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Last week the Fed cut its key rate but forecast that 2026 rate cuts would be less than the market had expected. Meanwhile, US economic data indicated a healthy backdrop in relation to household consumption, the labour market and business sentiment. All of this supported further gains in global equites.
This week, sentiment data is set to be in focus with tomorrow's global PMIs - a business survey - expected to give a steer on the economic outlook. Consumer sentiment in the US and the Eurozone during the week may also be of note.
The Federal Reserve cuts its policy rate target range by 25bps to 4.00-4.25% as anticipated, a move described as "risk management" and justified by increased "downside risks to employment". However, there was caution from Chair Powell around further rate reductions and the median committee projection showed 50bps of additional cuts this year and 25bps in 2026, with the latter less than markets had priced in prior to the meeting. Click on the button below for more on this from our Chief Investment Strategist.
US retail sales rose by more than expected in August, with the headline number up by 0.6% m/m and core (that is, excluding auto sales) rising by 0.7% while the figures for July were also upwardly revised. This suggested that American consumption remains resilient despite price rises in some areas in recent months.
Labour-market data suggested that employment conditions may also be better than suggested by non-farm payroll data. Initial jobless claims fell by more than forecast last week and by the most in nearly four years. Elsewhere, the Philadelphia Fed manufacturing index rose well in excess of projections to the highest level since January and indicating strong business conditions.
Major US equity indices rallied to new all-time highs, aided by further expected Fed rate cuts and a healthy economic backdrop, with the S&P 500 ending the week up by 1.2%. The Stoxx 600 was down marginally (-0.1%).
Bond yields were up last week in both the US and Europe (bond yields fall as bond prices rise) as the magnitude of projected rate reductions from the Fed in the next 12-18 months was lower than anticipated and robust data supported the case for fewer rate cuts. The 10-year US Treasury yield rose by 6bps over the week to 4.13% while the German bund equivalent was up by 3bps to 2.74%.
- Mon 22nd Eurozone - European Commission Consumer Confidence
- Tue 23rd Global PMIs
- Wed 24th Germany - IFO business survey
- Thu 25th US - Initial jobless claims, durable goods orders • Germany - GfK consumer confidence
- Fri 26th US - University of Michigan consumer sentiment and inflation expectations • Eurozone - Consumer Expectations Survey
This is intended as a general review of investment market conditions. It does not constitute investment advice and has not been prepared based on the financial needs or objectives of any particular person.