Market Updates

Investors are weighing whether future revenues justify massive AI investments by top tech and cloud firms; BlackRock remain overweight on AI but will reassess if revenue growth stalls or AI adoption slows.

The upcoming week is packed with significant economic data releases across the UK, Europe, and the US, offering insights into manufacturing, consumer spending, trade balances, and labor markets, culminating with the highly anticipated US Nonfarm Payrolls report and UK PMIs.

This week’s economic focus shifts from Europe’s subdued data releases to the U.S., where key economic reports and the Jackson Hole Symposium, particularly Fed Chair Powell’s comments, could significantly impact market sentiment and clarify the future direction of monetary policy.

BlackRock remain overweight in Japanese and U.S. equities despite recent volatility, as Japan’s market turbulence led the Bank of Japan to retract a hawkish stance, and U.S. macro data suggests a slowdown rather than a recession.

This week, markets will focus on key economic data releases, including US PPI and CPI, eurozone GDP, and UK CPI, along with earnings from major companies and Fed officials’ speeches, while navigating a volatile landscape marked by fluctuating equity markets and changes in global monetary policy.

Central banks are beginning to cut policy rates after rapid hikes, but persistent inflation pressures from fiscal deficits suggest higher-than-pre-pandemic interest rates; BlackRock prefer short-term government bonds and credit, while reassessing their equity overweight in Japan due to monetary policy uncertainty.

The week unfolded with mixed economic data from China and the eurozone, including shifts in global market sentiment influenced by dovish remarks from Fed Chair Powell amid disappointing US employment figures, driving UST yields down sharply and equity markets lower, while the dollar and oil prices also retreated amidst economic uncertainties.

BlackRock believe markets are prone to sudden shifts in risk sentiment, as evidenced recently by hopes for Fed rate cuts and a potential Bank of Japan hike, but these have not sparked a broad risk rally, with current market dynamics more influenced by sentiment around tech’s AI potential than earnings prospects.

Financial markets are on high alert as significant economic data releases and central bank decisions from the US and Europe are expected this week, potentially shaping the global economy’s trajectory. Key events include the Federal Reserve’s anticipated rate cut, US labor and housing market reports, and crucial European GDP and inflation figures.

Despite a tech-driven pullback this month as investors shift focus to smaller companies amid hopes for cooling inflation and Fed rate cuts, BlackRock remain optimistic about tech leading future returns and view pullbacks as opportunities to invest, maintaining an overweight position on the AI theme and U.S. stocks.