Global Market Overview
- In the United States on Friday, the Nasdaq index gained 0.09%, the S&P 500 saw a 0.14% increase, and the Dow Jones index closed up by 0.22%.
- The Dollar index ended the week on a strong note, rising by 0.8% to close at 105.1.
- Brent crude oil prices closed the week at $90.7 per barrel, reflecting a notable 2.4% increase.
- The yield on the 10-year US Treasury note experienced a weekly rise of 9 basis points, reaching 4.26%. The 2-year US Treasury yield, which is more sensitive to monetary policy developments, ended the week at 4.99%, climbing by 11 basis points.
- European stocks showed resilience as investors disregarded lingering concerns about inflation and interest rates. The Stoxx Europe 600 index advanced by 0.2%, the FTSE 100 index in the UK gained 0.5%, the CAC 40 index in France rallied by 0.6%, and Germany’s DAX Performance index edged up by 0.1%.
- Asian markets closed a tumultuous week marked by growth worries with further losses. Tokyo’s Nikkei 225 index dropped by 1.2% as labor cash earnings in July only rose by 1.3%, falling short of the expected 2.4% growth. Additionally, Japan’s Q2 economic growth was revised down to 4.8% annualized from the initial estimate of 6%.
- China’s stock markets continued to face pressure due to concerns about a slowdown in the world’s second-largest economy. The Shanghai Composite slipped by 0.2%, and trading in Hong Kong was halted on Friday due to severe weather conditions.
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US Market Outlook and Economic Events
In the United States, attention will be closely focused on data that could influence the Federal Reserve’s monetary policy. This includes the Consumer Price Index (CPI) for August, which will be released on Wednesday, and the Producer Price Index (PPI) for August, which will be released on Thursday.
In July, the headline CPI, on a monthly basis, was in line with expectations, rising by 0.2%, while on a yearly basis, it increased slightly from 3% to 3.2%, mainly due to a weakening base effect. However, it remained at its lowest levels since March 2021. Excluding food and energy prices, the core CPI also rose by 0.2% on a monthly basis, in line with expectations, and decreased from 4.8% to 4.7% on a yearly basis, maintaining its lowest levels since October 2021.
The Producer Price Index (PPI) showed a different trend. On a monthly basis, it increased by 0.3% in July, surpassing expectations of a 0.2% increase, following a flat reading in June. On a yearly basis, it rose from 0.2% to 0.8%, driven by a weakening base effect, and exceeded the expectation of a 0.7% increase.
The core PPI, which excludes food and energy products, showed a more significant increase, rising by 0.3% on a monthly basis in July, exceeding the expected 0.2% increase. On a yearly basis, it remained at 2.4%, consistent with the previous month’s level and maintaining its lowest levels since January 2021, despite expectations of a slight decrease to 2.3%.
For August, it is expected that the monthly increase in the headline CPI will rise from 0.2% to 0.6%, and the yearly rate will increase from 3.2% to 3.6%, driven by rising oil prices. On the other hand, it is expected that the core CPI will maintain a monthly increase of 0.2% and decrease from 4.7% to 4.3% on a yearly basis.
In contrast, the headline PPI is expected to see its monthly increase rise from 0.3% to 0.4% in August, and the yearly rate is expected to increase from 0.8% to 1.3%, mainly due to a weakening base effect. The core PPI, in August, is anticipated to experience a slowdown in its monthly growth from 0.3% to 0.2%, and on a yearly basis, it is expected to decrease from 2.4% to 2.2%.
On Friday, the industrial production and capacity utilization rate data for August will be closely monitored to gauge the trend in production. Industrial production showed a significant increase in July, rising by 1% following two consecutive monthly declines (a 0.4% decrease in May and a 0.8% decrease in June). This July increase was well above expectations of a 0.3% rise and marked the fastest growth in the last six months. The capacity utilization rate also showed a slight increase in July, rising from 78.6% to 79.3%, slightly surpassing expectations.
For August, it is expected that the monthly growth in industrial production will slow down from 1% to 0.1%, and the capacity utilization rate will likely remain at 79.3%, similar to the previous month.
Additionally, on Friday, the New York Fed Empire State Manufacturing Index for September will provide insights into the manufacturing sector’s performance. In August, the index dropped from 1.1 to -19, well below expectations of -0.7, indicating a significant contraction in the manufacturing sector after two months of returning to negative territory. In September, the index is expected to partially recover to -10, indicating a slowdown in the contraction rate but remaining in negative territory.
Furthermore, the retail sales data for August, which will be released on Thursday, will provide signals about the trend in domestic demand. In July, retail sales exceeded expectations, rising by 0.7% on a monthly basis, compared to the expected 0.4% increase, extending its upward trend for the fourth consecutive month. Core retail sales, which exclude automobiles, gasoline, food, and building materials, increased by 1% in July, double the expected rate, following a 0.5% increase in June.
These figures indicated that consumer spending was accelerating despite tightening financial conditions, reflecting a positive outlook for domestic demand. However, for August, it is expected that the monthly growth in retail sales will slow down from 0.7% to 0.2%, with core retail sales expected to show a slight decrease of 0.1%.
Additionally, on Thursday, the weekly initial jobless claims data will be released. The most recent data showed a surprise drop in weekly initial jobless claims from 229,000 to 216,000, reaching the lowest level since February and remaining below historical averages. This suggested a tight labor market.
On Friday, the preliminary University of Michigan Consumer Sentiment Index for September will be released. In August, the index declined from 71.6 to 69.5. A closer look revealed that in August, the current conditions subindex decreased from 76.6 to 75.7, while the expectations subindex declined from 68.3 to 65.5.
