Strong US retail sales data and cooling inflation eased investor doubts that a soft landing could be delivered. The S&P 500 rallied sharply on the week, gaining 2.89% (price return in sterling terms), while the Nasdaq Composite, its technology heavy counterpart, surged 4.24%. The S&P 500 is now less than 2% below its July peak, as markets have all but put behind them the late July/early August spike in volatility.

Jobs data – the apparent cause of the market rout – surprised positively during the week, while the strongest month on month growth in retail sales in over a year suggested the consumer remains in good shape despite the cooling labour market. The US Consumer Price Index (CPI) inflation reading came in at 2.9%, its first reading within the Federal Reserve’s target band since April 2021.

In Europe, the MSCI Europe ex UK index gained 2.10%, while the UK’s blue chip FTSE 100 index climbed 1.75%, trailing the mid-cap FTSE 250, which gained 2.05% on the week. Data in the UK painted a similar picture to that in the US, with CPI inflation coming in lower than expected while solid quarterly GDP growth of 0.6% indicated the economy remains on reasonable footing, with PMI data out this week expected to confirm this.

Japan was the standout market during the week, with the Nikkei 225 surging 6.56% in sterling terms. Despite this, the index remains nearly 10% below its July level as rapid Yen appreciation has reduced export income. The rising Yen has smoothed the ride for overseas investors holding unhedged exposure, as in sterling terms they are only 3% below their July high.

Sovereign yields were steady during the week, with the UK 10-year gilt yield ticking down to 3.93% from 3.95%. Similarly, the US 10-year treasury yield declined from 3.94% to 3.89%. In commodity markets, gold and copper both enjoyed gains, while the price of Brent crude oil also rose, to $79.9 per barrel.

Week Ahead

Source: Refinitiv Workspace, 19/08/24

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