markets remain calm after shocking weekend

The world woke up to the shocking and appalling news that There had been an attempt on Donald Trump’s life. It’s hard to write about these things and relate them to the possible implications for financial markets. The reality is probably there is not a lot. Donald Trump was the favourite to win in November and will remain so, and as things stand, even more so now. Stocks in the US indicate an opening modestly positive manner, but we have yet to see how the bond market reacts. In the past week, the latest CPI data, which came in ahead of expectations, resulted in a shift in direction for stocks as value jumped in favour of growth, as the markets now see the prospect of a September cut as near certainty as it can be.

The S&P equal-weighted index rose on Thursday as the S&P 500 fell. Small-cap stocks outperformed large-caps. A reverse of trends that have been leading the market for most of the year. The yield curve flattened as the prospect of rate cuts increased; should that trend continue, one could anticipate this rotation continuing.

Donald Trump has set out his economic stall tariffs and tax cuts. Policies that could reignite inflation fears and could spook the bond market. Before the shocking events over the weekend, it was noteworthy that Michigan’s consumer inflation expectations rose on Friday. I assume this survey was taken before the results of Wednesday’s CPI report.

The earnings season started last week, and the central bank, JP Morgan, Wells Fargo, and Citi all reported in line with better numbers; however, the stocks lagged the overall market. Let’s hope this is not a warning of what’s to come; in-line numbers are not good enough for the market to push further. This week, we have many notable companies reporting, and more banks, including Goldman and Blackrock. United Health Johnson and Johnson, Taiwan semi, Netflix, and Abbot Labs, to name but a few, will focus the market’s attention.

On the macro front, China’s GDP was released this morning, coming in below expectations. This week will be important for UK rate expectations as we receive a raft of inflation data. The year-on-year inflation rate is expected to remain steady at 2%. We get employment data, including average earnings on Thursday and retail sales on Friday. If the Fed does go in September, and these numbers this week further consolidate the view that the fall in inflation rates in the UK can be sustained, the Bank of England could follow the Fed’s lead. Ms Reeve may blame the previous government for many things, but she cannot deny she took office when the economy was on the rise. Not many chancellors are that lucky. Powell is due to speak in a public meeting this week, and it will be interesting to hear whether he reinforces the view of the likelihood of a September cut.

Sad to see England fail again at the final hurdle but they gave us much in the past weeks to cheer on.