Pictet Group
Weekly house view | US rate cut in sight
The week in review
The S&P 500[i] rose 0.9% last week (in USD) as the fall in June consumer inflation opened the way to a first Fed rate cut (we think in September). Q2 results by major banks were mixed, but broadly in line with expectations. The prospect of lower rates led to investors trimming bets on Big Tech and rotating towards sector laggards, including small caps, with the Russell 2000[ii] rising 6.0% (in USD) on the week. Political stasis meant France’s CAC 40 marked time last week, but growth figures and the new Labour government’s economic agenda (more houses and infrastructure) helped UK stocks to another strong week, with the FTSE 250[iii] up 2% (in GBP). US Treasuries rallied on inflation news, with an even stronger decline in yields in Europe. It was also a good week for corporate bonds, with a noticeable drop in US high-yield spreads. Sterling continued to climb, while the yen fought back against the USD last week (thanks probably to well-timed official intervention), while the drop in US yields helped gold.
US inflation and rates
“In light of the progress made both in lowering inflation and in cooling the labor market… elevated inflation is not the only risk we face.” - Federal Reserve chairman Jerome Powell before Senate Banking Committee.
Key data
The US consumer price index (CPI) rose 3.0% year-on-year (y-o-y) in June, its lowest level in a year and down from 3.3% in May. The core CPI rose 3.3% y-o-y in June, down from 3.4% in May. Core CPI was down to less than 0.1% (0.065% to be precise) month on month, the lowest level since January 2024. The CPI in China rose at an annual rate of 0.2% in June, down from 0.3% in May. Q2 GDP growth in China was estimated at 4.7% y-o-y in Q2, down from 5.3% in Q1. China’s imports dropped by 2.3% in June from a year before in USD terms, while exports climbed by 8.6%. Across the Taiwan strait, B thanks to demand for AI-enabled microchips.
[ii] Source: Pictet WM AA&MR, Thomson Reuters. Past performance, Russell 2000 (net 12-month return in USD): 2019, 25.5%; 2020, 20%; 2021, 14.8%; 2022, -20.4%; 2023, 16.9%.
[iii] Source: Pictet WM AA&MR, Thomson Reuters. Past performance, FTSE 250 (net 12-month return in GBP): 2019, 28.9%; 2020, -4.6%; 2021, 16.9%; 2022, -17.4%; 2023, 8%.