Weekly comment: Falling US inflation lifts Wall Street

3 minute read

Weekly podcast – Market overview

This week’s host, Investment Manager, Edilson Shahini discusses the ups and downs of the past week with Head of Fixed Interest Research, Richard Carter and Fund Research Analyst Ghaz. Among the topics discussed – falling inflation lifting Wall Street, interest rates and recent election developments.

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Market overview – Richard Carter, Head of Fixed Interest Research

The first monthly decline in the US consumer price index (CPI) since May 2020 provided a fillip to stock and bond markets last week, with the MSCI All Country World index gaining 1.4% (15.4% year-to-date). Yields on US bonds declined and the 10-year Treasury note yield briefly fell to its lowest level in four months.

A -0.1% M/M print for the US June CPI marked the first negative reading for this metric since the early days of the Covid-19 pandemic. The good news was also supported by a lower than expected 0.1% rise in the core reading, the slowest pace in three years. This meant the annual CPI fell back to 3.0% after a third consecutive drop, suggesting the rise in the first few months of the year was not the beginning of a sustained push higher.

All major large-cap US stock indices moved to new record intraday highs, although there was some notable subsequent profit taking, especially in technology stocks. Still, a broad-based US benchmark ended with a weekly gain of 0.9% (18.6% year-to-date). The biggest gainers were in the small cap space as indices gained 6.0% (6.8% year-to-date) for the best weekly return since November. US banks kicked off the unofficial start of earnings season and market direction in the coming weeks will likely take its cue from this set of corporate updates.

News over the weekend of an assassination attempt on Donald Trump has had some impact on markets, although it should be stressed that the size of these moves are not that large. US stock futures opened slightly higher along with yields on US bonds. Betting markets suggest that Trump is now a stronger favourite to win November’s election as he received a similar-sized boost in his predicted probability of success as that which followed the first presidential debate. The moves in the market in response to this can be seen as a potential guide for how a Trump victory would impact markets, possibly boosting stocks and weighing on bonds in the near-term.

UK growth bounces back

Gains in services and construction boosted UK GDP to 0.4% growth in May, after stalling in April. While the pace of growth is still relatively low and monthly readings volatile, there does appear to be some upside momentum building with a rolling three-month GDP figure coming at 0.9% — the fastest pace since 2022.

UK blue-chip stocks added 0.6% on the week (9.0% year-to-date) and the pound strengthened against the US dollar to 1.30 from 1.28. Gilt yields fell across most of the curve but ticked higher at the very front end, reflecting that the upside surprise to growth may encourage the Bank of England to hold off lowering interest rates. The 10-year gilt yield ended the week at 4.11%, down slightly from 4.12% (up 58bp year-to-date).