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Markets finish week with gains as US inflation continues deceleration

Editorial note: Due to a holiday, the next edition of the LGT Navigator will be published on Wednesday, August 2.

Inflation in the US increased at the slowest pace in more than two years and was closing in on the US Federal Reserve’s (Fed) target of 2% inflation, data released Friday showed. Equity markets welcomed the decreasing pace of price hikes and ended the week with gains.

Shane Strowmatt, LGT
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5 minutes
Personal Consumption Expenditures
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Personal consumption expenditures (PCE) increased 0.2% in June when compared to the previous month or 3.0% when compared to the same period last year. The core PCE index – which strips out volatile energy and food prices and is the Fed’s preferred measurement of inflation in the US economy – rose by 4.1% year-on-year. Last week, the Fed raised interest rates by one quarter of a percentage point, putting its benchmark rate in the range of 5.25% to 5.50%. The Fed will have some time to observe the effects of its interest rate hikes before it makes another policy decision, with the next Federal Open Market Committee meeting due on September 19-20.

On Friday, some data was released that may make it more difficult for the Fed to end its hiking cycle. The final reading of the University of Michigan consumer sentiment index came in at 71.6 in July. That’s the highest level in nearly 2 years and higher than June’s 64.4 reading. A strong consumer market provides the Fed with an argument to continue tightening its monetary policy.

In New York, stock indices were up on the week’s final day of trading. The Dow Jones Industrial finished Friday’s session up 0.5% at 35,459.29 points and the S&P 500 gained 0.99% at to end the day at 4582.23 points. The tech-heavy Nasdaq-100 led gains, jumping 1.85% to close at 15,750.93 points.

In individual stocks, ExxonMobil and Chevron became the next major oil companies to report slumping quarterly earnings figures on Friday with profit at both companies falling by around half when compared with the same period a year earlier. The sector’s earnings were strongly affected by higher oil and gas prices last year following Russia’s invasion of Ukraine. Last week, Shell and TotalEnergies also reported sharply falling earnings.

In Asia, stock markets were optimistic to start the week after China’s manufacturing activity slightly improved in July. The manufacturing Purchasing Managers’ Index (PMI) for China came in at 49.3, up from 49.0 the previous month, but still below the 50-point mark, which signals contraction. Hong Kong's Hang Seng Index was trading up 1.3%, while the Shanghai Composite gained 0.4%. In Japan, the Nikkei 225 was up around 1% after industrial output data was released showing 2% growth in June when compared to the previous month. South Korea’s Kospi was up 0.9%. In Australia, the S&P/ASX 200 was lagging other major indices, down about 0.1%.

To finish off last week’s macroeconomic data, Europe’s largest economy failed to flatter investors with German gross domestic product for the second quarter coming in flat. The German economy has been in a rut for some time, having contracted by 0.4% in the last quarter of 2022 and 0.1 in the first quarter of this year. It is also still facing high-but-falling inflation, data released Friday showed. Inflation in Germany stood at 6.2% year-on-year in July, down from 6.4% in June.

To the south, Switzerland’s economy saw a bit of slightly positive data on Friday. The KOF Economic Barometer increased slightly in July after falling three months in a row, coming in at 92.2 points, which is still below average value for the indicator. With the exception of consumption, all constituents showed below-average development. Despite the weak economic conditions, the Swiss franc is still trading near its highest level versus the US dollar in over eight years.

Corporate news in focus: Earnings figures from Logitech, Heineken, Raiffeisen International.

Economic data in focus: Swiss retail sales (08:30 CET), eurozone gross domestic product (11:00), eurozone consumer prices (11:00).

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Publisher: LGT Bank (Switzerland) Ltd., Glärnischstrasse 36, CH-8027 Zurich
Editor: Alessandro Fezzi
Source: LGT Bank (Switzerland) Ltd.

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