The past week saw broad-based declines across most major asset classes, as expectations of peaking inflation and impending central bank easing gave way to renewed growth concerns. The S&P 500 and Nasdaq Composite briefly touched new record highs early in the week, buoyed by hopes that cooling inflation will allow the Federal Reserve to begin cutting interest rates in September.

Fed Chair Jerome Powell's congressional testimony signalled increasing confidence that inflation is trending lower without causing a recession. This initially sparked a rotation into small-cap stocks and sectors like real estate and industrials that stand to benefit from lower rates, while mega-cap tech stocks retreated. However, sentiment soured later in the week on reports that the Biden administration is considering tighter restrictions on semiconductor exports to China. This triggered a sharp sell-off in tech stocks, especially chipmakers.

Economic data pointed to easing inflation but a slowing economy. The June U.S. consumer price index came in slightly below expectations at 3% year-over-year. Globally, developed market equities outside Australia rose 1.43% in AUD terms, but were slightly negative (-0.09%) in hedged terms, as the Australian dollar depreciated. Emerging market stocks were flat. Japan's Nikkei 225 slumped 2.71%. European stocks were generally weaker, with the Euro Stoxx 50, German DAX, and French CAC 40 all losing between 0.7% to 1.1%.

The S&P/ASX 300, a benchmark for the Australian stock market, declined 1.40% over the week. Small-cap stocks fared even worse, with the S&P/ASX Small Ordinaries index falling 2.71%. By sector, Australian energy stocks were the worst performers, plunging 6.45%. Materials (-1.55%), industrials (-1.95%) and consumer discretionary (-2.01%) also lagged. Consumer staples and healthcare held up better, dipping only 0.35% and 0.60% respectively.

In fixed income, Australian composite bonds dipped 0.11%, while global aggregate bonds slid 0.81% hedged. Global high yield was a notable laggard, down 1.26%. Australian listed property (A-REITs) slipped 0.46%, outperforming global REITs which fell 1.70% in hedged terms.Global infrastructure stocks tumbled 2.59%. 

Commodities had a rough week, with the S&P GSCI index cratering 5.57% in USD terms. Oil plummeted 8.81% and iron ore lost 1%, though natural gas spiked nearly 14%. Gold was also weak, off 0.84% in USD.

Central banks took divergent paths. The European Central Bank (ECB) held rates steady as expected and signalled a "wide open" decision on rates in September. Officials hinted the ECB may only have room for one more cut this year. The Bank of Canada is widely expected to cut rates at its upcoming meeting.

The biggest political news came Monday morning with Joe Biden announcing he will not seek re-election and is endorsing Kamala Harris. While not entirely unexpected, this development introduces new uncertainty into the 2024 presidential race. Markets showed a muted initial reaction, but the contest between Harris and GOP nominee Donald Trump is seen as much closer than a matchup against Biden would have been.