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European Economic Outlook and Economic Events
In the European economic calendar this week, the focus will be on the European Central Bank (ECB) interest rate decision and ECB President Lagarde’s speech on Thursday. Additionally, the ECB will release its new macroeconomic projections.
In July, the ECB raised interest rates by 25 basis points, in line with expectations, and indicated that future decisions would ensure that interest rates are set at sufficiently restrictive levels as long as necessary to ensure that inflation returns to the 2% medium-term target. The decision statement emphasized that the bank would continue to follow a data-dependent approach to determine the appropriate level and duration of restraint. Following the interest rate decision, ECB President Lagarde mentioned that although inflation continued to decline, it appeared to remain high for an extended period. She also suggested that there could be an interest rate hike in September or they might choose to hold.
Market expectations for this week’s ECB meeting lean towards keeping interest rates unchanged.
On Tuesday, Germany will release the ZEW Current Conditions and Expectations Indexes for September, which will shed light on the state of the economy and future prospects. In August, the ZEW Current Conditions Index declined from -59.5 to -71.3, reaching its lowest level since October 2022, while the Expectations Index, despite expectations of a slight decline, increased slightly from -14.7 to -12.3. Both indexes remained in the contraction zone for the fourth consecutive month.
In September, it is expected that the ZEW Current Conditions Index will decline to -76, and the Expectations Index will decrease to -15.
Additionally, on Wednesday, the Eurozone’s industrial production data for July will be released. Industrial production in the Eurozone showed unexpected strength in June, with a 0.5% increase despite expectations of stagnation. However, on a yearly basis, it continued to decline, albeit at a slower pace (from -2.5% to -1.2%).
For July, a 0.9% monthly contraction in industrial production is expected.
On Friday, Eurozone external trade data for July will be released, providing insights into the outlook for global trade. In June, the Eurozone recorded a trade surplus of 23 billion euros as imports continued to decline, following a small deficit in May due to lower imports.
Additionally, on Wednesday, the UK will release monthly GDP growth data for July. In June, the UK’s monthly GDP showed growth of 0.5%, exceeding expectations, thanks to strong growth in the manufacturing sector. However, for July, a 0.2% monthly contraction in GDP is expected.
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Asian Economic Outlook and Economic Events
On Friday, China will release economic data that will provide information about the state of economic activity in August, including industrial production, retail sales, and fixed asset investment.
In July, economic activity data in China came in weaker than expected. Specifically, the year-on-year growth rate of industrial production slowed from 4.4% to 3.7% (expectation: 4.3%), the year-on-year growth rate of retail sales, a gauge of domestic demand, decelerated from 3.1% to 2.5% (expectation: 4%), and fixed asset investment growth decreased from 3.8% to 3.4% (expectation: 3.7%). Real estate investments also declined by 8.5% year-on-year.
Additionally, despite expectations for stability, the unemployment rate increased from 5.2% to 5.3%, reaching its highest level in the past four months.
In August, it is expected that the year-on-year growth rate of industrial production will partially recover from 3.7% to 3.9%, and the growth rate of retail sales will increase from 2.5% to 3% due to stimulus measures and support for the private sector, including real estate companies. However, the growth rate of fixed asset investment is expected to slightly slow down from 3.4% to 3.3%.
The Chinese government has set a growth target of around 5% for this year, but market participants believe that achieving this target will be challenging and that more stimulus may be needed for the Chinese economy.
On Friday, the Russian Central Bank’s interest rate decision will also be closely watched.
In the previous month, the central bank held an extraordinary meeting and raised the policy interest rate by 350 basis points to 12%. The decision statement emphasized the need to limit risks to price stability and noted that steady growth in domestic demand was exceeding production capacity, leading to increased import demand and putting pressure on the exchange rate. The central bank also mentioned that the ruble’s depreciation was affecting inflation expectations. It stated that new decisions on the policy interest rate could be made depending on the movement of inflation toward the target and that additional rate hikes were possible if inflation risks intensified.
For this week’s meeting, the central bank is expected to keep the policy interest rate at 12%.
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Upcoming US Economic Events
- Focus on data influencing Federal Reserve policy: August Consumer Price Index (CPI) on Wednesday, August Producer Price Index (PPI) on Thursday.
- Expected CPI increase from 3.2% to 3.6% YoY due to rising oil prices.
- Core CPI expected to remain at 4.3% YoY.
- Expected PPI increase from 0.8% to 1.3% YoY.
- Core PPI likely to decrease from 2.4% to 2.2% YoY.
- Industrial production and capacity utilization for August on Friday to gauge production trends.
Key European Events
- Germany’s ZEW Current Conditions and Expectations Indexes for September on Tuesday.
- Eurozone industrial production data for July on Wednesday.
- Eurozone trade data for July on Friday.
- UK monthly GDP data for July on Wednesday.
European Economic Outlook
- Focus on European Central Bank (ECB) interest rate decision and President Lagarde’s speech.
- ECB raised rates by 25 basis points in July.
- ECB to release new macroeconomic projections.
- Market expectations leaning towards unchanged interest rates.
Asian Economic Indicators
- China to release August economic data including industrial production, retail sales, and fixed asset investment on Friday.
- July data showed weaker-than-expected economic activity.
- Expectations of partial recovery in industrial production and retail sales, but slight slowdown in fixed asset investment.
- China’s government aiming for around 5% growth this year, facing challenges.
Russian Central Bank Meeting
- In the previous month, the central bank raised the policy interest rate by 350 basis points to 12%.
- Decision emphasized limiting risks to price stability.
- Central bank hinted at possible further rate hikes if inflation risks increased. Expected to maintain Policy interest rate at 12% in the upcoming meeting.