Global Markets Weekly Wrap KW 26 : US Equity Markets Reach New Highs Amid Lower Trading Volumes in July

Global Markets Weekly Wrap KW 26 : US Equity Markets Reach New Highs Amid Lower Trading Volumes in July 

Market Movers

As the second half of 2024 begins, US stock markets hit new record highs despite reduced activity during the holiday-shortened trading week. Trading volume decreased by 19.1% compared to the 20-day average of 1.76 billion shares. US nonfarm payrolls reported an addition of 206,000 jobs, exceeding the forecast of 190,000, though previous months saw a combined downward revision of 111,000 jobs. The unemployment rate rose slightly by 0.1% to 4.1%, and the growth in average hourly earnings slowed from 0.4% to 0.3%. This softer data has increased the likelihood of Federal Reserve rate cuts. By week's end, the S&P 500 and the Nasdaq closed at 5,563 and 18,342, respectively. Additionally, the 2-year US Treasury yield dropped 15 basis points to 4.60%, with the market anticipating two rate cuts by year's end, likely starting in September.

Join the Club: Japan's Topix index reached a new all-time high, surpassing its 1989 peak, joining the Nikkei which previously broke its all-time high. Over the week, Topix increased by 2.12% and Nikkei by 3.23%. The rally is supported by Japanese corporate governance reforms, though there are concerns about potential intervention due to the yen's weakness above 160.

Bitcoin Blip: Bitcoin declined for the fourth consecutive session, falling below $55,000 amid worries about sales from governments, creditors of a defunct exchange, and struggling crypto miners. Administrators of a failed crypto exchange are distributing approximately $8 billion in Bitcoin to creditors, adding selling pressure. Bitcoin ended the week down 10.8% at $56,355.

Macro

Secured Seat: UK Labour Party leader Keir Starmer won the general election, succeeding Prime Minister Rishi Sunak. Labour's decisive victory, securing 412 out of 650 seats, ended the Conservative Party's 14-year rule. Economists predict Labour's fiscal policies will slightly boost demand growth, raising GDP growth forecasts by 0.1 percentage points for 2025 and 2026. In France, Marine Le Pen's far-right National Rally won the first round of elections with 33% of the vote, with a second round scheduled for Sunday.

Modest Minutes: The FOMC June Meeting minutes indicated that while inflation is still high, "modest further progress" has been made. Confidence is required for rate cuts, and recent data points to a possible first cut in September, followed by quarterly cuts to a terminal rate of 3.25 – 3.5%.

Election Uncertainty: Following the first presidential debate, uncertainty around the US election has increased, with the implied probability of a Republican win rising by about 6 percentage points. Concerns persist that a Republican victory might lead to tax cuts and higher tariffs, potentially increasing deficits and inflation. The market remains focused on whether President Biden will continue his campaign amidst recent headlines suggesting he will.

Micro

Legacy Luxury Leader: A prominent luxury retailer announced a $2.65 billion acquisition of a high-end competitor, leveraging synergies and securing investments from major tech firms. An index of luxury goods and services increased by 1.13% week to date.

Under Review: Several large tech companies face antitrust charges for alleged anti-competitive practices, with regulators scrutinizing the sector's reliance on leading chip programming software. A group of AI-related stocks saw a 2.54% increase for the week.

Checklist for Next Week

Major US Economic Events:

Initial Jobless Claims

CPI MoM

University of Michigan Sentiment

PPI

MBA Mortgage Applications

Continuing Claims

Major Global Economic Events:

China CPI

Japan PPI

UK Industrial Production

Australia Westpac Consumer Confidence

Global Markets Weekly Update

U.S. Labor Market Cools:

The S&P 500 Index continued reaching new highs, driven by falling interest rates.

Growth stocks outperformed value stocks, while small- and mid-cap benchmarks declined.

The Nasdaq Composite rose significantly, while the Dow Jones Industrial Average saw modest gains.

Lighter trading volumes were noted due to the Independence Day holiday.

Activity Slumps in Services:

The ISM's services sector activity index fell sharply, while the S&P Global survey showed continued expansion.

Mixed jobs data revealed a slight rise in job openings but a drop in private sector job growth.

June's official jobs report indicated a slowdown in job growth and a rise in the unemployment rate to 4.1%.

Cooling Labor Market:

Chief U.S. Economist Blerina Uruçi noted a loosening labor market, with reduced quits and hiring rates.

Despite some signs of slowing, inflation pressures appeared to be easing.

Bond Market:

Long-term U.S. Treasury yields declined, influenced by economic data and comments from Fed Chair Jerome Powell.

Key Index Performance (Week's Close):

DJIA: 39,375.87 (+4.47% YTD)

S&P 500: 5,567.19 (+16.72% YTD)

Nasdaq Composite: 18,352.76 (+22.26% YTD)

S&P MidCap 400: 2,895.80 (+4.11% YTD)

Russell 2000: 2,026.73 (-0.02% YTD)

Europe

The STOXX Europe 600 Index rose by 1.01%, with political uncertainties easing.

Major indexes in France, Germany, and Italy also increased, while the UK's FTSE 100 saw modest gains.

ECB Update:

ECB President Christine Lagarde adopted a cautious tone on inflation, indicating a need for more data.

Eurozone inflation ticked lower, but a crucial services component remained high, suggesting ongoing caution.

Germany and France:

Germany's manufacturing orders and industrial production declined.

France also saw a drop in industrial output.

Japan

Japan's stock markets hit new highs, buoyed by a weaker yen.

The 10-year bond yield hit its highest since 2011 before easing.

Wages increased at the highest rate in over 30 years, while household spending unexpectedly declined.

GDP Revision:

Japan's GDP was revised lower for the first quarter, indicating a sharper contraction than initially estimated.

China

Chinese equities fell due to weak manufacturing data, indicating economic slowdown.

Official and private PMI readings showed mixed results, reflecting uneven economic performance.

New home sales by top developers fell, though the decline eased, suggesting potential stabilization.

Other Key Markets

Turkey:

Inflation peaked in May, with expectations of a significant drop by year-end.

Tight monetary policy is expected to continue through 2024.

Poland:

The central bank kept interest rates steady, with expectations of consumer price growth in the coming quarters.