Future Trading Strategies
Fundamental Analysis

Equities Record Gains on Hopes of Easing US Inflation

  • Financial shares like JPMorgan rose in anticipation of their earnings this week.
  • Investors are awaiting the key US inflation report.
  • There was a significant increase in British wages, raising concerns about more BOE hikes.

US equities rose on Tuesday due to positive expectations for upcoming inflation reports. Financial shares like JPMorgan rose in anticipation of their earnings this week. Wall Street banks will likely announce increased profits for the second quarter as higher interest payments offset a decline in dealmaking. 

Investors want more information on whether inflation is decreasing and if the Federal Reserve is nearing the end of its interest rate increases. The US consumer price data comes out on Wednesday, and the producer prices report will come out on Thursday. 

Several Fed officials stated this week that the central bank would probably need to raise rates further to control inflation. Still, they acknowledged that the end of the tightening cycle was approaching. 

European equities also rose on Tuesday as investors hoped for the conclusion of the US Federal Reserve’s interest rate hiking cycle. Furthermore, there was optimism after China implemented policies to support its struggling real estate sector.

European miners saw a 1.8% increase as metal prices surged with Beijing’s backing of its property market. China extended policies from a rescue package until the end of 2024 to bolster the real estate sector. 

“European markets have risen in anticipation of potential measures by China to support economic activity, especially in the property sector,” said Michael Hewson, chief market analyst at CMC Markets. “However, trading activity remains relatively subdued as we await the US CPI numbers for June.” 

Elsewhere, German investor morale declined in July, according to the ZEW economic research institute, which reported a surprisingly sharp drop in its economic sentiment index from -8.5 points in June to -14.7 points. 

The FTSE 100, which focuses on international markets, increased slightly on Tuesday. Commodity-linked stocks drove the rise. 

UK wage growth (Source: Office for National Statistics)

UK wage growth (Source: Office for National Statistics)

However, the pound strengthened following the release of domestic wage data, limiting further gains in UK equities. The pound reached its highest level in over a year against the dollar and the euro. This occurred after a significant increase in British wages, which raised concerns that the Bank of England (BoE) would continue raising interest rates. 

Deutsche Bank now predicts that the BoE will raise interest rates by 0.5% at its August meeting, an increase from the previous forecast of 0.25%.