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 experienced a mixed performance in a week characterized by light trading ahead of the Labor Day weekend. The Nasdaq Composite, heavily influenced by the technology sector, saw the most significant decline among major indexes, largely due to a sharp drop in NVIDIA’s stock, which plummeted nearly 10% at its lowest point, wiping out roughly $300 billion in market value. In contrast, value stocks outperformed growth stocks, marking the largest margin since late July.

Economic data played a significant role in shaping market sentiment. The Labor Department's core personal consumption expenditures (PCE) price index, the Federal Reserve’s preferred inflation measure, showed a 0.2% increase in July, aligning with expectations. The year-over-year increase, however, came in slightly below forecasts at 2.6%, reinforcing investor confidence that inflation remains under control and near the Fed’s target. This led to a surge in Nasdaq futures.

The U.S. consumer also showed resilience despite a cooling labor market. The Commerce Department reported an unexpected 0.3% rise in personal incomes for July, with personal spending increasing by 0.5%, matching expectations. Additionally, the estimate for second-quarter GDP growth was revised upward to 3.0%, driven by a stronger-than-expected rise in consumer spending. However, the housing sector continued to show weakness, with pending home sales dropping 5.5% in July, reaching the lowest level since 2001. Affordability issues and uncertainty surrounding the upcoming U.S. presidential election were cited as key factors. Meanwhile, the yield on the 10-year U.S. Treasury note edged higher as expectations for a significant rate cut by the Federal Reserve in September diminished.

In Europe, the pan-European STOXX Europe 600 Index gained 1.34% in local currency terms, reaching a record high. This marked the fourth consecutive week of gains, driven by slowing inflation, which supported expectations for an interest rate cut by the European Central Bank (ECB) in September. Major European indexes followed suit, with Germany’s DAX, Italy’s FTSE MIB, and France’s CAC 40 Index all posting gains.

Eurozone inflation dropped to 2.2% in August from 2.6% in July, the lowest in three years and just above the ECB’s 2% target. Core inflation also saw a slight decrease, while services inflation—closely watched by policymakers—rose to 4.2% from 4.0%. Despite the slowdown, some ECB officials remained cautious about easing policy too soon, emphasizing the need for supportive data before considering rate cuts. Economic sentiment in the euro area improved, with the sentiment indicator rising to 96.6 in August, the highest in over a year. However, Germany’s business climate index, reported by the Ifo Institute, fell to 86.6, the lowest since February, indicating growing pessimism among German companies.

The UK housing market showed signs of strengthening, with net mortgage approvals rising to the highest level since September 2022. The Bank of England reported a significant increase in net lending on mortgages, while the Nationwide Building Society’s house price index indicated a modest annual increase in August.

In Asia, Japan’s stock markets closed higher, with the Nikkei 225 and TOPIX Index both recovering losses from earlier in the month. The rebound followed concerns over the Bank of Japan’s interest rate hike in late July and fears about U.S. economic growth. The 10-year Japanese government bond yield remained stable, while the yen weakened against the U.S. dollar, impacting Japan’s export-oriented firms. Inflation in Tokyo rose more than expected in August, reinforcing a hawkish stance from the Bank of Japan. The core consumer price index for the Tokyo area increased by 2.4% year-over-year, surpassing expectations. Bank of Japan Governor Kazuo Ueda reiterated the central bank’s commitment to normalizing monetary policy if the economy continues to achieve stable 2% inflation.

In China, stock markets faced challenges as corporate earnings reports fell short of expectations, dampening investor sentiment. The Shanghai Composite Index and the CSI 300 both experienced declines, while the Hang Seng Index in Hong Kong posted gains. Economists have reduced their growth forecasts for China in 2024, citing a prolonged property sector slump and weak domestic demand. The People’s Bank of China responded by injecting significant liquidity into the banking system, but concerns remain about the country’s ability to meet its official growth target for the year.

In summary, U.S. markets were mixed with controlled inflation and resilient consumer spending, while European stocks rose on slowing inflation, and Japan recovered from earlier losses. China's markets struggled due to disappointing earnings and lower growth forecasts.