The Davy Digest - 29th July 2024

US equities finished the week lower as small caps outperformed large caps for the second week in a row. Some mega cap tech stocks struggled to justify their large increases in spending related to artificial intelligence. In Europe, stocks were muted last week, Eurozone PMIs came in weaker than expected on Wednesday. It was a strong week for UK equities, the services & manufacturing PMI surveys both came in stronger than expected, a good sign for the new Labour Government. The People’s Bank of China decided to cut rates unexpectedly last week but it did little to improve sentiment in the equity market.

Last week's highlights

	Preliminary Q2 GDP (25/07) – US economy grew at 2.8% vs 2.0% expected in Q2, showing consumer resilience. US Inflation (Core PCE) (26/07) – Core PCE came in at 2.6% YoY vs 2.5% expected, showing an improving inflation environment.
	Eurozone Manufacturing & Services PMIs (24/07) – Manufacturing PMI came in at 45.6 vs 46.1 expected. Services PMI came in at 51.9 vs 53.0 expected. The Composite PMI dropped to 50.1 as a modest expansion in the services industry failed to offset a fall among manufacturers.
	S&P Global UK Manufacturing & Services PMIs (24/07) – Both services & manufacturing PMIs came in higher than expected, a good start to H2 for the new Labour Government.
	People’s Bank of China Interest Rate Decision (22/07) – Unexpected cuts to its main lending rates in a bid to support a struggling economy. Japan Inflation (CPI) (25/07) - Headline CPI inflation grew 2.2% in July, slightly below expectations that it would remain steady at 2.3%.

Looking ahead to this week, The Federal Open Market Committee (FOMC) will meet and hold a press conference on Wednesday with investors looking for signals of a September interest rate cut. US nonfarm payrolls will be released on Friday, recent surveys have shown some loosening in the US labour market. In Europe, Q2 GDP and German inflation (CPI) will be released on Tuesday. The Bank of England are due to meet on Thursday with markets undecided on whether they will cut interest rates or not. Finally, the Bank of Japan will meet on Wednesday with markets currently pricing about a 60% chance of an interest rate hike.

What's on the radar

	FOMC Meeting & Press Conference (31/07) US Nonfarm Payrolls (02/08) ISM manufacturing PMI (01/08)
	German Inflation (CPI) 30/07) Q2 Eurozone GDP (30/07)
	Bank of England Meeting (01/08)
	China NBS PMIs (31/07) Bank of Japan Interest Rate Decision (31/07) China Caixin manufacturing PMI (01/08)

Chart of the moment

US rental inflation set to cool further

Source: Cleveland Fed, Bloomberg as of 26/07/2024. 

• Rent is a large part of inflation as measured by CPI, so any change in rental inflation has a large impact on overall inflation.

• The New Tenant Repeat Rent Index (in red) suggests that the worst of housing inflation is likely behind us, and price decelerations should pass through to official inflation data soon.
• The New Tenant Repeat Rent Index uses the same microdata as the official Consumer Price Index (CPI) but focuses on rental turnover.
• Further easing in inflation would allow the Federal Reserve to cut interest rates sooner, with markets currently expecting 2 or 3 rate cuts before year end.