Tuesday saw the release of the latest consumer price index data, in which inflation rose 0.2% in July, while year-on-year it advanced 2.7%. Investors breathed a sigh of relief that the tariff impact had yet to notably push up prices, sending equities higher. Both the S&P 500 and tech-heavy Nasdaq Composite closed at record highs on Wednesday. However equities lost momentum following Thursday’s release of the producer price index, which came in a lot hotter-than-expected. While traders see a September rate cut as the most likely outcome, the figure added a degree of uncertainty over the size and pace of further cuts.
Despite the pullback, the S&P 500 ended the week 0.9% higher and the Nasdaq rose 0.8%. The Dow Jones Industrial Average added 1.7% and on Friday it reached a fresh intra-day record and closed out the week just 68 points away from its December closing record. Small caps, which are typically more sensitive to rate moves, outperformed large caps, with the Russell 2000 up around 3%. Treasury yields ended little changed overall, declining on the firming rate cut expectations, but nudged slightly higher after a mixed picture from rising retail sales in July while the University of Michigan’s consumer sentiment index unexpectedly declined.
European indices also benefited from the Fed rate expectations, with the STOXX 600 index rising 1.2%. On Friday it had approached a near five-month high. Earnings reports were under review, while trade sentiment took more of a back seat, helping market sentiment. Furthermore, there was optimism ahead of Vladimir Putin meeting with Donald Trump, potentially paving the way for a Russia-Ukraine ceasefire. Regional indices were also higher for the week, with France’s CAC 40 leading gains, up 2.3%. In contrast, gains for the UK FTSE 100 were more muted, adding 0.5%.
In a holiday-shortened week, Japanese equity markets saw solid gains, supported by a strong corporate earnings season and stronger-than-expected second quarter gross domestic product data. The Nikkei 225 gained 3.7% and reached a new record high. The yen was higher for the week against the US dollar, strengthening after comments from US Treasury Scott Bessent, in which he believes that the Bank of Japan is behind the curb on raising rates. Chinese markets also increased, helped by the announcement that the US would extend its tariff pause on Chinese exports for another 90 days. This gave hope that the two sides may be able to reach a trade agreement. The Shanghai Composite ticked 1.7% higher.