Cooling inflation, cautious markets

Global markets delivered mixed returns over the week as investors balanced encouraging inflation developments and positive AI-related corporate results against higher oil prices resulting from uncertainty around the Strait of Hormuz.

US equities were broadly flat in euro terms and US inflation remained central to the market narrative.

July CPI increased 0.1% month on month and 3.4% year on year, matching expectations. Core CPI, excluding food and energy, rose 0.2% monthly and 2.5% annually, also meeting forecasts. Both measures have now slowed on an annual basis for two consecutive months.

Further reassurance came from producer prices, with core PPI increasing 0.2% in July versus a revised 0.4% in June. Headline PPI rose 4.7% year on year, below expectations. The moderation in inflation reduced expectations for near-term monetary policy tightening.

European equities declined as investors considered solid economic data releases and broadly supportive earnings alongside geopolitical risks linked to the US-Iran conflict and the Strait of Hormuz. Oil markets were particularly volatile, with crude prices climbing as prospects of the Strait reopening weakened.

By Friday afternoon, WTI crude had risen to above $82 per barrel, compared with $78 at the end of the previous week. Japanese equities led global markets over the week, supported by strong technology-sector earnings, particularly from memory-chip makers.

Sentiment was further driven by signs that the Bank of Japan may be nearing another interest rate increase, as oil price volatility intensified inflation concerns and strengthened the case for additional BoJ policy tightening.

Equities

Global stocks finished up by 0.2% in euro terms and up 0.5% in local terms last week. Year-to-date global markets are up by 16.1% in euro terms and up by 14.4% in local terms. The US market, the largest in the world, finished up 0.1% in euro terms and up 0.4% in local terms.

Fixed Income & FX

The US 10-year yield finished at 4.7% last week. The German equivalent finished at 3.2%. The Irish 10-year bond yield finished at 3.3%. The Euro/US Dollar exchange rate finished at 1.16, whilst Euro/GBP finished at 0.86.

Commodities

Oil finished the week at $82 per barrel and is up 45.7% year-to date in euro terms. Gold finished the week at $4,376 per troy ounce and up 2.9% year-to-date in euro terms. Copper finished the week at $14,576 per tonne and is up 18.8% year-to-date in euro terms.

The week ahead

Monday 17th August

Japanese GDP data goes to print.

Wednesday 19th August

Eurozone & UK CPI inflation data is reported.

Friday 21st August

US PMI data is released.