Pictet Group
Weekly house view | Que sera, sera
The week in review
Last week, the US equity market was overshadowed by speculation about the size of the upcoming Fed rate cut. While the decline in the consumer inflation report for August seemed to cement the case for a 25 bps rate cut this week, forecasts of a 50 bps cut also gathered steam. A noticeable rebound in big, defensive companies contributed to the S&P 500’s strong 4.1%[i] return over the week (in USD), while thoughts of outsized rate cuts pushed the Russell 2000[ii] 4.4% (in USD) higher despite a survey showing a big drop in small-business optimism in the US. While the ECB’s rate cut had already been well priced in, the Stoxx Euro 600[iii] rose 1.9% (in euros) in a relatively data-free week. US Treasuries were pretty volatile as market participants wavered in their predictions of the pace and size of Fred rate cuts. But shorter-term Treasury yields dropped strongly at the end of the week as talk of a 50 bps Fed rate cut gathered pace and consumers’ annual inflation expectations dropped (largely thanks to the fall in oil prices). Speculation over a 50 bps rate cut drove gold prices to a fresh high in USD terms.
Quote of the week
“The situation at the moment is really worrisome,” said former Italian prime minister Mario Draghi, calling for a new industrial strategy in Europe with an 800 bn euros annual investment boost. “It’s: ‘Do this, or it’s a slow agony’.
Key data
The US consumer price index (CPI) rose at an annual rate of 2.5% in August, down from 2.9% in July, while core CPI held steady at 3.2%. The producer price index (PPI) slowed markedly to a yearly rate of 1.7% from 2.1%. The University of Michigan’s September consumer sentiment rose in September to 69, the highest level since May. China’s CPI increased 0.6% year-on-year in August, up from 0.5% in July. Chinese exports surged by 8.7% in August from a year before, the fifth consecutive month of growth, while imports rose by just 0.5%. Industrial production in China rose at an annual 4.5% in August, down from 5.1% in July, while retail sales rose 2.1%, down from 2.7%. Japan’s GDP growth in Q2 was revised down to an annualised 2.9% from the initial estimate of 3.1%.