US stocks recorded strong gains as inflation continued to cool

Market Summary

Last week, the US closed higher following signs of slowing inflation. The EU and Asian markets also closed higher.

US Stocks recorded strong gains as inflation continued to cool, with the S&P 500 and Nasdaq Composite rising. The release of consumer price index (CPI) and producer price index (PPI) inflation data showed encouraging trends, indicating a potential soft landing for the economy.

European stocks rose with signs of cooling inflation in the US and China's support measures for the property sector. The European Central Bank (ECB) hinted at further rate increases amid concerns about inflation

Japanese equities lagged behind Asian peers, and there were expectations of the Bank of Japan adjusting its yield curve control framework. The yen strengthened against the U.S. dollar in anticipation of monetary policy normalization.

Chinese equities rallied after Beijing announced measures to support the economy, including an extension of stimulus guidelines for the property sector.

Major News

US inflation fell to 3% in June, highlighting the Federal Reserve's success in managing price pressures. The improved inflation data led to record highs in US stock indices, a decrease in the two-year Treasury yield, and a 15-month low for the US dollar index.

The British pound reached a 15-month high against the US dollar as stronger-than-expected wage growth increased pressure on the Bank of England to continue raising interest rates. 

China's producer price index (PPI) fell at the fastest rate in over seven-and-a-half years in June, while consumer inflation remained at its slowest since 2021. The decline in producer prices and stagnant consumer prices indicate sluggish demand in the Chinese economy.

What Caught Our Attention

Governments worldwide, particularly in the West, are investing heavily in manufacturing as a potential solution to various challenges, including climate change, loss of middle-class jobs, geopolitical tensions, and weak economic growth. The push for manufacturing is seen as a way to revive industrial decline and create solid jobs, drive innovation and green transition, and address concerns of strategic importance and supply chain disruptions.

However, there are doubts about the effectiveness of such policies, as manufacturing jobs have become highly automated and may not deliver the expected economic benefits. Additionally, the focus on industry overlooks the potential of services and other sectors for innovation and productivity growth.

Source: Kredens Capital Management, T. Rowe Price, Bloomberg, Financial Times, Wall Street Journal, The Economist, Nikkei Asia