Global Markets Weekly Wrap KW 30 : Global Markets Slide as U.S. Labor Market Cools, Tech Stocks Fall

Global Markets Weekly Wrap KW 30 : Global Markets Slide as U.S. Labor Market Cools, Tech Stocks Fall 

Global Markets Weekly Update

U.S.

Market Reactions to Economic Data and Earnings Reports

This week saw significant declines in major U.S. stock indexes due to disappointing economic data and mixed earnings reports. The S&P 500 fell, influenced by the quarterly earnings season and crucial economic updates. The small-cap Russell 2000 Index notably dropped towards the week's end, halting the recent trend towards value stocks and small-caps. Conversely, an equal-weighted S&P 500 Index outperformed the market-weighted version, indicating a broader market performance beyond the prominent tech companies, including the so-called Magnificent Seven. The Nasdaq Composite entered a technical correction, declining over 10% from its July peak.

Earnings Highlights

Around 40% of S&P 500 companies, including Microsoft, Meta Platforms, Apple, and Amazon.com, reported their Q2 earnings. A common trend among these reports was increased capital expenditure to enhance AI capabilities. Amazon shares fell more than 11% following its earnings call, revealing over $30 billion in capital expenditures for the first half of the year, with expectations for this figure to rise in the second half, largely driven by AI demands in its AWS division. Microsoft and Meta also reported significant capital expenditures for AI development.

Labor Market and Economic Data

The U.S. labor market showed signs of cooling. July's nonfarm payrolls added only 114,000 jobs, with private sector jobs increasing by just 97,000, marking the lowest gain in 15 months. The unemployment rate rose to 4.3%, the highest since October 2021. Additionally, voluntary job departures dropped to 3.82 million in June, the lowest since November 2020. The Institute for Supply Management's (ISM) manufacturing index fell to 46.6 in July, indicating ongoing contraction, though manufacturing employment remained steady.

Bond Yields and Rate Expectations

In response to the weak economic data, long-term interest rates dropped, with the 10-year Treasury yield falling to 3.79%. Despite the Federal Reserve maintaining short-term rates, expectations for rate cuts increased significantly, with futures markets now predicting a 73.5% chance of a 50 basis point cut at the next meeting.

Index Performance

DJIA: 39,737.26 (-852.08, 5.43% YTD)

S&P 500: 5,346.56 (-112.54, 12.09% YTD)

Nasdaq Composite: 16,776.16 (-581.72, 11.76% YTD)

S&P MidCap 400: 2,948.01 (-126.95, 5.98% YTD)

Russell 2000: 2,109.31 (-150.76, 4.06% YTD)

Europe

Stock Market Declines Amid Weak U.S. Data

The STOXX Europe 600 Index fell by 2.92%, influenced by weak U.S. economic data. Key European indexes also declined, with Germany's DAX down 4.11%, France's CAC 40 falling 3.54%, and Italy's FTSE MIB losing 5.30%. The UK's FTSE 100 dropped by 1.34%.

Interest Rates and Economic Indicators

The Bank of England (BoE) cut interest rates by a quarter point to 5.00%, its first cut since March 2020, though further cuts are not expected imminently. German bund yields also fell in anticipation of potential European Central Bank rate cuts. Eurozone inflation rose to 2.6% in July, while the economy grew by 0.3% in Q2. The unemployment rate slightly increased to 6.5% in June.

Japan

Stock Market and Currency Movements

Japan's stock markets saw significant losses, with the Nikkei 225 dropping 4.7% and the TOPIX down 6.0%. The yen strengthened against the dollar, impacting the earnings outlook for export-driven companies.

Monetary Policy Changes

The Bank of Japan (BoJ) raised its key interest rate to 0.25% and outlined plans to taper bond purchases, reducing the monthly amount to about JPY 3 trillion by the first quarter of 2026. The BoJ also lowered its inflation and growth forecasts for fiscal year 2024.

China

Mixed Market Performance

Chinese markets were mixed, with the Shanghai Composite gaining 0.5% and the CSI 300 losing 0.73%. The Hang Seng Index in Hong Kong declined by 0.45%.

Economic Data

China's manufacturing PMI remained in contraction at 49.4 in July, while the nonmanufacturing PMI also slipped. The Caixin manufacturing PMI, which focuses on smaller, export-oriented firms, fell to 49.8. Industrial profits increased by 3.6% year-over-year in June, suggesting a recovery in revenue and production growth.

Middle East

Oil Prices and Geopolitical Tensions

Oil prices initially surged following the killing of Hamas' political chief in Iran but later fell due to concerns about global economic growth. The Israeli shekel weakened, and Israeli stocks also traded lower amid escalating regional tensions.

Market Overview

Investor Sentiment and Economic Indicators

Investors were cautious this week due to disappointing earnings and economic data from the U.S. and other major economies. The U.S. unemployment rate rose, and manufacturing data showed weakness, raising concerns about the Federal Reserve's rate policies. Global markets reflected this uncertainty with notable declines in stock indexes and bond yields. 

Checklist for next week

Major economic events in the US include:

ISM Services, S&P Global PMI, Initial Jobless Claims, US Trade Balance.

Major economic events around the world include:

Eurozone PPI, Eurozone PMI, China Trade Balance, China CPI, Mexico CPI, Canada Unemployment Rate.