Market Updates

This week, the Fed’s annual central banker conference at Jackson Hole, Wyoming (Thursday/Friday) should capture investor attention, along with earnings from tech giant Nvidia (Wednesday after the market close). With little Chinese macro data scheduled this week, the market should get some respite there.

BlackRock observes inflation experiencing a rollercoaster ride as the labor impact supersedes the disparity in spending; The technology sector has met elevated expectations, and discernment is evident in earnings; Second-quarter earnings for European companies declined to twice the extent of their U.S. counterparts, contributing to European stocks demonstrating weaker performance compared to their developed market peers in recent times.

This week, inflation is in focus with reports from the United Kingdom, Sweden, Japan, and a second reading of eurozone inflation in July. If core inflation remains elevated in the United Kingdom and Europe, the markets are likely to price in central bank rate hikes this fall.

As we head into August, risk assets face a series of headwinds. Equity market performance has been strong of late, and many investors may feel it’s time to take some profits.

BlackRock believes that currently emerging markets are better equipped to endure certain challenges. They leverage powerful trends to identify prospects according to their current valuations. While they maintain a higher allocation to emerging markets debt in general, they shift their focus towards hard currency due to its attractive high yields.

Major central banks tightened policy last week, including unexpectedly in Japan. BlackRock sees the potential for rising Japanese bond yields to pull global yields higher. The Bank of Japan tweaked its yield cap, sending local yields to a nine-year high. Developed market stocks hit 15-month highs.

It is clear that the Fed and the ECB are nearing the end of their hiking cycles. However, the market still appears to be split on a what September may bring, as data could push the decision either way. All eyes will be on the Bank of England (BoE) this week.

Amidst the current complex macro environment, the emergence of mild inflation data has sparked optimism for rate cuts in 2024. Despite the likelihood of central banks raising rates in the short term and maintaining a firm stance for an extended period, BlackRock are employing a new playbook to explore opportunities beyond traditional asset classes.

The Federal Reserve, European Central Bank and Bank of Japan hold their respective policy meetings this week. The market anticipates that the FED and ECB will hike rates by a further 25 basis points.

BlackRock’s new playbook leads to favor Emerging Market over Developed Market assets. They anticipate a more positive policy outlook as certain Emerging Markets are prepared to decrease policy rates.