In June, US consumer prices fell for the first time in four years due to lower gasoline prices and moderating rents, signalling disinflationary pressures. This supports the case for the Federal Reserve to proceed with interest rate cuts in September. The Consumer Price Index (CPI), a key economic indicator, decreased by 0.1% from May, with an annual rate of 3%, approaching its lowest level in over three years. Excluding volatile food and energy prices, core CPI rose by 0.1% monthly and 3.3% year-over-year, marking the smallest annual increase since April 2021.
Meanwhile, U.S. producer prices saw a modest uptick in June, as reported by the Bureau of Labor Statistics. The Producer Price Index (PPI) for final demand increased by 0.2% last month. Over the twelve months ending in June, the PPI rose by 2.6%, marking a slight acceleration from the 2.4% increase observed in May. The PPI serves as a key indicator of the prices that producers receive for their goods and services in the marketplace. This unexpected rise in the PPI contrasts with recent data suggesting a moderation in inflationary pressure.
During his Capitol Hill testimony this week, Fed Chair Jerome Powell acknowledged the return of the US labor market to pre-pandemic conditions, which is increasingly influencing Fed decisions. Powell indicated that positive data received on Thursday morning would bolster the Fed’s confidence that inflation is approaching its 2% target.
The U.K. economy grew by 0.4% in May, according to flash figures released by the Office for National Statistics on Thursday. Following the announcement, the British pound surged to a four-month high against the U.S. dollar. After exiting a shallow recession in the first quarter, the British economy flatlined in April but saw a notable improvement in May. Annual GDP growth increased to 1.4%, driven primarily by growth in the services and construction sectors, particularly in infrastructure and homebuilding.
Meanwhile, France faces a hung parliament after Sunday’s legislative elections, with no party winning a majority. The left-wing New Popular Front (NFP) made unexpected gains, limiting advances by the far-right National Rally. While the NFP won the most seats, it fell short of a majority. President Macron’s Ensemble party placed second, followed by the National Rally. Macron proposed forming a national unity government to oppose NFP’s fiscal policies. Meanwhile, he asked the current government to act as caretaker during negotiations.
In June, wage growth in the eurozone saw a modest increase as salaries adjusted to ongoing inflationary pressures. According to Indeed’s Wage Tracker, year-over-year salary increases for job openings across the euro area rose to 4.20% in June from 3.47% in May. This data, often cited by ECB chief economist Philip Lane, aligns closely with the ECB’s economic projections and is unlikely to change expectations for further interest rate cuts this year.
China’s U.S. dollar-denominated imports fell by 2.3% year-on-year, missing expectations for slight growth. Conversely, exports from China rose by 8.6% compared to last year, surpassing forecasts. In the first half of 2024, China’s trade with the U.S. saw imports decline, while exports grew in dollar terms. Trade with the EU also decreased in both imports and exports. However, China’s trade with ASEAN countries surged by 7.1% in the first half of the year, establishing ASEAN as China’s top regional trading partner. Overall, these dynamics resulted in a 2% increase in year-to-date imports and a 3.6% rise in exports compared to the same period last year.
In June, China’s consumer prices rose for the fifth consecutive month but missed expectations. The Consumer Price Index (CPI) increased by 0.2% year-over-year, slower than the 0.3% growth in May, marking the weakest growth in three months. Excluding food and energy, core CPI remained unchanged from May, rising by 0.6%. Meanwhile, the Producer Price Index (PPI) improved slightly, declining by 0.8% year-over-year compared to a 1.4% drop in the previous month.
Stocks across major global indices saw significant gains this week, marking a notably broad advance since mid-April. In the U.S., the Dow Jones Industrial Average, S&P 500 Index, and Nasdaq Composite all posted gains of 1.59%, 0.87%, and 0.25%, respectively. In Europe, the STOXX Europe 50 Index rose 1.28% in local currency terms as investors responded positively to lower-than-expected U.S. inflation data. The UK’s FTSE 100 Index also saw an increase of 0.60% for the week.
In Asia, Chinese stocks benefitted from strong export figures, outweighing concerns about deflationary pressures. The Shanghai Composite Index climbed 0.72%, while Hong Kong’s Hang Seng Index surged 2.54%. Japanese stocks, however, pulled back from record highs reached earlier in the week amid speculation of government intervention to support the Japanese yen in forex markets. Despite this, the Nikkei still managed to end the week with a gain of 0.68%.
Market Moves of the Week
South Africa’s economic growth in the second quarter faced challenges, with key sectors including manufacturing and mining showing no growth in May despite a stable electricity supply. Data from Statistics South Africa (Stats SA) indicated that manufacturing output contracted by 0.6% year-over-year in May, following a downwardly revised 4.9% increase in April.
Foreign investment in South African equities surged after the formation of a Government of National Unity (GNU) and a market-friendly cabinet following the May elections. Recent Johannesburg Stock Exchange (JSE) data shows R9.1 billion flowed into South African stocks in the past two weeks. Coupled with 100 days without power cuts, foreign investors are optimistic about South Africa’s medium-term economic prospects. Bank of America projects sustained power stability could drive over 2% annual GDP growth in the years ahead.
The JSE All-Share index benefited from the positive global market trends, posting a weekly gain of 1.10%. Most sectors contributed positively to the market’s overall performance, with Industrials leading the advance with a 1.96% return. The Resources sector was the sole detractor, experiencing a slight decline of -0.10%. Meanwhile, the South African rand continued to strengthen, buoyed by unexpectedly soft U.S. inflation data that increased expectations of a Federal Reserve interest rate cut in September. The rand appreciated by 1.57% against the Dollar, closing the week at R17.95/$.
Chart of the week
Investors are highly confident in a Fed rate cut for September, contingent on sustained trends in employment and inflation data. Powell’s concerns about labor market tightness potentially driving inflation make a September easing almost inevitable if upcoming employment reports reflect ongoing challenges. The current jobless rate of 4.1% is the highest since late 2021. Source: Bloomberg
