Market Updates

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.

This week features a mix of key economic data releases and significant events, including China’s manufacturing PMI hitting a three-year high, while markets will closely watch eurozone and US PMI data, the ECB forum, Euro Finance Summit, and US job reports, among other developments.

U.S. stocks have reached record highs, driven by tech sector gains due to strong AI-driven performance and improving profit margins, leading BlackRock to remain optimistic about U.S. stocks.

Key data releases, including the US GDP and PCE core on Thursday and the PCE deflator on Friday, are awaited this week, alongside significant central bank communications and the BoE’s financial stability report.