Weekly Market Update | Week Ending 11 August 2023

• Latest US inflation data comes in mixed

• Consumer prices in China fall for the first time in over two years

• UK GDP growth beats forecasts

1. Latest US inflation data comes in mixed

US headline and core inflation came in below expectations, rising 3.2% year-on-year (vs 3.3% forecasts) and 4.7% year-on-year (vs 4.8% forecasts), respectively. On a month-on-month basis, headline and core inflation stabilised at 0.2%, matching market expectations. However, US producer prices rose more than expected for July, rising 0.3% month-on-month, the biggest increase since January 2023 and above market forecasts of 0.2%. On a year-on-year basis, producer prices rose 0.8%, higher than the 0.2% in June and forecast 0.7% amid base effects. For the week, the Dow Jones gained 0.62%, whereas the S&P 500 and Nasdaq fell -0.31% and -1.9%, respectively, due to traders rotating out of growth stocks into more cyclical and defensive stocks. Over on the corporate front, notable performers came from Chevron (+2%) and Merck & Co (+1.8%), boosting the Dow Jones performance, whereas a sell-off in AMD (-2.4%), Nvidia (-3.6%) and Micron (-1.6%) led to the pull-back in the S&P 500 and Nasdaq.

The US dollar rebounded, with the US Dollar Index (“DXY”) rising above 102.8, its highest level in five weeks after a bigger-than-expected rise in producer prices countered growing expectations that the Federal Reserve would stop raising rates. The US 10-year bond yield also followed, rising above the 4.13% mark, approaching its nine-month high of 4.19% as new economic data supported the case for restrictive monetary policy. The market is now pricing in an 87% probability that the US Federal Reserve will not hike rates next month and a 29% probability of a 25bps rate hike in November.

2. Consumer prices in China fall for the first time in over two years

Meanwhile, in China, consumer prices fell for the first time in over two years, dropping 0.3% year-on-year in July, its first decrease since February 2021, compared to a flat reading in June 2023 and market estimates of a 0.4% fall. China’s statistics agency commented that the fall in inflation would only be temporary and that inflation is projected to rise gradually as the impact of a high base effect last year fades. Core consumer prices, which excludes food and energy, rose 0.8% year-on-year, the most since January 2023, after a 0.4% gain in June. On a monthly basis, core consumer prices unexpectedly rose 0.2%, beating forecasts of a 0.1% decrease, marking its first rise in six months. Additionally, producer prices in July fell 4.4% year-on-year, worse than market forecasts of a 4.1% decline. Besides poor inflation data, China’s July exports and imports also dropped 14.5% year-on-year and 12.4% year-on-year, respectively, due to deteriorating foreign and domestic demand. In response, the offshore yuan hovered around 7.22 while the 10-year government bond yield traded below 2.7%, near its one-year low, as weak economic data weighed on sentiment and raised bets on further policy easing.

3. UK GDP growth beats forecasts

Lastly, the UK economy recorded a surprise 0.2% quarter-on-quarter growth in GDP for Q2 2023, boosted by household consumption and manufacturing output and beating market forecasts of 0%. On a month-on-month basis, the UK economy expanded 0.5% in June 2023, beating forecasts of a 0.2% rise and rebounding from a 0.1% fall in May. This is the most significant growth rate since October 2022, with production rising 1.8% since August 2020 and rebounding from a 0.6% contraction in May 2023, mainly boosted by manufacturing, construction and services sector growth.

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“The stock market is a device to transfer money from the impatient to the patient.” - Warren Buffett.

This Weekly Market Update is sourced from Bloomberg and various financial news.

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