Macro

UK: The pressure on the Bank of England (BoE) to implement further interest rate hikes has intensified as UK wage growth has gained momentum. Average weekly earnings (excluding bonuses) rose by 7.8% in the three months ending June, compared to the 7.4% increase in the preceding three months. However, the labour market showed signs of cooling, with the unemployment rate rising unexpectedly sequentially from 3.9% to 4.2%.

Annual inflation in the UK eased to 6.8% in July from 7.9% in June, primarily due to falling energy and food prices. Despite this, underlying price pressures remained robust, as reflected in the core inflation rate (excluding food, energy, alcohol, and tobacco), which remained at 6.9%. Services prices, viewed by the BoE as a key indicator of domestic inflation, rose to 7.4%, marking their highest level since March 1992.

EU: The previous week also delivered significant macroeconomic data for the Euro Area. Notably, the ZEW Economic Sentiment Index showed a slight improvement. The employment rate experienced a minor decline, while GDP growth rate and industrial production showed modest increases. The inflation data, which showed no change compared to the previous report, was viewed with great anticipation.

US: The highlight of the week’s economic data appeared to be Tuesday’s report from the Commerce Department on July retail sales, which posted a significant 0.7% increase over the month, nearly double consensus expectations. Excluding the volatile auto sector, sales were up 1.0%, contributing to 3.2% year-on-year growth. While overall retail sales remained relatively steady over the past year, certain categories have seen a notable surge in discretionary spending. For instance, sales at restaurants and bars saw a significant increase of 11.9%, while online purchases increased by 10.3%. In contrast, gas station sales fell significantly by 20.8%.

Additional data throughout the week seemed to suggest the possibility of a scenario in which the economy avoids a “soft landing” slowdown or a “hard landing” recession, the so-called “no landing” outcome. Industrial production saw robust growth of 1.0% in July, significantly surpassing consensus estimates and marking its largest increase since January. However, part of this boost came as utilities ramped up production to cope with exceptionally high temperatures in July. A measure of manufacturing activity in the mid-Atlantic region signalled increases in factory activity, orders, and shipments for the first time in 14 months. Additionally, housing starts across the nation exceeded expectations.

The release of Federal Reserve meeting minutes on Wednesday heightened concerns about policymakers’ reactions to ongoing signs of economic growth. Despite expressing hopes for a gradual slowdown in real gross domestic product (GDP) growth to address demand-supply imbalances in the economy, investors generally interpreted the minutes’ tone as leaning towards a more hawkish stance.