Week 32 in Brief
The reports on consumer and wholesale inflation indicated prices rose less than expected last month, as preliminary reading of consumer sentiment for the month of August showed a trend of easing prices and a possibility that inflation may have peaked. The Dow gained close to 3% for the week, while the Nasdaq and S&P 500 rose over 3%.
How did the major indices perform?
- The S&P 500 rose 72.88 points, or 1.73%, to 4,280.15.
- The Dow Jones Industrial Average rose 424.38 points, or 1.27%, to 33,761.05.
- The Nasdaq rose 267.27 points, or 2.09%, to 13,047.19.
For the week
- The S&P 500 closed up 3.25%.
- The Dow is up 2.92%.
- The Nasdaq is up 3.8%.
What drove the U.S. market?
- US inflation data for the week came in at lower-than-expected, which raised sentiment among investors that the fed would go sower on interest rate hikes.
- Economists had forecast an 8.7% consumer price index rise, whilst the Labor Department announced an 8.5% rise.
- Prices paid to American producers for goods and services registered an unexpected fall last month because of lower fuel costs, although the fed insists that inflation is still too high, consequently raising borrowing costs for companies.
- Jobs figures that were announced last week showed that wages remain strong and unemployment is at low levels.
- Volume on U.S. exchanges was 9.99 billion shares, compared with the 11.04 billion average for the full session over the last 20 trading days.
- The consensus among analysts this week was that Inflation by year-end might decelerate to 7% or a bit lower, but getting core inflation under 4%, which is double the Fed’s target, will be tougher than markets anticipate
- Analysts also reviewed their expectations on the Fed’s next review on interest rates in September, with fed fund futures showing a 55.5% chance of Fed policymakers raising rates by 50 basis points instead of 75 basis points.
- Investors also bought into equities worth $7.1 billion on Wednesday and recorded their largest weekly inflow since December last year.
How did the European markets perform?
- In Europe, the week started in the gloom, as stocks fell on concerns over potential cancer-causing impurities that prompted the drug’s withdrawal from markets. European equities however rose on Friday to end the week in weekly gains, as the European healthcare sector gained 0.2%, with the STOXX 600 index also rising 0.2%, up for a third straight day.
- The STOXX 600 index ended the week 1.2% higher, as positive earnings and a softer-than-expected U.S. inflation reading calmed nerves around aggressive rate hikes by the Federal Reserve.
- Flutter also underwent a rally in the travel and leisure sector after an upbeat earnings forecast.
- London stocks (FTSE) gained 0.5% after data showed Britain’s economy contracted by less than feared in the second quarter.
- However, according to analysts, these gains are expected to be lost, with Euro area PMI likely to be weaker due to tightening credit, and low Russian gas deliveries raise the risk of winter rationing, which could tip the region into recession.
How did Asian markets perform?
- In Asian markets, India seems to be performing the best, with Indian equity benchmark indices Nifty50 and Sensex traded in the green on Friday, Sensex played around the 59,500 mark but ended at 59,462 with a 130-point jump. Nifty ended at 17,698 points, which is a gain of 39 points. The indices ended higher for the fourth consecutive week, the longest winning streak since January.
- In Mainland China, Recurring Covid-19 lockdowns in the country, along with tensions with the US on Nancy Pelosi’s trip to Taipei, among others, are weighing on Chinese markets with The Shanghai Composite shedding 0.15% to 3,276.89 while the Shenzhen Component lost 0.44% to 12,419.39.
- Japan stocks surged on return to trade, while shares in the Asia-Pacific were mixed on Friday following strong gains in the previous session as investors digested the U.S. inflation report.
- The Nikkei 225 jumped 2.62% to 28,546.98, while the Topix index rose 2.04% to 1,973.18. Japanese markets were closed Thursday for a holiday.
Bonds and Commodities
- Following reports on inflation in the US, U.S. Treasury yields were down, as investors weighed a likely moderation of the Fed’s aggressive interest rates hikes to tame inflation,
- Benchmark 10-year note yields dipped to 2.8385%, after reaching 2.902% on Thursday, the highest since July 22.
- In commodities, the prices of oil dipped around 2% as investors anticipated supply disruptions in the U.S. Gulf of Mexico would be short-term, while recession fears clouded the demand outlook.
- Brent crude futures fell 1.5% to settle at $98.15 a barrel, while U.S. West Texas Intermediate (WTI) crude fell 2.4% to settle at $92.09 a barrel.
- As for metals, the highlight was on Gold, where the prices advanced, thanks to a drop in U.S. Treasury yields, setting bullion on the path for a fourth straight week of gains.
- Spot gold added 0.7% to $1,801.76 an ounce. U.S. gold futures gained 0.56% to $1,799.70 an ounce.
- The dollar continued its strong movements as the dollar index rose 0.542%, while the euro index declined 0.6% to $1.0255.
- The British Pound was down 0.54% against the dollar, and the euro was down 0.61%.
- In Asia, The Japanese yen traded at 133.35 per dollar, after strengthening earlier this week. The Australian dollar was at $0.7123, above the $0.71 level.
Next week will perhaps be focused on earnings reports from major retailers as results from Walmart and Home Depot coming in on Tuesday. Other retailers including Lowe’s, Target, and TJX Companies will report on Wednesday, followed by Ross Stores and Kohl’s on Thursday.
In terms of reports from policymakers, the U.S. Census Bureau will release July retail sales figures on Wednesday. This report provides updates on consumer spending. Investors will also expect the latest updates on the U.S. housing market next week, with July building permits and housing starts available on Tuesday, and existing home sales on Thursday.
On Wednesday, the Federal Reserve will release meeting minutes from its latest policy meeting held in July, which could offer additional insights into policymakers’ decisions.