Markets recovered on lukewarm economic data, pointing to, perhaps, world central banks slowing down on interest rate hikes. Over in China, pessimism persists given the challenges around its economic recovery, deflation, and its property sector.

 Last week’s performance – major stock markets

 

S&P 500	+0.82%
Nikkei 225	+0.55%
CSI 300	-1.98%
Euro Stoxx 50	+0.55%
FTSE 100	+1.05%

Commentary

US: Mixed economic data

Markets reacted to a string of mixed economic data and corporate results. Corporate results broadly pointed to a cautious outlook, with falling earnings and many companies reporting a rise in late credit card payments. On the flip slide, consumer sentiment appears to be strong. While sentiment has fallen a bit during the month of August due to the recent increase in gas prices, it still appears to remain robust.

Japan: Markets rally but lose steam quickly

Japanese equities rallied following the previous week’s declines, posting four consecutive positive days. Investors looked through the lacklustre economic support offered by the Chinese government for its economy and focussed on positivity within the Japanese economy – which continues to show signs of expanding. However, on Friday, markets gave up most of the week’s gain  on renewed concerns about China’s slowdown, while trade relations also took a turn for the worse following Japan’s decision to dump contaminated water from the Fukushima nuclear plant into the Pacific Ocean.

China: A gloomy picture

Chinese stocks fell as investors grew more pessimistic about the country’s economic outlook. Disappointing data, signs of deflation, record youth unemployment, and continued liquidity problems in the debt-laden property sector have contributed to an erosion of confidence in China’s economy. Signs of deteriorating growth—and a sense that China’s government has relatively few good options to arrest the downturn—have raised the prospect of accelerated capital outflows.

Europe: Economy activity remains weak

Stocks rose as European natural gas prices dropped and expectations grew that interest rates may soon peak. Economic data pointed to a weakening European economy, prompting financial markets to pare expectations on future interest rate increases. Data suggests that business activity likely slowed again in August. Germany is expecting its economy to stagnate in the third quarter of the year. This would mean that its economy would have posted zero growth for two consecutive quarters. A recovery in private consumption should continue, according to its central bank, but it also asserted that weak foreign demand could translate into anaemic industrial production.

UK: Business activity turns negative

Stock markets rallied in line with other global markets. UK business activity recorded its weakest month in August since January 2021. The Flash UK PMI Composite Output Index, which shows the prevailing wind of the economy, moved into contraction territory for the first time since January. New orders also shrank for a second consecutive month.