A sense of calm returns ahead of a busy week for data

After all that excitement, the S&P 500 closed the week roughly where it started. Some weak manufacturing data and job numbers coming in below expectations tested the soft landing bulls’ nerve earlier in the week. It was a much better week for bond investors as yields fell across the board as they ran for safety. I guess the question is now: was that a healthy correction in a frothy bull market or the portent of something slightly more sinister? The weekend press seems to come down on the side of a healthy correction. Corrections, if this is what last week was about, are healthy for stock markets; they take some of the excessive exuberance out and make everyone just that little more cautious. The Vix fear index spiked sharply at the start of the week but was back close to its historical average by the end of the week, which could be taken as an encouraging sign.

The global stock markets’ direction from here will most likely be driven by the US and the path of interest rates. The main question will be what will drive the interest rate cuts, assuming they are starting; it’s almost a kind of chicken and egg. Will weaker growth drive the Fed policy, or will confidence inflation rates are back under control be the deciding factor? To a degree, one tends -to drive the other.

We shall see what happens this week as we get the monthly US producer inflation data on Tuesday and consumer inflation figures on Wednesday to confirm that price growth has continued to stabilise. Later in the week the monthly retail sales data.

It’s the first really busy week of Ms Reeves’s occupancy. We get a raft of job data on Tuesday, including average earnings. Alongside wages, unemployment is expected to rise to +4.5% from April to June 2024, the highest rate since July 2021. Then, on Wednesday, we, too, get inflation and producer prices all in one go. UK  Inflation is expected to tick back above 2% in July, although the core rate is likely unchanged. Then, on Thursday, the list of UK economic data coming out is almost endless; GDP will make the headlines. The Bank of England upgraded its estimate for Q2 growth from 0.2 per cent to 0.7 per cent in last week’s quarterly inflation report, which is in line with the first-quarter figure. Whether the recent social unrest has had any impact on the economy is probably too early to tell. We also get industrial and manufacturing production, along with construction orders. We, too, release the monthly retail sales data on Friday.  

Asian markets’ recovery continued at the start of the week, providing a positive backdrop for the European markets ahead of the week with all the ingredients to either further soothe investor nerves or place them back on edge again.