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Weekly Market Update Monday 14th August 2023

Following a robust initial surge at the beginning of the year, the markets have retraced somewhat in August so far. The S&P 500 has seen a decline of approximately 3% since its recent peak on July 31. Digging deeper, the Nasdaq has experienced a decrease of over 4.0% during this timeframe, and the prominent "Magnificent 7" large-cap stocks have encountered a downturn exceeding 5.0%. The sectors that had been driving the upward momentum appear to be taking a breather, a development we regard as a positive sign, allowing investors to assimilate substantial gains.

In the United States, inflation, as gauged by the Consumer Price Index, registered at 3.2% in July, slightly below the market's expectations. Core inflation, excluding energy and food components, exhibited a 0.2% increase for the month, mirroring the rate observed in June. This suggests a moderation in price pressures, a shift that could prompt the Federal Reserve to contemplate a pause in its rate hike strategy.

The initial enthusiasm surrounding the CPI data seemed to diminish as the day progressed, resulting in a mixed performance in the stock market on Friday. This followed the news of a 0.3% rise in producer prices for the month, slightly surpassing expectations. Year-over-year, producer prices climbed by 0.8%, a figure notably below the Federal Reserve's targeted consumer inflation rate of 2%. Notably, July marked the first annual rise in the producer price inflation rate in over a year.

China witnessed a significant drop in exports, with a 14.5% decline in July compared to the previous year, marking the most substantial contraction since February 2020. Imports also experienced a decrease of 12.5% over the same period. These declining figures for imports and exports, released on Tuesday, contributed to the country's ongoing economic challenges, which have led to deflation for the first time in over two years.

Turning to the UK, the gross domestic product (GDP) expanded by 0.5% sequentially in June, surpassing the consensus forecast of a 0.2% growth. This expansion was primarily driven by notable increases in the manufacturing and construction sectors. The GDP for the second quarter exceeded expectations, with a 0.2% growth compared to the previous three months. This was partly fueled by better-than-anticipated private consumption, and business investments also displayed robust growth, defying predictions of a minor contraction.

Although the markets experienced gains at the start of the week, both the S&P 500 (-0.27%) and NASDAQ (-1.87%) incurred losses for the second consecutive week by the close of Friday's trading. The Dow experienced a sharp decline on Tuesday but managed to rebound, finishing slightly higher compared to the previous week at +0.69%. In European markets, Germany's DAX declined by 0.75%, Italy's FTSE MIB fell by 1.09%, and the UK's FTSE 100 Index dropped by 0.53%. In Asian markets, the Nikkei 225 Index gained approximately 0.9%, while Hong Kong's benchmark Hang Seng Index saw a decline of 2.38%.