On Wednesday the headline consumer price index came in at 3.0% year-on-year, slightly lower than expectations of 3.1% and its lowest level since March 2021. The following session the producer price index rose just 0.1% for the year ended in June. Signs of cooling inflation raised expectations that the Federal Reserve’s monetary tightening cycle would be drawing to a close.
The inflation figures gave a boost to US equities, with the S&P 500 up 2.4% with gains broad-based. The tech-heavy Nasdaq added 3.3% in its best week since March. The major indices had advanced through the week although snapped their winning streak on Friday which saw the unofficial start of earnings season. Big banks kicked things off and while there were signs of resilience, investors were cautiously waiting for reports out of smaller lenders to get a fuller health picture. Treasury yields edged lower after the US inflation data with the 10-year yield ending at 3.818%. The notable casualty of the week was the US dollar, which had its worst week in eight months, with the dollar index down 2.3%.
Alongside the dollar weakness, sterling managed to hit a 15-month high against the dollar on Thursday. This came as the UK economy contracted by less than expected, down 0.1% in May. It was also supported by UK wage growth accelerating more than expected as well as UK banks passing stress tests. For the week the FTSE 100 rose 2.5%. The pan-European STOXX 600 was up nearly 3% for the week, its best performance in around three months as investors cheered the US data.
There was also inflation data out of China although this was a less cheerful picture. The economy teetered on the edge of deflation, with the consumer price index flat year-on-year, while the producer price index fell at its fastest pace in seven years. Weak trade data later in the week only reinforced the picture that the economy was struggling to rebound as strongly as hoped. Nevertheless, there were still some bright pockets, with the Chinese government signalling that its crackdown on big tech companies was over, while officials are to extend measures designed to support the property sector until 2024. For the week the Shanghai Composite was 1.3% higher while the Hang Seng rose 5.7%.
Japan’s Nikkei 225 ended the week flat and is 4% off its 2023 closing high reached at the start of the month. There is growing caution ahead of the next Bank of Japan policy meeting at the end of the month, where it could potentially announce an adjustment to its yield curve control policy
The value of your investment can fall as well as rise in value, and the income derived from it may fluctuate. You might get back less than you invest. Currency exchange rate fluctuations can also have a positive and negative affect on your investments. Please note that EFG Harris Allday does not provide tax advice. Past performance is not a reliable indicator of future performance.
This document has been produced by the EFG Harris Allday research team utilising data from documents produced by EFG Asset Management (UK) Limited for use by the EFG group and the worldwide subsidiaries and affiliates within the EFG group. EFG Asset Management (UK) Limited is authorised and regulated by the UK Financial Conduct Authority, registered no. 7389746. Registered address: EFG Asset Management (UK) Limited, Park House, 116 Park Street, London W1K 6AP, United Kingdom, telephone +44 (0)20 7491 9111.