Weekly Market News
Investors Increase Wagers on Major Fed Rate Cut
Highlights of the week
S&P 500 Nears Record High, Gold Hits All-Time Peak
Brent Crude Climbs Above $72 as Bitcoin Breaks $60k Barrier
Treasury Yields Drop to Year-to-Date Lows Amid Market Optimism
Core Inflation Ticks Higher
ECB Rate Cut Lifts European Markets
UK Economy Flat in July, Pay Growth Slows
Japan's Nikkei Rises, Yen Strengthens Amid Rate Hike Speculation
China's Stocks Slip on Weak Inflation, Exports Remain a Bright Spot
Hungary’s Inflation Drops, But Fiscal Concerns May Delay Rate Cuts
Czech Inflation Steady at 2.2%, Disinflation Trend Ends
U.S. stocks bounce back after sell-off
Stocks posted solid gains, recovering most of last week’s sharp losses, when the S&P 500 saw its worst drop since March 2023. Growth stocks performed much better than value stocks, boosted by strong gains in the tech sector. NVIDIA stood out after sharing a positive outlook on artificial intelligence at an investment conference.
Core inflation slightly higher than expected
The week’s light economic calendar was led by inflation reports from the Labor Department. On Wednesday, stocks initially dropped after news that core inflation (excluding food and energy) rose 0.3% in August, slightly above expectations. However, overall inflation increased by 2.5% annually, down from July’s 2.9%, marking its lowest level since early 2021. Traders noted that NVIDIA’s news helped stocks rebound later in the day.
Source: CNBC
There were also small signs of improvement in the struggling housing market. The Mortgage Bankers Association reported that the average rate for a 30-year fixed mortgage dropped to 6.29%, its lowest since February 2023, and well below the 7.21% from a year ago. The group also said that home loan applications, a key indicator of home buying, continued to rise from their August lows.
Treasury yields hit year-to-date lows
Treasury yields fell during the week, with the 10-year Treasury note reaching its lowest point of the year.
Europe
The STOXX Europe 600 Index rose 1.85% this week, driven by an ECB interest rate cut. Germany’s DAX gained 2.17%, France’s CAC 40 added 1.54%, Italy’s FTSE MIB rose 0.83%, and the UK’s FTSE 100 increased 1.12%.
ECB cuts rates, cautious on future moves
The ECB lowered its deposit rate by a quarter-point to 3.5%, its second cut this year, amid weak growth and slowing inflation. The ECB did not commit to further rate changes. Core inflation was revised slightly higher, and growth forecasts were cut to 0.8% for 2023, 1.3% for 2025, and 1.5% for 2026.
UK GDP flat; pay growth slows
The UK economy was flat in July as manufacturing shrank. GDP rose 0.5% in the three months to July. Pay growth slowed to 5.1%, but wages remain almost double the rate needed to meet the Bank of England's 2% inflation target.
Japan
Japan’s stock markets had mixed results: the Nikkei 225 gained 0.5%, while the broader TOPIX fell 1.0%. Exporters faced challenges as the yen strengthened to the high end of the JPY 140 range against the USD, up from the prior week’s JPY 142.3, amid expectations of a hawkish Bank of Japan (BoJ) policy.
Comments from BoJ board members supported expectations of more rate hikes. Junko Nakagawa suggested easing would be adjusted if the economic outlook improves, while Naoki Tamura indicated short-term rates may need to rise to 1% by 2026 to control inflation.
Despite these comments, the 10-year Japanese government bond yield fell slightly to 0.84%, following U.S. bond trends as speculation grew that the Fed might cut rates by 50 basis points in September.
Japan’s second-quarter GDP growth was revised down to 2.9% from an earlier 3.1%, with weaker private consumption and capital spending. Inflation slowed to 2.5% in August, below expectations, as a stronger yen reduced import costs.
China
Chinese stocks fell as weak inflation data raised concerns about a price-wage spiral hurting the economy. The Shanghai Composite and CSI 300 dropped 2.23%, while Hong Kong’s Hang Seng Index lost 0.43%, according to FactSet.
China’s consumer price index rose 0.6% in August, slightly up from July but below forecasts. Core inflation slowed to 0.3%, its lowest in over three years. The producer price index fell 1.8%, extending deflation in factory prices. These numbers prompted calls for more aggressive policy measures to prevent a negative cycle of falling revenue, wages, and spending.
On the positive side, exports exceeded expectations, rising 8.7% in August, while imports grew just 0.5%. The trade surplus increased to USD 91.02 billion, though analysts warned that overseas demand may weaken due to the slowing U.S. economy and rising trade tensions.
Other key markets
Hungary’s August inflation fell to 3.4%, down from 4.1% in July, mainly due to lower food and transportation costs. Core inflation slowed to 4.6% year-over-year, with a 0.2% monthly increase. Despite lower inflation, T. Rowe Price’s Ivan Morozov believes that fiscal concerns and forint weakness might prevent the National Bank of Hungary from cutting rates more aggressively.
Czech inflation held steady at 2.2% in August, the same as July but higher than expected. Morozov suggests that the disinflation trend has ended, with inflation stabilizing between 2% and 3%. He expects the central bank to continue gradual rate cuts due to the weak economy.