, producer inflation provided further evidence of moderating price pressures. Core producer prices increased 0.2% in July, below expectations of 0.3% and down from June’s revised 0.4% increase. The softer inflation figures led markets to reduce expectations for an imminent Fed rate increase. By Friday, futures markets were pricing in roughly a 32% probability of a September rate hike, down from approximately 52% earlier in the week. Consumer data was less encouraging. U.S. retail sales declined 0.6% in July, significantly missing expectations for a 0.1% increase and reversing June’s 0.2% gain. The decline was the largest monthly drop since May 2025. Meanwhile, consumers’ expectations for inflation over the coming year increased slightly to 4.3%. That remained considerably above the 3.4% level recorded before the Iran conflict began. Across the big Atlantic pond, European stocks ended the week marginally higher, with the pan European Euro STOXX 600 up 0.36%, as Investors weighed relatively resilient economic data and solid corporate earnings against continuing geopolitical risks related to the U.S.-Iran conflict, uncertainty surrounding the Strait of Hormuz, and higher energy prices. Sector performance shifted throughout the week as investors responded to movements in energy prices. Energy and other economically sensitive companies benefited at times from higher oil prices and improving risk appetite, while defensive sectors generally lagged early in the period. The Sentix investor confidence index moved back into positive territory in August and recorded its fourth consecutive monthly improvement, suggesting that businesses and investors remained relatively optimistic despite high energy prices and geopolitical tensions. Separately, in the UK, Bank of England Chief Economist Huw Pill argued that stronger-than-expected UK GDP data strengthened the case for maintaining sufficiently restrictive monetary policy to bring inflation back to target. Over in Asia, Japanese equities surged, with the Nikkei 225 rising 4.74% and the broader TOPIX increasing 3.00%. Technology stocks, particularly memory-chip companies, were major contributors as strong earnings reinforced optimism around the semiconductor cycle. The weaker yen also benefited Japan’s export-oriented companies. The currency declined to around JPY 159 per U.S. dollar from approximately JPY 157.9 the previous week despite recent government intervention. At the same time, speculation intensified that the Bank of Japan could raise interest rates relatively soon. Finally, Chinese equities fluctuated during the week but ultimately finished lower, with Hong Kong stocks underperforming mainland markets. The Shanghai Composite declined modestly, while the CSI 300 also fell. Chinese authorities continued efforts to stabilize the housing market by easing purchasing restrictions in Beijing.
Data Highlights
USD Inflation Rate YoY (Jul) fell -10bps, from 3.5% to 3.4%, in line with expectations. USD Core Inflation Rate YoY (Jul) fell -10bps, from 2.6% to 2.5%, in line with consensus. USD PPI YoY (Jul) fell -70bps, from 5.5% to 4.7%, expectations were for a smaller decrease, from 5.5% to 4.9%. USD Core PPI YoY (Jul) fell -70bps, from 4.7% to 4.2%, in line with expectations. GBP GDP Growth Rate YoY (Q2) rose by +30bps, from 0.9% to 1.2%, expectations were +10bps softer, assuming only a +20bps increase, from 0.9% to 1.1%. CHF GDP Growth Rate QoQ (Q2) rose +110bps, from 0.4% to 1.5%, consensus wrongly pencilled in a +10bps increase, from 0.4% to 0.5%. EUR GDP Growth Rate YoY (Q2) rose +50bps, from 0.5% to 1%, in line with expectations. JPY PPI YoY (Jul). AUD RBA Interest Rate Decision remained the same at 4.35%, in line with expectations.
Week Ahead
CNY Unemployment Rate (Jul), CAD Inflation Rate YoY (Jul), CAD Core Inflation Rate YoY (Jul) – Monday | CAD Inflation Rate YoY (Jul) – Tuesday | GBP Inflation Rate YoY (Jul), GBP Core Inflation Rate YoY (Jul), EUR Inflation Rate YoY (Jul), EUR Core Inflation Rate YoY (Jul) – Wednesday | AUD Unemployment Rate (Jul) – Thursday | JPY Inflation Rate YoY (Jul) – Friday
