Positive week for global stock marketswith Piazza Affari recording a +2.20% on the FTSE MIB on Friday (outperforming the other European lists due to the recovery of the August 15th holiday closure) and a +4% on a weekly basis. In an eighth characterized by a holiday climate and with the quarterly season coming to an end, Investors’ attention was turned to US macroeconomic datawhich have allayed recent concerns of a recession in the world’s biggest economy and strengthened expectations that the Fed will cut rates at its September meeting.
The inversion
Stock markets have recovered a large portion of the sharp sell-off at the beginning of the month and remain in solid growth since the beginning of the year. Despite early August fears tied in part to a weaker-than-expected July jobs report and the violent unwinding of the popular Japanese yen carry trade, investors now appear optimistic about the U.S. economic outlook.
In other words, the macro environment continues to be one of falling inflation, consumers spending, and the Fed having room to cut rates in the near term. As investors recover from the sharp decline and volatility of the beginning of the month, they are once again focusing on fundamentals and risk appetite picks up again.
The macro data
The data on consumer prices and on producer prices U.S. inflation was encouraging in July. Inflation eased to 2.9% year-over-year, down from 3.0% in June and hitting its lowest level since early 2021. Additionally, producer prices excluding food and energy were weaker than expected last month, a positive sign since these data feed into core PCE, the Fed’s preferred measure of inflation.
The weak growth of theemployment in July and rising unemployment have raised concerns that the Fed may have been too late in cutting rates. However, the increase in the unemployment rate from 4.1% to 4.3% may also have been due in part to the impact of Hurricane Beryl, with many people reporting that they were unable to work due to the severe weather.
Comments from the Fed
It is important to note that several Fed officials have indicated they do not yet expect a recessionbut remain ready to support the economy if necessary.
Atlanta Fed President Raphael Bostic recently said that an economic contraction was “not in my view.” He added that the labor market still seemed stable, adding that “we’re not hearing a lot of layoffs.” Last week, Chicago Fed President Austan Goolsbee said that if there was a sharp deterioration, the central bank would “fix it.” Overall, these recent comments suggest that the Fed will be ready to cut rates quickly if the growth slowdown threatened to turn into a recession.
The Jackson Hole Symposium
Indications of the Fed’s first rate cut, expected in September, will come next week from Jackson Hole Economic Symposiumthe annual three-day U.S. central bank conference hosted by the Federal Reserve Bank of Kansas City in Jackson Hole, Wyoming. The chairman of the Federal Reserve Jerome Powell will speak on August 23 and will use his Jackson Hole speech to set the stage for an interest rate cut in September, with the actual size of the move being determined by August jobs data due a week later.
