Weekly house view | Ukraine strikes back

Weekly house view | Ukraine strikes back

The CIO's view of the week ahead.

The week in review

Equities enjoyed a strong week, with the S&P 500 posting its highest weekly return since November 2023 as volatility eased sharply and economic data increased market confidence that the US will avoid recession. Annual inflation was soft enough to seal the deal for a September rate cut by the Federal Reserve, but not weak enough to tilt the scales to a larger 50bps cut. Robust retail sales and strong results from a major retailer showed consumer demand is still resilient once prices are lowered. Equity markets celebrated the reports, with the S&P 500 rising nearly 4%[i] (in USD) on the week and the Nasdaq up 5.3%[ii] (in USD). In bonds, US 10-year Treasury yields dipped 5bps to 3.89%. In the UK, inflation surprised to the downside in July, supporting the case for two more rate cuts by the Bank of England this year. In Asia, Japan’s Prime Minister Fumio Kishida surprised markets with his decision to step down as leader of the ruling Liberal Democratic party in September, leaving the party to find a new leader who will become prime minister. The Japanese yen lost 1% on the week allowing Japanese equities to rally 7.8%.

Geopolitics

Ukraine’s unexpected invasion of Russia’s western Kursk region caught Moscow off guard, raising questions about the future course of the conflict between the two countries, with Russia’s response uncertain.

Key data

In the US, the core consumer price index (CPI) reading fell to 3.2% from 3.3%. The headline CPI year-on-year reading fell to 2.9%, the first sub-3% reading since 2021. Also in the US, July retail sales rose 1.0% on the month. In Asia, Japan's economy grew an annualised 3.1% in the April-June quarter from the previous three months. In China, private activity indicators remained on the weak side in July. Foreign investors pulled a record $15bn out of China in the second quarter. In Europe, German investor morale posted its strongest fall in two years. UK July headline inflation rose from 2.0% to 2.2% in July(vs consensus 2.3%).

[i] Source: Pictet WM AA&MR, Thomson Reuters. Past performance, S&P 500 Composite (net 12-month return in USD): 2019, 31.5%; 2020, 18.4%; 2021, 28.7%; 2022, -18.1%; 2023, 26.3%.
[ii] Source: Pictet WM AA&MR, Thomson Reuters. Past performance, Nasdaq Composite (net 12-month return in USD): 2019, 36.7%; 2020, 44.9%; 2021, 22.2%; 2022, -32.5%; 2023, 44.6%.
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