Market overview
In a week marked by encouraging signs in the US economy and significant tech-driven gains, the MSCI All Country World Index (MSCI ACWI) rose by 3.1%, bringing its year-to-date (YTD) increase to 15.5%.
United States stocks:
US markets responded positively to promising inflation data. Large-cap stocks posted a solid gain of 4.1% for the week, with a YTD increase of 19.1%. Growth stocks outperformed value shares, driven by a robust performance in the technology sector. Notably, NVIDIA experienced a significant surge, thanks in part to CEO Jensen Huang highlighting strong demand for the company’s chips. This contributed to tech-heavy markets ending the week up by 6.0%, with an 18.4% YTD gain.
European stocks (excl. UK):
The European Central Bank (ECB) cut interest rates for the second time this year, setting new rates at 3.65% for main refinancing operations, 3.90% for the marginal lending facility, and 3.50% for the deposit facility. European large-cap stocks reacted positively, ending the week 2.1% higher, with a 9.2% YTD increase. Major stock indexes also advanced, with Germany’s rising by 2.2% (11.6% YTD), France’s gaining 1.5% (1.8% YTD), and Switzerland’s increasing by 1.1% (11.4% YTD). The euro remained stable against the dollar, closing the week at USD 1.11 per EUR.
United Kingdom stocks:
In the UK, large-cap stocks rose by 1.1%, bringing their YTD gain to 10.2%, while mid-cap stocks added 1.0%, with an 8.8% YTD increase. The British pound remained steady against the dollar, ending the week at USD 1.31 per GBP.
US inflation eases as Fed prepares for rate cuts
Price growth in the US continued to soften last month, reaching its lowest level since February 2021 and sparking many investors to raise bets on a half-point rate cut – its first since the start of the pandemic.
Recently US inflation has been steadily declining, with the consumer price index (CPI) coming in at an annual rate of 2.5% in August, down from 2.9% in July and below the 2.6% expected by economists. On a month-to-month basis, the CPI increased 0.2% in August, the same pace as in July.
The Fed’s campaign to cool the world’s largest economy saw CPI peak at 9.1% in June 2022, the highest level in a generation. Despite challenges along the way, inflation has significantly decreased as policymakers aim to bring it down to their medium-term 2% target.
The US economy appears to be heading towards a “soft landing,” where price growth normalises without triggering a recession. There are tentative signs of an economic slowdown, including in the labour market, which supports the central bank’s decision to start cutting rates.
“The time has come,” said Fed Chair Jerome Powell last month, declaring that inflation is now on a sustainable path back to normal levels and signalling that the Federal Reserve is preparing to cut rates at its meeting this week.
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