Weekly house view | Waiting for Powell
The week in review
US stocks rose last week on market hopes that the Federal Reserve will cut interest rates next month given noise about the next Fed chair and a weaker labour market. Inflation remained sticky in July, with core consumer price inflation rising 0.3% and stronger producer prices flagging increasing cost pressures ahead for households. Markets are still pricing a Federal Reserve rate cut in September despite the price pressures and are looking ahead to Fed Chair Powell’s speech at the 21-23 August Jackson Hole policy symposium. There are now 11 candidates to succeed Powell, whose term expires in May 2026. Most candidates are seen as more dovish than Powell, who has so far resisted pressure from President Trump – who faces high debt servicing costs – to cut rates further, citing the risk of price pressures from the administration’s trade policies. Many companies have so far effectively absorbed higher tariff costs, leading to a gradual pass-through to consumer prices. With tech giants able absorb tariffs more easily, US market concentration has increased after earnings season. For the first time, the 10 largest S&P 500 stocks – dominated by tech names – now account for 40% of the index’s market capitalization. The S&P 500i gained 0.9% last week (in USD).
Geopolitics
The Alaska summit between Presidents Putin and Trump ended without any breakthrough. Trump suggested the US would not follow through with threats of new sanctions against Russia. Ukrainian President Zelensky and European leaders head to Washington for talks with Trump on Monday.
Key data
US retail sales rose 0.5% in July after an upwardly revised 0.9% gain in June. The rise came despite a weaker labour market and was boosted by car sales and online promotions. US core CPI increased 0.3% on the month in July and by 3.1% from a year ago. PPI jumped 0.9% on the month in July, with the service component seeing a 1.1% increase, the biggest since March 2022. UK GDP grew 0.3% quarter-on-quarter in Q2, exceeding the 0.1% forecast. In China, July activity data showed a downside surprise, with industrial momentum slowing due to weak exports and investment.