Global equity markets finished the week on an optimistic note, posting their best performance in nine months. In the U.S., the Dow Jones Industrial Average climbed 2.9%, the S&P 500 gained 3.9%, and the Nasdaq Composite advanced 5.3%. The positive sentiment was driven by hopes of upcoming rate cuts from the Federal Reserve and a series of better-than-expected economic reports.

The week began with stocks rallying on Tuesday in response to data showing lower-than-anticipated wholesale prices. The momentum continued on Wednesday as consumer price index data also indicated cooling inflation. Thursday saw further gains following strong retail sales and jobless claims reports, easing recent concerns about a potential recession.

While Friday's trading session was relatively quiet, stocks managed to maintain their upward trajectory. The run of positive economic data significantly reduced anxieties about the economic outlook that had been triggered by a surprisingly weak July jobs report two weeks earlier.

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Central Bank Expectations and Bond Market Reactions

Investors are closely watching central banks for signs of policy easing. The Federal Reserve's Jackson Hole symposium, set for the end of the week, is expected to provide clues about the timing and magnitude of potential rate cuts. Markets are pricing in a high likelihood of a September cut, with debate centred on whether it will be 25 basis points or 50 basis points.

Recent solid economic data has led investors to scale back bets on a larger-than-normal half-percentage-point cut at the Fed's next meeting in September. While a 25 basis points cut is still seen as very likely, the probability of a larger cut has decreased from around 50% a week earlier to roughly 25%.

This shift in expectations has had mixed implications for the bond market. Investors have eased up on short-term Treasuries but increased their purchases of longer-term bonds as a potential hedge against another downturn in stocks. The yield on the 2-year Treasury note settled at 4.064% on Friday, up slightly from 4.054% a week earlier, while the yield on the 10-year note edged down by 0.051%  to 3.891%.

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Australian Reporting Season 

The Australian reporting season was in full swing but didn’t really throw much light on the state of the economy with equal numbers of companies beating, missing and performing in line with modest expectations.

Amongst large companies, AMP stood out by beating market expectations by 11%, driven by strong cost control and performance in its Platforms business, despite some longer-term uncertainties. Telstra Group also delivered strong results, with its Mobile division performing better than expected, leading to increased confidence in future dividend growth. On the other hand, Suncorp Group missed expectations due to weaker performance in its general insurance business, but analysts remain positive about its prospects for higher premiums and improved margins in FY25. Among mid-sized companies, Iress impressed by landing near the top of its guidance and providing positive future outlooks, which led to upgrades in forecasts. Life360 also delivered a strong performance with record net new subscribers and raised earnings guidance, prompting analysts to upgrade their forecasts and valuations.