Weekly house view | Waiting for the Fed

Weekly house view | Waiting for the Fed

The CIO's view of the week ahead.

The week in review

After a frightening start to the month, US equities ended August on a more even keel last week as markets looked forward to Fed rate cuts, inflation gauges held steady, and investors retained faith in the ‘soft landing’ narrative (although the nonfarm payrolls report this week will be decisive). A highlight of the week was the unveiling of Q2 results by the dominant AI chip giant. In the event, forward guidance from the company did not satisfy some parts of the market and proved a drag on the performance of the S&P 500[i], which returned 0.27% last week (in USD). The Stoxx Europe 600[ii] did better (gaining 1.4% in euro), rising to a record high last week as the market focused on its relatively cheap valuation and ECB rate cuts loomed. Bond markets were choppy last week, with longer-term yields rising as data came in and expectations for Fed hikes were adjusted. Currency volatility remained high, with the USD index regaining ground last week while the euro struggled against the Swiss franc and sterling as well as the greenback.

Geopolitics

Canada said it would levy a 100% tariff on imports of Chinese electric vehicles and announced a 25% tariff on Chinese steel, earning a rebuke from Beijing.

Key data

The Ifo Institute’s Business Climate Index declined for the fourth consecutive month in August (to 86.6 from 87.0), indicating the German economy remains mired in difficulty.  German consumer inflation fell more than expected last month, plunging to an annual 2% from 2.6% in July. Consumer inflation in the wider euro area dropped to 2.2% from 2.6%. The figure for US GDP growth in Q2 was revised up to an annual 3% from a previous estimate of 2.8%. The personal consumption expenditures (PCE) price index in the US rose at an annual rate of 2.5% in July, unchanged from June. ‘Core’ PCE was also unchanged, at 2.6%. The core consumer price index in the Tokyo region rose by 2.6% year-on-year in July, well up from 2.2% in July. Elsewhere in Asia, initial estimates put Indian GDP growth at an annual rate of 6.7% in Q2, down from 7.8% in the previous three months.

[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, STOXX Europe 600 (net 12-month return in EUR): 2019, 27.6%; 2020, -1.5%; 2021, 25.5%; 2022, -10.1%; 2023, 16.5%.
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