Markets update: Stocks rebound on lower inflation

US equities posted a strong week of gains as investors reacted positively to encouraging news from both inflation and economic growth perspectives, writes Ian Slattery.

Ian Slattery, Zurich Investments

Last week’s retail sales data indicated that US consumers remain resilient and continue to spend, despite a cooling labour market. 

Retail sales grew by 1% in July, the highest increase in 18 months, comfortably surpassing the forecasted 0.4%, and rebounding from June’s -0.2% figure. The growth was widespread, with 11 of the 13 major categories showing positive gains. 

Meanwhile, US inflation, measured by the Consumer Price Index (CPI), rose by 0.2% in July, bringing the 12-month inflation rate down to 2.9%. Excluding volatile food and energy prices, core CPI also increased 0.2% monthly and 3.2% annually, in line with expectations. The July CPI report may support the Fed’s confidence that inflation is coming down towards in 2% target, potentially setting the stage for an interest rate cut in September. 

European equities also closed the week on a positive note. In the UK, headline inflation rose to 2.2% in July from 2.0% in June. However, a slower than expected increase in services prices, a key area of focus for policymakers, led markets to anticipate a greater likelihood of further interest rate cuts later this year. 

The GBP strengthened on Tuesday after data revealed that the UK’s unemployment rate unexpectedly fell to 4.2% in June, down from the 4.4% recorded in May. Despite this, wage growth slowed, with an annual growth in average weekly earnings easing to 5.4% in the three months through June, down from 5.8% in May. 

Japanese equities led gains in Asia on Friday, marking their best week in four years, as new economic data from the US alleviated recession concerns. The Yen weakened against the USD, with the pair finishing the week at 147.6, giving a boost to Japan’s exporters.

Equities

Global stocks were up last week finishing at 3.4% in euro terms and 4.0% local terms. Year-to-date global markets are up by 14.8% in euro terms and by 14.2% in local terms. The US market, the largest in the world, finished at 3.4% in euro terms and 4.0% local terms.

Fixed Income & FX

The US 10-year yield finished at 3.9% last week. The German equivalent finished at 2.2%. The Irish 10-year bond yield finished at 2.7%. The Euro/US Dollar exchange rate finished at 1.10, whilst Euro/GBP finished at 0.85.

Commodities

Oil finished the week at $77 per barrel and is up 7.1% year-to-date in euro terms. Gold finished the week at $2,508 per troy ounce and is up 21.7% year-to-date in euro terms. Copper finished the week at $9,006 per tonne.

The week ahead

Tuesday 20th August

Eurozone CPI is released.

Thursday 22nd August

US and eurozone PMIs go to print.

Friday 23rd August 

The Jackson Hole Symposium continues.