Highlights
U.S. equities ended the week mixed, with the S&P 500 and Nasdaq Composite gaining modestly amid relatively light trading. Smaller- and mid-cap stocks, however, declined. For the week, the S&P 500 gained 0.49%, while the Dow added 282 points and the Nasdaq 100 rose 0.53% with both indices notching a fourth week of gains out of the past five weeks. Fed Chair Kevin Warsh adopted a notably hawkish tone in his Jackson Hole remarks, emphasizing that the U.S. economy remains resilient and that financial conditions are not sufficiently restrictive. He argued that underlying inflation has not fallen enough to declare victory and reaffirmed the Fed’s 2% PCE inflation objective as a firm target. Notably, the headline PCE price index increased 0.2% in July and was 3.7% higher than a year earlier, with both readings slightly above economists’ forecasts. Warsh indicated that additional monetary tightening could be necessary if inflation does not move toward the target clearly and quickly enough. He also called for a more restrained approach to forward guidance, arguing that a “quieter Fed” would retain greater flexibility in responding to changing economic conditions. At the same time, he pointed to AI-related investment and productivity gains as potential drivers of stronger long-term economic growth. Following his comments, the Treasury yield curve flattened with the two-year yields moving higher as investors increased the probability of a near-term Fed rate hike. Meanwhile, technology shares received a significant boost from NVIDIA. The semiconductor giant ended a seven-session losing streak ahead of its earnings announcement and subsequently reported another exceptionally strong quarter. NVIDIA also indicated that spending on AI infrastructure is likely to remain strong. Moving across the Atlantic, European equities were relatively muted during the week, with the pan European Euro STOXX 600 gaining 0.33%. Investors balanced mixed economic indicators and corporate developments against geopolitical risks linked to the U.S.-Iran conflict and uncertainty surrounding the Strait of Hormuz. Expectations of a potential agreement that could facilitate shipping through the strait helped push oil prices lower during the week. On a similarly positive note, economic sentiment across the eurozone strengthened for a fourth consecutive month in August, reaching its highest level since January and exceeding expectations. In contrast, UK consumer conditions remained weak. The Confederation of British Industry’s retail survey showed a sharp deterioration in trading conditions during August, with the index falling to -48 from -26 in July and significantly below the expected -24. In Asia, Japanese equities recovered during the week as falling oil prices helped improve investor sentiment. The Nikkei 225 rose 0.59%, while the broader TOPIX gained 1.95%. Expectations for additional Bank of Japan tightening remained elevated. BoJ Deputy Governor Ryozo Himino emphasized the importance of adjusting monetary policy when necessary and highlighted upside risks to inflation, reinforcing expectations of further rate increases without explicitly committing to a September hike. Meanwhile, Chinese equities delivered mixed results, with mainland markets outperforming Hong Kong. Semiconductor and AI-related stocks rallied during the middle of the week, although concerns about weakening economic growth continued to weigh on mainland markets. Notably, Alibaba completed a HKD 80 billion – approximately USD 10.21 billion – placement on Wednesday and said the proceeds would fund computing infrastructure, large-scale AI data centers, and upgrades to its cloud platform.
Data Highlights
CAD GDP Growth Rate QoQ (Q2) rose +70bps, from 0.1% to 0.8%, in line with expectations. CAD GDP Growth Rate Annualized (Q2) rose +300bps, from 0.3% to 3.3%, against expectations for an increase from 0.3% to 3.4%. USD GDP Growth Rate QoQ (Q2) fell -60bps, from 2.1% to 1.5%, in line with consensus. USD Core PCE Price Index YoY (Jul) remained unchanged at 3.3%, as expected. JPY Unemployment Rate (Jul) fell -10bps, from 2.5% to 2.4%, analysts expected the rate would remain unchanged at 2.5%. AUD Inflation Rate YoY (Jul) fell -30bps, from 3.8% to 3.5%, expectations were for a -50bps decrease, from 3.8% to 3.3%.
Week Ahead
EUR Inflation Rate YoY (Aug), EUR Core Inflation Rate YoY (Aug), EUR Unemployment Rate YoY (Jul), USD JOLTs Job Openings (Jul), USD ISM Manufacturing PMI (Aug) – Tuesday | AUD GDP Growth Rate QoQ (Q2), AUD GDP Growth Rate YoY (Q2), NZD RBNZ Interest Rate Decision, CAD BoC Interest Rate Decision – Wednesday | CHF Inflation Rate YoY (Aug), CHF GDP Growth Rate YoY (Q2) – Thursday | EUR Retail Sales YoY (Jul), CAD Unemployment Rate (Aug), USD Unemployment Rate (Aug), USD Non-Farm Payrolls (Aug) – Friday
