Global Markets Weekly Update
Mixed Signals in U.S. Economy Data
U.S. Stocks
The stock market showed mixed results for the second straight week. Small-cap and value stocks outperformed large-cap growth stocks, which had led the market for most of the year. By Thursday, the tech-heavy Nasdaq Composite 100 was lagging behind the S&P 500 and just barely ahead of the small-cap Russell 2000 for the year. A notable event was the S&P 500's over 2% drop on Wednesday, the first since February 2023, while the Nasdaq saw its worst loss since October 2022. Major declines in Tesla (12.33%) and Google's parent company Alphabet (5.03%) following their earnings reports contributed to the midweek slump. Despite these dips, analysts forecasted a 9.8% rise in S&P 500 earnings for the quarter, slightly up from the previous week's 9.7% estimate.
Economic Data
The economic data presented a mixed picture. The Commerce Department reported only 617,000 new home sales in June, missing the 640,000 forecast and marking the lowest since November. The average selling price dropped by about 4% year-over-year. Manufacturing activity also contracted unexpectedly, with S&P Global's index falling to 49.5. However, there were positive surprises: durable goods orders rose 1.0% in June, weekly and continuing jobless claims fell more than expected, and real consumer spending increased at an annualized 2.3% rate in the second quarter. The economy grew at an annualized 2.8% rate in Q2, driven largely by inventory building and government spending.
Inflation and Federal Reserve
Thursday's data included the core PCE price index, which rose slightly more than expected by 0.2% in June but remained steady at an annual 2.6%, close to the Fed's 2.0% target. This data solidified expectations for a Fed rate cut in September, with futures markets showing no chance of rates staying at their current level by the September meeting. The 10-year Treasury note yield also ended the week slightly lower.
Bond Market
Tax-exempt municipal bond yields were mostly unchanged due to a busy primary market. Investment-grade corporate bond issuance was slightly above expectations, with many issues oversubscribed. The high-yield bond market saw little change with below-average volumes, supported by positive flows into below investment-grade funds and modest new issuance.
European Markets
Stocks
In Europe, the STOXX Europe 600 Index rose by 0.55%, buoyed by a Friday rally. Germany's DAX gained 1.35%, while France's CAC 40 and Italy's FTSE MIB lost 0.22% and 1.27%, respectively. The UK's FTSE 100 climbed 1.59%.
Sector Performance
European markets dipped midweek, mainly due to weak earnings in the tech and luxury goods sectors. However, tech stocks were particularly affected by negative sentiment from the U.S. declines.
Bond Yields and Economic Data
Core eurozone government bond yields fell, influenced by weaker-than-expected PMI readings, suggesting potential monetary easing. The ECB was expected to cut interest rates by 50 basis points over 2024. UK Chancellor Rachel Reeves announced an audit of public finances, potentially revealing a significant deficit.
Japan
Stocks and Currency
Japan's Nikkei 225 and TOPIX Indexes dropped sharply by 6.0% and 5.6%, respectively, as tech stocks suffered. The yen strengthened to around 154.2 against the USD, affecting exporters negatively.
Economic Indicators
The yield on the 10-year Japanese government bond rose slightly, with investors anticipating potential rate hikes and bond purchase tapering by the Bank of Japan. Inflation data showed a 2.2% year-on-year rise in the Tokyo core CPI for July, keeping rate hike options open despite weak private consumption.
China
Market Performance
Chinese stocks fell after the central bank's unexpected rate cuts failed to boost confidence. The Shanghai Composite dropped 3.07%, and the CSI 300 fell 3.67%. In Hong Kong, the Hang Seng Index declined 2.28%.
Monetary Policy
The People's Bank of China cut its medium-term lending facility rate by 20 basis points to 2.3%, following a previous cut in the seven-day reverse repo rate. These cuts were part of efforts to stimulate the economy, which showed signs of slowing.
Other Key Markets
Canada
The Bank of Canada cut interest rates by 25 basis points to 4.50%, citing easing inflation pressures. The Canadian dollar weakened against the U.S. dollar following the rate cut.
Ukraine
Ukraine reached a debt restructuring deal with a major creditor committee, reducing near-term default risks.
Hungary
Hungary's central bank cut its benchmark interest rate to 6.75%, the tenth cut in a cycle that began last October.
Market Movers and Macro Trends
Stock Market Trends
The S&P 500 ended a 356-day streak without a 2% drop.
The yield curve steepening stalled, influenced by stronger-than-expected GDP growth.
The yen saw gains, partly due to expectations of rate hikes by the Bank of Japan.
Economic Indicators
U.S. economic events included robust GDP growth, leading to reduced pressure on short-term yields.
Eurozone PMI readings fell short, affecting growth outlooks.
The Bank of Canada and Bank of England made policy adjustments in response to inflation data.
Sector Movements
Major tech stocks faced declines despite strong revenue reports.
Airline stocks underperformed, facing pricing power challenges.
Electric vehicle manufacturers experienced drops due to reduced growth forecasts and increased competition.
Checklist for Next Week.
Key upcoming economic events include various employment reports, FOMC rate decisions, manufacturing indices, and GDP data from major economies.
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