Markets have had a strong week, with most major equity indices ending close to all-time highs. Investors took comfort from fresh inflation data in the US and expectations that interest rate cuts may be on the horizon.
Here’s Goncalo Machado, Investment Manager at InvestEngine, with our latest roundup of all the big movers in markets this week.
US inflation and Federal Reserve outlook
The latest US consumer price index (CPI) rose 2.9% year-on-year, broadly in line with expectations. Core CPI, which strips out food and energy, registered 3.1%. While tariffs are having little impact on prices, increases in food and energy costs are starting to feed through.
Producer price inflation (PPI) was softer, at 2.6% versus forecasts, with last month’s figures also revised lower. Core PPI, the Federal Reserve’s preferred measure excluding food and energy, came in at 2.8%.
These signs of easing inflation helped push US equities to record highs. Investors now appear confident that the Federal Reserve is well positioned to cut rates by 0.25% at its upcoming meeting.
UK economy stalls
Closer to home, UK GDP growth was flat in July. Manufacturing output fell 1.3% – the steepest drop in a year – raising concerns about momentum in the economy. Although growth was 0.2% over the past three months, the outlook remains subdued.
With the Chancellor’s budget approaching, businesses and investors are watching for clarity on potential tax changes, inflation trends, and the wider economic environment.
Europe: steady rates and political turbulence
The European Central Bank (ECB) kept interest rates unchanged at 2%, as expected. However, political instability dominated headlines in France, where the government collapsed after the prime minister lost a vote of no confidence on a budget-cutting plan. President Macron has since appointed the defence minister as the new prime minister – the country’s fifth in less than two years.
What this means for investors
This week’s data highlights the diverging paths of major economies: signs of cooling inflation in the US versus sluggish growth in the UK and political uncertainty in parts of Europe.
For long-term investors, short-term news can move markets, but the key is to remain focused on your goals and risk tolerance. Regular, automated investing – such as through an InvestEngine Savings Plan – can help smooth out market ups and downs over time.
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