In summary
- A sigh of relief on tariffs and inflation
- Inflation data fuels rate cut expectations
- The week ahead
- Balancing optimism amid inflation and geopolitical risks
A sigh of relief on tariffs and inflation
Last week brought a measure of relief for investors, with markets pushing higher amid an extension of the US-China trade truce and inflation data that largely supported expectations for US Federal Reserve (Fed) rate cuts. The S&P 500 gained +0.94% over the week, reaching new record highs, while the equal-weighted S&P 500 climbed +1.47% in a broad-based rally. Globally, Europe’s STOXX 600 rose +1.18%, and Japan’s Nikkei surged +3.73% to a fresh peak on robust Q2 growth data. However, this optimism was tempered by a hotter-than-expected US Producer Price Index (PPI) reading and ongoing geopolitical uncertainties surrounding the Trump-Putin summit, which failed to deliver a ceasefire in Ukraine but hinted at potential progress.
Inflation data fuels rate cut expectations
The week’s key economic releases centred on US inflation figures, starting with Tuesday’s Consumer Price Index (CPI) for July, which showed headline inflation holding steady at +2.7% year-on-year, slightly below the +2.8% expected, while core CPI ticked up to +3.1% (versus +3.0% forecast). Falling gasoline prices masked stickier elements, with core services inflation rising +0.36%, though tariff-impacted categories like household appliances and toys showed easing price pressures. This supported market expectations for a 25 basis points (bps) cut by the Fed in September, with bond market futures pricing in close to 100% probability, and in total anticipating around 105 bps of easing by June 2026. Thursday’s upside surprise in the PPI, however, introduced caution. The PPI rose +0.9% month-on-month (well above +0.2% expected), lifting the annual rate to +3.3%. Core PPI climbed +0.6%, raising concerns about persistent inflationary pressures, potentially amplified by recent tariffs on goods from Canada, India, the EU, Japan and Korea. Separately, UK Gross Domestic Product (GDP) data exceeded expectations, with +0.4% month-on-month growth in June, supporting the Bank of England’s measured stance on policy easing.
The week ahead
Geopolitical developments remain front and centre, following Friday’s Trump-Putin summit in Alaska. While no immediate ceasefire was secured, President Putin reportedly proposed Ukraine withdraws from Donetsk and Luhansk in exchange for a frontline freeze. President Trump, pushing for a comprehensive peace agreement, meets Ukraine’s President Zelensky today, followed by discussions with European leaders including UK Prime Minister Starmer, French President Macron, German Chancellor Merz, and EU Commission President Von der Leyen. Investors will monitor for signs of breakthroughs, with Trump’s envoy suggesting North Atlantic Treaty Organization (NATO)-like security guarantees for Kyiv. On the economic front, the Fed’s Jackson Hole Symposium takes the spotlight, featuring speeches from Fed Chair Powell and European Central Bank President Lagarde. Last year’s event signalled a policy pivot, so any clues on the pace of rate cuts could move markets. Additionally, US retail earnings reports from Walmart and Target will offer insights into consumer resilience amid tariff uncertainties.
Balancing optimism amid inflation and geopolitical risks
While markets cheered the 90-day extension of the US-China trade truce, which pushed the tariff deadline to 10 November, the broader policy landscape remains murky, with effective tariff rates fluctuating since Liberation Day and new levies on sectors like pharmaceuticals and semiconductors looming. This uncertainty complicates tracking inflation’s trajectory, as lagged effects may take months to emerge, potentially challenging the Fed’s ability to ease more aggressively. US Treasury Secretary Bessent’s calls for a 50 bps September cut and up to 175 bps overall, in contrast with more cautious Fed officials, who highlight a resilient labour market and sticky services inflation. Add in the geopolitical wildcard of Ukraine talks, and investors face an additional layer of risk, even as equity indices hover near records and credit spreads tighten. With bond markets pricing in over 100 bps of cuts in the next year or so despite rising inflation expectations, any disappointment from Jackson Hole or stalled peace efforts could test this fragile optimism.
