Why It Matters

The small-cap Russell 2000 stock index has been on a winning streak, after remaining flat all year. On Tuesday, it notched its best five-day streak since 2020, with a 12% pop that trounced the S&P 500’s less than 2% gain over that period. The appetite for those smaller shares has been getting better, as lower inflation and a weakening job market have traders increasingly betting that an interest rate cut could happen sooner, rather than later. See, smaller companies tend to borrow money with either short-term or variable rates, so they get hit harder when lending costs rise, but see a bigger benefit when they fall.

Britain’s annual inflation rate was unchanged at 2% in June, disappointing economists who had hoped for a slight drop. Core inflation, which strips out volatile food and energy items, was steady too, at 3.5%. Even services inflation – a measure that’s closely watched for signs of home-grown price pressures – held in place. It was a letdown, prompting traders to slash bets that the Bank of England will cut interest rates from their current 16-year high next month.

The European Central Bank kept its key interest rate steady at 3.75% this week, as widely expected, after lowering it the month before. But the Bank didn’t offer any hints about future rate moves.

Instead, it reiterated that borrowing costs will remain “sufficiently restrictive for as long as necessary” to ensure that inflation in the eurozone returns to the 2% target. Traders are betting that the next rate cut will arrive in September, followed by another in December.

China’s economy expanded by 4.7% in the second quarter from the same period a year earlier – missing economist forecasts and marking the slowest pace of growth in five quarters. The poor showing was mainly driven by an ongoing slump in the property sector and weak consumer demand – despite government efforts to boost spending. Unless these lingering issues are fixed soon, they’re going to make it a lot harder for the country to meet its official 2024 growth target of around 5%.

Indian companies unleashed into the market almost $30 billion in new shares during the first six months of 2024 – a new half-year record and a near-tripling from the same period last year. Investors have been more than happy to snap up the new supply, since buying into Indian stocks allows them to invest in the fastest-growing major economy. Local investors are driving some demand – but so are foreign ones, attracted by the country’s stable currency, strong corporate earnings, and better returns compared to China.