As we start a new week, let's take a look at the significant events in the global economy over the past week with our weekly financial update, presented by Bas Kooijman, the CEO and Asset Manager of DHF Capital SA.
The U.S. stock market saw a robust recovery last week, with gains driven by optimism over both inflation and economic growth. Investors were encouraged by the possibility of a “soft landing” for the economy, where inflation cools without triggering a recession. The Nasdaq Composite, which is heavy on technology stocks, led the charge, closing the week up 12.24% from its August 5 lows. NVIDIA, a key player in the artificial intelligence sector, was particularly strong, with its shares soaring nearly 19%. The overall strength of growth stocks far outpaced that of value stocks, reflecting investor confidence in future economic expansion.
The consumer discretionary sector also performed well, highlighted by Starbucks' impressive 24.5% surge after announcing a new CEO credited with turning around Chipotle. Walmart also posted gains of 6.58% following an earnings report that exceeded expectations, alongside an upbeat forecast for the remainder of the year. However, it wasn’t all positive—Google’s parent company, Alphabet, saw its stock decline after reports emerged that the Justice Department might pursue an antitrust case that could lead to the breakup of the company.
Earnings season has been another bright spot, with analysts estimating that S&P 500 companies saw earnings grow by 10.9% year-over-year in the second quarter, marking the fastest pace of growth since the end of 2021. This positive momentum was bolstered by retail sales data, which showed a 1.0% increase in July, the strongest in 18 months. The data suggests that consumer spending remains resilient, even as the labor market shows signs of cooling. However, the housing market presented a different story, with new building permits falling to their lowest levels since early in the pandemic. This decline, coupled with a drop in housing starts, indicates that the sector is facing significant headwinds. Despite these challenges, bond markets responded positively to the benign inflation data, with the yield on the 10-year Treasury note decreasing for most of the week.
European markets ended the week on a positive note, driven by growing optimism for potential interest rate cuts. The pan-European STOXX Europe 600 Index rose by 2.46%, with major markets like Germany, France, and Italy seeing substantial gains. Germany’s DAX was particularly strong, climbing 3.38%, while Italy’s FTSE MIB led the region with a 4.09% increase.
In the UK, inflation inched up to 2.2% in July, slightly higher than June's 2.0%. However, a slowdown in services inflation, a key focus for policymakers, has led to speculation that the Bank of England may cut interest rates later this year. The UK economy showed resilience, with GDP growing by 0.6% in the three months through June, building on the momentum from the first quarter. Across the Eurozone, the economy maintained a steady pace, growing by 0.3% in the second quarter. While this matched the growth rate from the first quarter, industrial production contracted slightly in June, missing expectations. Despite this, the labor market remains strong, with employment continuing to expand. In Norway, the central bank held its key interest rate steady at 4.5%. However, officials hinted that a rate cut could come sooner than expected if the economic slowdown proves more severe than anticipated.
Japan’s stock markets experienced a strong rebound, with the Nikkei 225 Index rising by 8.7% and the broader TOPIX Index up by 7.9%. The yen’s depreciation against the U.S. dollar provided a boost to Japanese exporters, while better-than-expected U.S. economic data helped alleviate recession concerns. Japan's economy also surprised to the upside, expanding by 0.8% in the second quarter, significantly outpacing estimates. This growth was driven by a resurgence in private consumption and business investment.
In contrast, China’s economic performance highlighted ongoing struggles. The Shanghai Composite Index edged up by 0.6%, while the CSI 300 gained 0.42%. However, underlying economic data revealed weaknesses. Industrial production growth slowed to 5.1% in July, and retail sales, though slightly better than expected, remained subdued. The property market continued to slump, with new home prices declining for the 13th consecutive month, and the urban unemployment rate edged higher. These factors, combined with weak credit data, have fueled speculation that China’s central bank might further cut interest rates to stimulate demand.
Overall, global markets are navigating a complex landscape of economic indicators, with regions like the U.S. and Europe finding some optimism in data, while China faces persistent challenges. Investors worldwide are closely watching how these diverse economic trends will shape the next phase of the global recovery.