Contact us
0203 418 0257
info@onekc.co.uk
References
Source: https://www.brooksmacdonald.com/resources/insights/weekly-market-commentary
Weekly Market Commentary
In summary
A sigh of relief on tariffs and inflation
Last week brought a measure of relief for investors, with markets pushing higher amid an extension of the US-China trade truce and inflation data that largely supported expectations for US Federal Reserve (Fed) rate cuts. The S&P 500 gained +0.94% over the week, reaching new record highs, while the equal-weighted S&P 500 climbed +1.47% in a broad-based rally. Globally, Europe’s STOXX 600 rose +1.18%, and Japan’s Nikkei surged +3.73% to a fresh peak on robust Q2 growth data. However, this optimism was tempered by a hotter-than-expected US Producer Price Index (PPI) reading and ongoing geopolitical uncertainties surrounding the Trump-Putin summit, which failed to deliver a ceasefire in Ukraine but hinted at potential progress.
Inflation data fuels rate cut expectations
The week’s key economic releases centred on US inflation figures, starting with Tuesday’s Consumer Price Index (CPI) for July, which showed headline inflation holding steady at +2.7% year-on-year, slightly below the +2.8% expected, while core CPI ticked up to +3.1% (versus +3.0% forecast). Falling gasoline prices masked stickier elements, with core services inflation rising +0.36%, though tariff-impacted categories like household appliances and toys showed easing price pressures. This supported market expectations for a 25 basis points (bps) cut by the Fed in September, with bond market futures pricing in close to 100% probability, and in total anticipating around 105 bps of easing by June 2026. Thursday’s upside surprise in the PPI, however, introduced caution. The PPI rose +0.9% month-on-month (well above +0.2% expected), lifting the annual rate to +3.3%. Core PPI climbed +0.6%, raising concerns about persistent inflationary pressures, potentially amplified by recent tariffs on goods from Canada, India, the EU, Japan and Korea. Separately, UK Gross Domestic Product (GDP) data exceeded expectations, with +0.4% month-on-month growth in June, supporting the Bank of England’s measured stance on policy easing.
The week ahead
Geopolitical developments remain front and centre, following Friday’s Trump-Putin summit in Alaska. While no immediate ceasefire was secured, President Putin reportedly proposed Ukraine withdraws from Donetsk and Luhansk in exchange for a frontline freeze. President Trump, pushing for a comprehensive peace agreement, meets Ukraine’s President Zelensky today, followed by discussions with European leaders including UK Prime Minister Starmer, French President Macron, German Chancellor Merz, and EU Commission President Von der Leyen. Investors will monitor for signs of breakthroughs, with Trump’s envoy suggesting North Atlantic Treaty Organization (NATO)-like security guarantees for Kyiv. On the economic front, the Fed’s Jackson Hole Symposium takes the spotlight, featuring speeches from Fed Chair Powell and European Central Bank President Lagarde. Last year’s event signalled a policy pivot, so any clues on the pace of rate cuts could move markets. Additionally, US retail earnings reports from Walmart and Target will offer insights into consumer resilience amid tariff uncertainties.
Balancing optimism amid inflation and geopolitical risks
While markets cheered the 90-day extension of the US-China trade truce, which pushed the tariff deadline to 10 November, the broader policy landscape remains murky, with effective tariff rates fluctuating since Liberation Day and new levies on sectors like pharmaceuticals and semiconductors looming. This uncertainty complicates tracking inflation’s trajectory, as lagged effects may take months to emerge, potentially challenging the Fed’s ability to ease more aggressively. US Treasury Secretary Bessent’s calls for a 50 bps September cut and up to 175 bps overall, in contrast with more cautious Fed officials, who highlight a resilient labour market and sticky services inflation. Add in the geopolitical wildcard of Ukraine talks, and investors face an additional layer of risk, even as equity indices hover near records and credit spreads tighten. With bond markets pricing in over 100 bps of cuts in the next year or so despite rising inflation expectations, any disappointment from Jackson Hole or stalled peace efforts could test this fragile optimism.
Contact us
0203 418 0257
info@onekc.co.uk
References
Source: https://www.brooksmacdonald.com/resources/insights/weekly-market-commentary
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