US stocks climbed to record highs on hopes for a September Fed rate cut, supported by mixed inflation data and strong retail sales. Small-cap stocks outperformed, with the Russell 2000 posting its best relative weekly gain since April, while the S&P 500 and Nasdaq hit new highs midweek before easing. July CPI showed modest headline cooling but firmer core inflation, boosting expectations for easier policy. However, hotter-than-expected PPI data later tempered those bets and briefly weighed on markets. Retail sales rose 0.5% in July, though consumer sentiment slipped on inflation concerns. In bonds, Treasuries were little changed as the yield curve steepened, while municipals absorbed heavy issuance. Investment-grade and high-yield corporates both performed well, supported by strong demand and a stable macro backdrop.
European stocks advanced, with the STOXX Europe 600 up 1.2% on easing trade tensions, optimism over US rate cuts, and hopes of progress on the Russia-Ukraine conflict. France’s CAC 40 rose 2.33%, Germany’s DAX gained 0.81%, Italy’s FTSE MIB jumped 2.47%, and the UK’s FTSE 100 added 0.47%. UK GDP rebounded 0.4% in June, beating forecasts, though Q2 growth slowed to 0.3%. The labor market cooled less than expected, with payrolls down modestly and unemployment steady at 4.7%. Eurozone industrial production dropped 1.3% in June, while German investor sentiment fell sharply on weaker growth and trade disappointment. Norway’s central bank held rates at 4.25%, signaling potential further cuts later this year.
