Global equities closed last week modestly higher, supported by comments from US Federal Reserve Chair Jerome Powell suggesting interest rate cuts are now likely. The S&P 500 index returned 1.46% in local currency last week and traded broadly flat on Monday whilst UK markets were closed.

The minutes of the July meeting of the Federal Open Market Committee, released Wednesday, helped set the stage for Federal Reserve Chair Jerome Powell’s strong signal on Friday that the time has come to cut rates. Investors noted Powell’s unambiguous comments that “the time has come for policy to adjust” as a clear signal that the Fed will begin an easing cycle, most likely at its next meeting in September. Powell, speaking in his annual address at Jackson Hole, Wyoming, set the stage for a series of interest rates cuts although the timing and pace of rate cuts will depend on incoming data. Powell explained the Fed doesn’t seek or welcome further cooling in labour market conditions. Equities rose and bond yields fell after Powell’s remarks; the yield on the US 10-year Treasury note falling as low as 3.76% during intra-day trading on Wednesday afternoon. Short-term rates had been increasingly pricing in cuts following weaker data in recent months, with as much as 100 basis points expected before the end of the year.

Meanwhile, investors also noted US Vice President Kamala Harris reiterate her campaign’s support for President Biden’s most recent budget proposal, including a minimum tax of 25% on unrealized capital gains for those with wealth greater than $100 million. Harris formally accepted the Democratic Party’s nomination for president in Chicago on Thursday night.

Elsewhere, Chinese authorities have restricted a key source of data as global funds continue to pull money out of the country’s stock market. As of yesterday, daily data showing net investment flows from foreign funds into Chinese stocks are no longer available. Both the Shanghai Composite and CSI 300 Indices recorded declines last week, while the Hang Seng index in Hong Kong posted modest gains.

In Europe, equity markets also enjoyed a positive week, whilst Sweden’s Riksbank cut rates for the second time since May to 3.5% and indicated additional cuts are likely.

Week Ahead

Source: Refinitiv Workspace, 27/08/24

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