The final full week of August has been a mixed bag, with markets oscillating on the back of various data releases.
In what was a data-light week, Purchasing Managers Index (PMI) data from the UK, Europe and US took centre stage on Wednesday. PMI data is essentially an index of the prevailing direction of economic trends in the manufacturing and services sectors. A reading above 50 typically indicates expansion, while below 50 signals a contraction. The data released on Wednesday for all the regions was universally weak, falling below consensus, and pointing to contraction in all but US services, which was marginally above 50. Despite weak data, both bond and equity markets rallied strongly on the day, as the market interpreted the data to mean that central banks may not need to increase rates much further, as there are signs the economies are slowing. The US S&P 500 index rose close to 1.65% on Wednesday, while 10-year UK gilt yields fell by over 15 bps, which is a very large one day move.
On Wednesday evening the hotly anticipated Nvidia quarterly results were released. Similar to last quarter, the company released much better results than expected, and also gave very positive forward-looking commentary, with demand for the chips (often used in artificial intelligence) growing rapidly. This time however, the share price reaction on the day was fairly muted, while the broader technology sector fell on Thursday.
US initial jobless claims data was released on Thursday and once again sent mixed messages to markets, as the better-than-expected results pointed towards a resilient labour market.
Positive news was released in the UK as OFGEM, the government’s regulator for electricity and gas, announced a new price cap with the typical household bill to fall below the £2000 mark for the first time in 18 months. Falling energy costs will filter into headline inflation over the coming months. Staying with the UK, consumer confidence unexpectedly improved this month and consumer inflation expectations continued to fall. Despite higher interest rates, it appears that consumers are feeling more positive on the outlook now that inflation appears to have peaked, energy prices are falling, and wage growth remains strong.
Germany is Europe’s largest economy, and their Q2 GDP data was released this morning. The economy contracted by -0.2% (year-on-year), in line with market expectations and flatlined at 0% (quarter-on-quarter) which just edges Germany out of a technical recession (typically defined as two consecutive quarters of negative growth). Consumer spending increased by 0.1% in the second quarter, but it was poor trade data that heavily weighed on the country as exports fell -1.6% and imports fell -1.8% compared to the previous quarter.
Apart from the bank holiday, investors are looking forward to the commentary from this year’s Jackson Hole symposium. The Jackson Hole symposium is a three-day annual conference that takes place in the state of Wyoming and hosts central bank leaders from all around the world. US Fed chair, Jerome Powell, and ECB President, Christine Lagarde, are set to speak at different times during the event. Last year, Mr Powell’s speech was well remembered as he stated the Fed’s determination to tackle inflation, before embarking on the steep interest rate path we’ve seen over the last year. This year investors are expecting a less hawkish tone, given inflation has fallen from over 8% this time last year in the US, to 3.4% currently.
Do enjoy the bank holiday.
Nathan Amaning, Investment Analyst
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