Summary:
The S&P 500 hit record highs last week driven by strong tech earnings, softer inflation, and rising risk appetite. What key events will shape markets this week?
Summary of Major Developments
Last week saw a burst of bullish momentum across global equity markets, led by the S&P 500 setting fresh record highs. The index closed up 2.2% week on week, fuelled by strong earnings in AI and tech, softer US inflation data, and renewed risk appetite. The NASDAQ also printed new peaks while megacap stocks outperformed, with Apple surging 10.5% for the month after ramping up US manufacturing investment.
Asian equities joined the rally. Japan's Nikkei 225 hit a new high above 43,000, ending the week up 1.7%, supported by Q2 GDP growth of +1.0% annualised and robust tech sector earnings. China's CSI300 rose 2.4% in Q2 and posted its best weekly gain in seven months despite weak retail and factory data, driven by fresh stimulus hopes.
European stocks held steady, tracking global optimism, while defensive sectors traded flat and financials strengthened on expectations of dovish central bank action.
Currencies saw the US dollar weaken slightly after steadier CPI (+2.7% y/y for July) and a hotter-than-forecast PPI (+3.3% y/y), with rate cut bets for September inching higher. The euro hovered near a three-week high, and the Swiss franc continued climbing as a preferred safe-haven linked to gold, which ended near $3,400/oz.
Commodity markets were mixed. Oil prices rebounded in late-week trade, up 0.6%, as the Trump-Putin summit drew focus to geopolitics and energy supply. Industrial metals were rangebound, while agriculture softened on forecast improvements.
Bond yields were elevated but stable, with longer-duration US Treasuries remaining high amid ongoing deficit concerns and a cautious outlook on Fed independence. Credit markets tracked the broader equity rally, compressing spreads in risk assets.
| Data Point | Latest Figure | Expected/Forecast | Comments |
|---|---|---|---|
| US CPI (July) | +2.7% y/y | +2.7% | In line with consensus |
| US Core Inflation | +3.1% y/y | +3.0% | Remains sticky |
| US PPI (July) | +3.3% y/y | +2.9% | Hotter-than-expected |
| Japan GDP (Q2) | +1.0% annualised | +0.4% | Surprise positive growth |
| China Retail Sales (July) | +3.7% y/y | +4.2% | Missed consensus |
| China Factory Output (July) | +5.7% y/y | +6.2% | Slowest increase in eight months |
Investor sentiment remains cautiously bullish, driven by solid earnings and improved economic data. AI and tech continue to outperform across regions, while consumer discretionary and financials rotate back into favour amid rising risk-on appetite. However, sector concentration is elevated, with tech and property leading much of the rally, raising the risk of a reversal if sentiment fades.
Risks include hawkish inflation surprises that could unsettle the Fed rate cut timeline, weak China data leaving Asian markets vulnerable to policy disappointment, geopolitical uncertainty around Trump-Putin and Russia-Ukraine issues that keep energy and defence stocks in focus, and elevated US equity valuations diverging from bond market signals.
The US delayed high tariffs on Chinese goods for another 90 days, easing pressure on Asian supply chains and stoking trade optimism. At week's end, Trump and Putin's Alaska summit closed with no breakthrough. Global leaders are closely watching any peace deal implications for Ukraine and European security. Major central banks, including the Fed at the upcoming Jackson Hole meeting, are expected to reinforce dovish signals without dramatic shifts as markets await further confirmation of the rate path.
U.S. economic Releases include flash PMIs, updated retail sales, jobless claims, and FOMC minutes.
Global data from the UK, Eurozone, Japan, and Canada will cover inflation and GDP updates.
The Jackson Hole Symposium will feature key central bank comments, especially from Fed Chair Powell, clarifying rate cut timing and policy outlook.
Corporate earnings reports from mega-cap tech, retail heavyweights, and China's major SOEs will be closely watched. Nvidia and Palantir are in focus.
Geopolitical developments include further US-Russia-Ukraine talks and critical trade deadlines.
Markets have entered a melt-up phase with the S&P 500 at record highs, AI-led tech rallying, and global risk appetite resilient. Near-term, sector rotation, inflation surprises, central bank signals at Jackson Hole, and developments in trade and geopolitics are poised to drive volatility and potential reversals. Elevated US valuations and Asian optimism hinging on stimulus delivery add to this complex backdrop.
Disclaimer: This material is for general information purposes only and is not intended as (and should not be considered to be) financial, investment, or other advice on which reliance should be placed. No opinion given in the material constitutes a recommendation by EBC or the author that any particular investment, security, transaction, or investment strategy is suitable for any specific person.
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