Weekly market recap

Your weekly global financial market newsletter

  • Will the Fed cut rates at its next meeting in September? The markets are basically clear, the only thing left is the decision of Fed officials on how much it will be. Much will certainly be suggested by the annual central bankers' meeting in Jackson Hole, where Fed chief Jerome Powell will speak.
  • But other policymakers have also provided some hints in the past week. Federal Reserve Bank of Chicago President Austan Goolsbee hinted on Sunday that a rate cut, though not officially confirmed, is definitely on the table. Goolsbee's point was that when rates are not cut in times of falling inflation, it is effectively a tightening of monetary policy. He also noted that keeping monetary policy tight for too long could create a problem for the Fed on the employment side.
  • San Francisco Federal Reserve Bank President Mary Daly, for her part, reminded that it was time to adjust borrowing costs and that it was important to her that it be a gradual and measured process. Earlier, she had also mentioned the labour market, where it was very important that it did not tip into a downturn.

Indices

The US stock markets did very well and the sell-offs of the previous week were long forgotten thanks to the good mood supported by good macro data. In addition, investors are increasingly counting on a possible Fed rate cut as early as September, and stock markets had their best week since November 2023. Growth titles in particular did well and technology titles once again led the way, with Nvidia performing best, adding nearly 19% for the week.

European stock markets also enjoyed good sentiment, boosted by hopes of further monetary easing by the ECB, and also posted interesting gains. The pan-European STOXX Europe 600 Index ended 2.46%, Germany’s DAX climbed 3.38%, France’s CAC 40 advanced 2.48%, and the UK’s FTSE 100 Index tacked on 1.75%.

US30
+2.94%
US100
+5.38%
US500
+3.93%
GER30
+3.38%

Commodities

The gold price closed above the psychological threshold of $2,500 per troy ounce for the first time in history. The rise in the price is mainly due to safe-haven demand fuelled by geopolitical uncertainty stemming from the possible escalation of the conflict in the Middle East, as well as the ongoing war in Ukraine. The second strongest factor is investors’ expectation that the US Federal Reserve will cut interest rates by up to 100 basis points before the end of the year, although the positive macro data from last week slightly reduced the likelihood of this optimistic scenario.

Oil, on the other hand, was not helped by geopolitical instability to its weekly growth, as despite the price rising during the week, the price finally recorded a significant drop on Friday. The main factor in this case is China and the concerns about the country’s economic situation, supported by poor macro data and the fall in oil demand, which is now in its second month.

Gold
+3.18%
Silver
+5.77%
BRENT
+0.03%
NATGAS
-0.93%

Forex

The Japanese yen weakened for the second week in a row. It lost ground against the US dollar, especially on Thursday, when the US released better-than-expected macro data on retail sales and initial jobless claims, which led to a significant strengthening of the US dollar. Another reason is political instability, as Prime Minister Fumio Kishida will not seek re-election as party leader and will end up as prime minister. 

The British pound, on the other hand, was one of the most profitable currencies and reached its four-week highs, helped mainly by reports of good retail sales, GDP or inflation and unemployment, which ended below expectations.

EUR/USD
+1.03%
USD/JPY
+0.68%
GBP/USD
+1.45%
USD/CAD
-0.38%

Macro

The US Consumer Price Index rose 2.9% in July after a 3.0% increase in June, marking the lowest inflation in the US since March 2021. Producer prices also fell below expectations, confirming the downward trend in inflation and investors’ expectations of a Fed rate cut in September.

The above-expectations growth in retail sales (up 1.0%, the best in 18 months), together with better labour market data, dispelled fears that the US economy was heading into recession. The fall in housing starts and building permits in the US to four-year lows then suggests that restrictive monetary policy may be having a greater impact on the outlook of housing supply.

The European economy remains resilient, expanding by 0.3% in the second quarter according to the second estimate, the same as in the first quarter. So did the UK economy, which grew by 0.6% in the three months to June, a confirmation of a rebound after the recession of last year. Although UK annual inflation rose to 2.2% in July from 2.0% in June, the 0.2% month-on-month decline and weaker growth in the services sector still leaves room for further rate cuts by the BoE this year.

What to watch out for this week

  • Next week will not be significant in terms of important macro data. In Europe, we will hear the final inflation figure, which should confirm a slightly faster growth than in June (expectations of 2.6%, 2.5% in June).
  • In the US and Europe, we have preliminary purchasing managers' index data on Thursday, which may give a hint about how the economies in the US and Europe are doing. The latest data pointed rather to a slowdown in activity, which gives a rather poor outlook in an environment with still relatively high inflation and is quite crucial for central banks when deciding on interest rate adjustments.
  • After the bad data from the housing market, investors will certainly be watching the next batch of data regarding existing homes, building permits and new home sales.
  • Then, starting on Thursday, the annual central bankers' meeting will take place in Jackson Hole, USA, where a number of central bank governors will give speeches on the economy and monetary policy. Most attention will be paid to Friday's speech by Fed Chairman Jerome Powell. The market will try to interpret his remarks in relation to US monetary policy and the expected rate changes at the next FOMC meetings.

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