Overall markets fell this week with key data coming out across the world. In the US, inflation appears to be falling. Japan’s optimism continues, owing to an incoming, yet-to-be elected, prime minister and the successful acceleration in their vaccination campaign, whilst in China fresh coronavirus outbreaks continue to have an impact on the economy. In Europe and the UK all eyes were on inflation and what this might mean for interest rates from here.
Last week’s performance – major stock markets
|Euro Stoxx 50
US: Encouraging economic data, yet worries remain
Most of the major equity indexes ended the week modestly lower, as investors weighed some encouraging economic data against worries about supply chain challenges, elevated valuations, and concerns over how stocks would respond to an eventual tightening in monetary policy. Investors pondered a few significant data surprises during the week. Core consumer prices, excluding food and energy, increased less than expected in August. Meanwhile, retail sales outside the volatile auto sector, jumped 1.8% in August.
Japan: Optimism ahead of new prime minister & vaccine acceleration
Campaigning began in the race to become the next president of the ruling Liberal Democratic Party and prime minister. The government is aiming to ease the scope of coronavirus restrictions in November, once most of the population has been vaccinated. On the economic front, confidence levels among Japanese manufacturers fell to a five-month low in September. While exports rose in the month of August, it rose by a much lower amount than many had forecasted.
China: Positive trade date despite renewed lockdowns
Weak August economic data, a fresh coronavirus outbreak, the growing debt crisis at embattled property developer China Evergrande Group, and the threat of tighter gaming regulations in Macau dampened investor sentiment. Stocks fell sharply in China. On the economic front, August’s indicators were weak, underscoring the impact from continued coronavirus outbreaks across the mainland.
Europe: Inflation rises and sentiment falls
Shares in Europe weakened as concerns about the impact of the coronavirus’s delta variant on the global economy outweighed expectations of continuing central bank support. A report suggested that the European Central Bank could raise interest rates as soon as 2023, though the central bank said this report was inaccurate.
UK: Covid-19 cases rise and economic activity slows down
Inflation in the UK jumped to over 3% in August, its highest level in more than nine years. The Bank of England has always insisted that rises in inflation in coming months would be transitory, but it must now explain to the government why prices have risen so quickly and what it intends to do about it. Meanwhile, company payrolls rose by a record 241,000 in August, while the unemployment rate fell to 4.6% in the three months ending on the 31st of July. On the flip side, retail sales fell for a fourth month in August.