Commentary
Last week European inflation moved closer to the European Central Bank’s (ECB) target, while U.S. stocks ended the week mixed. In Europe, eurozone inflation dropped to 2.2% in August, nearing the ECB’s 2% target, driven by lower energy costs. Despite this moderation, core inflation remained high at 2.8%, and services inflation rose to 4.2%, prompting some ECB policymakers to caution against premature rate cuts, even as market optimism grew for potential easing.
In the US, stock market performance was uneven, with the Nasdaq Composite falling due to a nearly 10% drop in NVIDIA’s stock. Value stocks outperformed growth stocks, marking the largest margin since late July. Economic data showed core personal consumption expenditures (PCE) prices rising by 0.2% in July, with a 2.6% y/y increase, indicating inflation remains near the Fed’s target. Additionally, personal incomes and spending rose, and GDP growth for the second quarter was revised up to 3.0%.
However, the U.S. housing market struggled, with pending home sales dropping by 5.5% in July, the lowest level since 2001. Treasury yields rose, reflecting reduced expectations for a large Fed rate cut in September. As both regions approach key monetary policy decisions, economic data will play a crucial role in shaping market expectations.
