Market Updates

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.

This week’s key data includes the US Q2 GDP print, a wave of corporate earnings, and Fed developments amid a blackout period, alongside significant global economic updates, including the IMF’s growth forecasts, China’s focus on technology, and unexpectedly high UK services sector inflation.

Investment opportunities are emerging amid a unique macroeconomic backdrop, with U.S. equities leading gains, particularly driven by AI-related companies, and expectations of continued volatility. The focus is on overweight positions in U.S., UK, and Japan stocks, while favoring quality short-term fixed income and private credit investments.

This week’s key events include China’s Third Plenum, the ECB rate decision, US bank earnings, and several significant economic data releases from the US, Eurozone, and UK.. Last week, Fed Chair Powell highlighted progress on inflation but emphasised caution in rate cuts, while China’s economic recovery showed signs of weakness with lower-than-expected inflation and GDP growth.

Developed market central banks, like the Fed and Bank of England, are anticipated to keep interest rates higher for longer due to persistent inflation, following the lead of some emerging market central banks that have paused their rate cuts. Despite recent cuts and high rates, emerging markets face limitations on further rate reductions, influenced by factors such as government policies and global economic conditions.

This week, the economic spotlight shifts to pivotal events including testimonies from US Treasury Secretary Yellen and Fed Chair Powell, as well as critical data releases from China and the US. Amidst ongoing market volatility, investors are keenly watching for policy signals from central bank leaders and assessing the impact of recent geopolitical and economic developments.

The higher-for-longer rate environment has enhanced income opportunities in various bonds, making short-term bonds particularly attractive for long-term investors, with Blackrock favoring European and private credit over U.S. and public options, while preferring equities for risk exposure in overall portfolios.