Macro Matters – Weekly review, w/c August 19

TradeDay Macro Matters

Macroeconomic / Geopolitical Developments

• US and global stock market rebound continues

• Cooling CPI adds to positive sentiment

• US hard landing fears abate with solid US Retail Sales

• Fed Minutes in focus this week with rate cuts expected

• What’s Ahead

US and Global Stock Market Rebound Continues

The US stock market experienced its best week of 2024, with major indices posting impressive gains as fresh economic data helped to alleviate fears of a potential recession. The S&P 500 surged nearly 4%, the Nasdaq Composite climbed over 5.2%, and the Dow Jones Industrial Average rose almost 3%. This robust recovery was driven by easing inflation and stronger-than-expected economic reports, which bolstered investor confidence. The rally was further supported by a rebound in the technology and growth sectors, which had been hit hardest during the recent market downturn. Globally, stock markets followed the US lead, with European and Asian markets also posting significant gains. European stocks closed the week higher, with the Stoxx 50 and the pan-European Stoxx 600 showing strong performances as fears of a US recession receded. Positive US economic data, including lower inflation, strong retail sales, and stable consumer sentiment, reassured investors that the economy remains on a stable growth trajectory. In Asia, indices such as Japan’s Nikkei, Hong Kong’s Hang Seng, and India’s S&P BSE Sensex posted solid gains, reflecting global optimism about economic conditions and market stability. As the markets head into the coming weeks, focus may shift toward further gains, especially as the Federal Reserve appears poised to cut interest rates. Continued moderation in inflation and earnings growth across various sectors suggest that the market’s upward momentum could persist, despite approaching seasonal volatility.

Cooling CPI Adds to Positive Sentiment

The July Consumer Price Index (CPI) report revealed a lower-than-expected rise in inflation, with headline annual inflation increasing by 2.9%, the lowest rate since March 2021. This marks a significant milestone as inflation dips below 3% for the first time in over three years, signaling the Federal Reserve’s efforts to curb inflation are effective. Month-on-month, prices rose by 0.2%, slightly below expectations, reinforcing the belief that inflation is gradually coming under control. This cooling of price pressures strengthens the case for a potential rate cut by the Fed in September. With inflation moderating, the Fed may shift its focus toward maximizing employment, potentially reducing borrowing costs to stimulate job growth.

US Hard Landing Fears Abate with Solid US Retail Sales

Fears of a hard landing in the US economy eased following stronger-than-expected retail sales data for July, highlighting consumer spending resilience. The Commerce Department reported a 1.0% increase in retail sales, surpassing expectations and signaling the economy is holding up well despite high interest rates. Positive retail sales figures and a decline in jobless claims to their lowest level since early July have reduced recession fears. This shift in sentiment now frames good economic news as favorable for markets, rather than a precursor to aggressive Fed rate cuts.

Fed Minutes and Jackson Hole in Focus This Week

Market attention this week turns to the Federal Reserve, particularly the release of the FOMC Meeting Minutes on Wednesday, August 21. Investors will scrutinize these minutes for insights into the Fed’s economic assessment and rate path. The broader focus will be the Jackson Hole Economic Symposium, where Fed Chair Jerome Powell’s keynote speech is expected to provide signals on future monetary policy, labor market impacts, and the potential for rate cuts in September.

What’s Ahead

Central Bank Watch:

• FOMC Minutes on Wednesday

• Jackson Hole Symposium from Thursday

• People’s Bank of China Interest Rate decision on Tuesday

• Reserve Bank of Australia Meeting Minutes on Tuesday

Macro Data Watch:

• August 20, 2024: PBoC Interest Rate decision; German PPI; EU CPI; Canadian CPI

• August 21, 2024: FOMC Minutes

• August 22, 2024: Global Flash PMI; Jackson Hole Symposium

• August 23, 2024: UK Consumer Confidence; Japanese CPI; Canadian Retail Sales