Written by Ilaria Massei
Fitch Ratings downgraded the credit rating of US government debt from AAA to AA+, citing governance and fiscal challenges. The news encouraged some investors to take profits from their investments and pushed the S&P500 down to -2.3% in local currency terms last week. Additionally, the Labor Department reported moderate job growth in July, indicating that the economy is cooling but only slowly.
In the eurozone, annual inflation remained well above the European Central Bank’s (ECB) 2% target, although it declined slightly from the previous month to 5.3%. The second-quarter GDP data indicated overall economic expansion, but Germany’s economy remained stagnant, and Italy experienced a contraction. This highlights the difficulty faced by the ECB in setting a single monetary policy for a group of quite different underlying economies.
The Bank of England raised its key interest rate to 5.25% and expressed the intention to keep rates higher to control inflation. Consequently, the UK housing market continued to weaken, with declining house prices and a decrease in the value of net mortgage lending.
Elsewhere, the Chinese Government introduced measures to boost consumption by removing restrictions in sectors like autos, real estate, and services. With new home sales also continuing to be weak, the People’s Bank of China also pledged support for the real estate market, although policymakers still want to avoid the excessive speculation that was previously rampant within this segment of the Chinese economy.
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