Cooling US Inflation Supports Risk Assets as Equity Markets Reach New Highs

Cooling US Inflation Lifts Global Equities to Record Highs

Global equity markets delivered another constructive week, supported by signs that inflationary pressures continue to moderate in the United States. Investor sentiment improved following softer-than-expected consumer and producer price data, which reinforced expectations that the Federal Reserve is likely to remain on hold at its September meeting. US equities moved to fresh record highs during the week, while bond markets stabilised after several weeks of volatility. Meanwhile, commodity markets remained sensitive to developments in the Middle East, with oil prices continuing to trade at elevated levels amid ongoing uncertainty surrounding shipping routes through the Strait of Hormuz.

In the United States, the S&P 500 rose during the week, reaching new all-time highs as investors welcomed evidence that inflation is continuing to ease, although Sterling strength pared back returns for UK investors. Smaller company shares outperformed, while technology stocks delivered a more mixed performance following their strong gains earlier in the summer. Market participants were encouraged by July inflation data, which indicated that price pressures are gradually moving closer to the Federal Reserve's target, reducing concerns that policymakers may need to tighten monetary policy further.

European markets were more subdued. While economic data suggested that activity across the Eurozone remains relatively resilient, several major indices finished the week modestly lower. The STOXX Europe 600 declined marginally, while the FTSE 100 underperformed, weighed down by weakness in mining and pharmaceutical stocks. Despite the softer performance, European equities remain near record levels, supported by improving earnings expectations and signs that economic growth has weathered recent energy price shocks better than expected.

Asian markets experienced a mixed week. Japanese equities performed strongly, with the Nikkei 225 advancing sharply as investors continued to rebuild positions following the sharp semiconductor-related volatility seen earlier in the month. South Korean equities also rebounded significantly, benefiting from renewed enthusiasm towards the artificial intelligence supply chain. In contrast, Chinese equities edged slightly lower, as investors remained cautious despite recent policy support measures and moderating inflation pressures.

The Week Ahead

Day	Country	Measure	Period	Forecast	Previous
Monday	China	Industrial Production y/y	July	5.00%	5.30%
Monday	China	Retail Sales y/y	July	1.50%	1.00%
Tuesday	UK	Average Earning Index	June	4.00%	4.30%
Tuesday	UK	Unemployment Rate	June	4.80%	4.90%
Wednesday	UK	CPI y/y	July	2.90%	2.60%
	UK	Core CPI y/y	July	2.50%	2.60%
	Europe	Final CPI y/y	July	2.90%	2.90%
	Europe	Final Core CPI y/y	July	2.50%	2.50%
Thursday	-	-	-	-	-
Friday	UK	Retail Sales m/m	July	-0.40%	1.00%
Friday	Europe	Consumer Confidence	August	-16	-16
Source: Forex Factory

The UK economy expanded by +0.4% during the second quarter of 2026, matching expectations but slowing from the +0.6% growth recorded in the first quarter¹. Monthly GDP increased by +0.3% in June, supported by stronger activity in the services sector². However, underlying data highlighted continued weaknesses in parts of the economy. Manufacturing output declined by -0.5% during June, while industrial production also softened. The figures are likely to reinforce the Bank of England's cautious approach as policymakers continue to balance moderating inflation against the risk of slower economic growth.

¹ Office for National Statistics – Preliminary GDP, Q2 2026
² Office for National Statistics – GDP Monthly Estimate, June 2026

Inflation was the dominant focus for markets last week. Consumer price inflation slowed to +3.4% year-on-year in July³, while producer prices were unchanged over the month, both coming in below market expectations⁴. The data provided further evidence that inflationary pressures are gradually easing despite elevated energy costs. Labour market indicators also suggested some moderation, with weekly jobless claims rising slightly. Together, these developments strengthened market expectations that the Federal Reserve will leave interest rates unchanged at its next meeting.

In contrast, retail sales data pointed to some softness in consumer spending, suggesting that higher borrowing costs and a more challenging economic backdrop are beginning to weigh on household demand⁵. While growth remains positive, recent economic releases indicate that momentum in the US economy continues to moderate from the robust pace seen earlier in the year.

³ US Bureau of Labor Statistics – Consumer Price Index Summary, July 2026
⁴ US Bureau of Labor Statistics – Producer Price Index Summary, July 2026
⁵ Census Bureau – Monthly Retail Trade, July 2026

The Eurozone economy continued to show resilience during the second quarter. Flash estimates released last week indicated GDP growth of +0.4% quarter-on-quarter, accelerating from the largely flat performance recorded in the first quarter⁶. Employment also continued to expand, marking another quarter of job creation across the region. Growth was supported by strong investment activity and continued resilience in domestic demand despite elevated energy prices.

⁶ Eurostat – GDP and Employment Flash Estimates, Q2 2026

There were no major data releases from Japan last week.

Inflation data from China highlighted the continued challenge facing policymakers as domestic demand remains subdued. Consumer price inflation eased to +0.5% year-on-year during July⁷, while producer price pressures also moderated⁸. The figures suggest that economic activity remains uneven despite ongoing policy support measures. Against this backdrop, investor confidence remained cautious, contributing to the relatively subdued performance of Chinese equities during the week.

⁷ National Bureau of Statistics of China – Consumer Price Index, July 2026
⁸ National Bureau of Statistics of China – Produce Price Index, July 2026

SJP Approved: 17/08/2026

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