As the autumn trading season kicks into gear, global markets face a pivotal week that could set the tone for the remainder of the year. Investors are poised to scrutinise key inflation data and central bank decisions, which may shape market sentiment in the months ahead. This week is packed with significant events, with all eyes on the US CPI data release on Wednesday, which is expected to provide crucial insights into inflationary pressures.
On Thursday, the European Central Bank's interest rate decision will be closely watched for signs of a potential shift towards monetary easing. In the UK, Wednesday's GDP data for July will offer a glimpse into the health of the British economy. Tech enthusiasts and investors alike will be tuned in to Apple's annual product launch event on Monday, anticipating potential market-moving announcements. Additionally, the first US presidential debate between Donald Trump and Kamala Harris on Tuesday could inject an element of political uncertainty into an already tense trading environment.
Equities
Following a turbulent summer, global equity markets enter the week on somewhat shaky ground. Last week, the S&P 500 lost around 4.3%, marking its worst week since March 2023, along with the Nasdaq falling 5.8% and the Dow slipping 2.9%. In Europe, the STOXX Europe 600 index ended 3.52% lower on renewed fears about a deterioration in the outlook for global economic growth, accompanied by the FTSE 100 index, which slid 2.3%. In the week ahead, investors will closely watch the US CPI data release on Wednesday for clues about the Federal Reserve's next moves and the ECB's interest rate decision on Thursday.
Commodities
Fears of slowing economies in China and the United States have caused oil prices to experience significant downward pressure, with WTI crude falling 8% last week. Despite OPEC’s decision last week to delay the planned rise in output by two months from October to December, this did little to reverse the bearish market sentiment, and prices continued to slip. On Friday, WTI and Brent settled at their lowest levels since June 2023—at $67.67 and $71.06 per barrel, respectively. Gold prices may find support from investor inflows as investors await the U.S. inflation report for further clues on the potential size of the Federal Reserve's interest-rate cut.
Fixed Income
Last week, the 10-year Treasury yield decreased to 3.71% as U.S. economic data indicated further slowing, especially in the labour market. However, the 2-year Treasury yield fell sharply to 3.65%, resulting in a positively sloping yield curve for the first time since July 2022. In Europe, the 10-year German bund yield fell to 2.17% from 2.30%, and the 10-year UK gilt yield ended the week at 3.89% from 4.01%. Further market volatility is on the horizon, with more economic and consumer sentiment numbers this week. Investors will be focused on Wednesday’s US CPI data, with expectations for progress toward the Fed’s 2% inflation target. Additionally, Thursday's ECB interest rate decision will be important for determining the direction of eurozone bond yields in the months ahead.
Currencies
Investor uncertainty surrounding the timeline for the Fed’s monetary policy easing caused the US dollar to end last week in an unstable fashion. However, the euro closed the week higher despite losses on Friday, with the market paying close attention to the ECB interest rate decision this week. In emerging markets, the Japanese yen appreciated against the US Dollar on expectations of narrowing Japan-US interest rate differentials, with a Fed rate cut on the horizon. However, the British pound changed little against the US dollar, ending the week at USD 1.31 for GBP.
Outlook
The week ahead is crucial for global markets as investors await key inflation readings and central bank decisions. The US CPI report and ECB rate decision will be pivotal in shaping monetary policy expectations for the remainder of the year. Economic data suggesting slowing growth, particularly in manufacturing, will raise concerns about a potential economic slowdown. However, some investors anticipate improved growth dynamics in 2025 driven by real income growth and lower short-term rates.