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The recent optimism surrounding the potential for European equities to outperform their U.S. counterparts appears to be waning, as concerns about an economic slowdown have started to weigh on European earnings forecasts. While Europe initially seemed poised to benefit from a rotation away from large-cap technology stocks, investors are increasingly favouring undervalued sectors within the U.S. market. This shift in preference is largely driven by data indicating the resilience of the U.S. economy, coupled with growing expectations that the Federal Reserve may implement interest rate cuts sooner and more aggressively than previously projected

The recent optimism surrounding the potential for European equities to outperform their U.S. counterparts appears to be waning, as concerns about an economic slowdown have started to weigh on European earnings forecasts. While Europe initially seemed poised to benefit from a rotation away from large-cap technology stocks, investors are increasingly favouring undervalued sectors within the U.S. market. This shift in preference is largely driven by data indicating the resilience of the U.S. economy, coupled with growing expectations that the Federal Reserve may implement interest rate cuts sooner and more aggressively than previously projected

San Francisco Federal Reserve President Mary Daly has indicated that it may soon be appropriate for the Federal Reserve to consider lowering interest rates. Daly’s comments align with recent remarks by Fed Chair Jerome Powell, who noted at the Jackson Hole symposium last week that he is increasingly confident inflation is returning to the Fed’s 2% target. Powell suggested that a potential adjustment in monetary policy could be forthcoming as inflation stabilises. In parallel, there are emerging dynamics in global markets.

Investors are closely watching for any signals from Federal Reserve Chair Jerome Powell at the US central bank’s annual meeting in Jackson Hole, Wyoming, particularly regarding potential interest-rate cuts. While markets are largely anticipating a reduction in borrowing costs, Powell might keep specifics on timing vague when he speaks on Friday. Expectations are high for rate cuts at the Fed’s next meeting in September, but the central bank’s cautious approach leaves some uncertainty.

Occasionally, there are slow months when we feel we are reporting on more trifling matters. July was not one of those months. July was a month of significant volatility, driven by political and economic news.

After a turbulent week, markets are showing signs of stabilisation. Asian stocks rose for a second consecutive session, and European equity futures are also trading in positive territory. Investors are now turning their attention to key U.S. economic data, with Wednesday’s Consumer Price Index (CPI) report in focus. Inflation is expected to have edged higher in July, but likely not enough to deter the Federal Reserve from a widely anticipated interest rate cut next month. However, Federal Reserve Governor Michelle Bowman cautioned that inflation risks remain and the labour market continues to show strength, suggesting she may be hesitant to support a rate cut in September.