North America
Benchmark indices closed mixed for the week as investors reacted to mixed economic readings signals and grew concerned about statements made by Fed Officials at the Jackson Hole Symposium. The week saw growth stocks outperform their value counterparts, with growth indices lifted further by notable revenue & profit beats by chipmaker Nvidia. Value stocks were weighed down by S&P Global downgrading the credit ratings of five regional banks. As a result, the Dow Jones Industrial Average lost 0.42%. In contrast, the S&P 500 & Nasdaq Composite gained 0.84% and 2.26% respectively. Both the broad and tech-heavy indices recorded their first winning week in over a month. Nonetheless, the Dow and S&P have lost approx. 3.4% and 4%, respectively in August, while the Nasdaq lost roughly 5.3%. At the annual Fed conference in Jackson Hole, Wyoming, Fed Chair Jerome Powell highlighted some signs of continued economic growth and strong consumer spending, indicating that the Fed would “proceed carefully” with additional hikes. Powell stated: “Although inflation has moved down from its peak — a welcome development — it remains too high. We are prepared to raise rates further if appropriate and intend to hold policy at a restrictive level until we are confident that inflation is moving sustainably down toward our objective.” Powell acknowledged that higher rates would continue to slow growth in industrial production and wages. Nonetheless, Powell noted that economic growth remains above its long-term trend, boosted by a bounce in the housing sector. Markets currently appear to be pricing in an approx. 20% likelihood that the Fed would hike rates again at its upcoming meeting in September (as per CME Group’s FedWatch tool). Meanwhile, new Federal data released on Wednesday showed that US job growth came in weaker than previously projected by 306,000 jobs. Despite the downward revision, America’s labour market remains historically strong. This amounts to approx. 25,000 fewer jobs added per month.

Europe & UK
European indices also closed higher with investors hopeful of an end to rate hikes by the European Central Bank (ECB). The pan-European STOXX Europe 600 Index, French CAC 40 & German DAX gained 0.66%, 0.91% & 0.37%, respectively. The UK’s FTSE 100 index also rallied, gaining 1.05%. The August Purchasing Managers’ Index (PMI) placed the EU’s business activity at its lowest level since the pandemic – attributed to a sharp contraction in the services sector and dismal manufacturing figures. The PMI for manufacturing came in at 43.7—a slight improvement from July but still well below 50, the level that indicates a contraction in activity. The figures give cause for concern for the ECB, who expects to take its next interest rate decision in September. The ECB has raised borrowing rates in a bid to curb rising inflation & bring down consumer prices. In July, the ECB implemented its 9th consecutive hike of 25 basis points, bringing the deposit rate to 3.75%, a joint record high last seen in 2000. Eurozone does show signs of abating – dropping to 5.3% in July from 5.5% in June, however, it remains well above the ECB medium-term target of 2%. Core inflation (without energy and food prices) also remains stubbornly high at 5.5%. Markets are still anticipating one more rate hike this year. Economic output across the EU’s powerhouse, Germany appears worse for wear, with Germany’s central bank, the Bundesbank having stated in its monthly report that it expects German economic output to remain “largely unchanged” in the three months ending September 30 – this would ultimately mean that Germany would post 0% zero growth for two consecutive quarters. The Bundesbank does anticipate a recovery in private consumption, but added that this could be offset by weak foreign demand (which would result in a decline in industrial production). Adding to this, German business confidence fell to its lowest levels in a year – the Ifo Institute’s business confidence index having fell to 85.7. Similar weakness was seen in the UK, where business activity recorded its weakest month in August since January 2021. The Flash UK PMI Composite Output Index fell to 47.9 from 50.8 in July, the first contraction since January, with new orders shrinking for a second consecutive month. On inflation, data from the British Retail Consortium showed that price rises in British shops slowed to their lowest rate of growth just under a year. The BRC said on Tuesday that prices rose 6.9% in the year to August, down from 8.4% in July. Fresh food inflation slowed to 11.6% in August, down from 14.3% in July. Inflation for non-food items was unchanged at 4.7% this month.

Japan
Japanese equities rallied on the back of the previous week’s declines, posting four days of strong positive performance before giving up much of the gains across Friday sell-off. The benchmark Nikkei 225 finished the week 0.6% higher and the broader TOPIX up 1.3%. At the Jackson Hole Symposium, Bank of Japan (BoJ) Governor Kazuo Ueda said the pace of economic activity in China has been a disappointment that could cloud Japan’s economic outlook. Economic output across China remains “on the weak side,” Ueda said, adding: “The underlying problem appears to be the adjustment in the property sector and its spillover to the rest of the economy.” Ueda did say that the hit to Japan had been partially offset by the strength of the US economy. Ueda said that as a result of the weakness in Chinese output (along with geopolitical risks) Japanese firms appear to be diversifying production from China into the rest of Asia and the United States. “Longer run effects of geopolitical factors on the Japanese economy are unsurprisingly very uncertain,” Ueda said, adding that “the tit-for tat war,” mainly in the semiconductor sector, between major advanced economies and China was a risk. With this, Japan’s flash composite PMI data (combining both manufacturing and services sector activity) rose to 52.6 in August, up from 52.2 in July. In addition, Japanese factory activity shrank for a 3rd consecutive month in August, however, the pace of activity decline appeared to be slowing. Meanwhile, Japanese core inflation rate (excluding fresh food but includes fuel costs) slowed to 3.1% in July from 3.3% in June – remaining above the Bank of Japan’s 2% target for a 16th consecutive month. Food prices in Japan rose by 8.8% from a year earlier in July 2023 – the highest rise since September 1976, after an 8.4% gain in the prior month. This was the 23rd straight month of food inflation. Headline inflation was unchanged at 3.3% but was notably higher than market forecasts of 2.5%.