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Weekly Market Recap

15 July, 2024

Our Multi-Asset Solutions team produce a weekly market recap which aims to summarise the previous week’s major events and developments that may impact markets. They try to include points that may aid you in your decision making or conversations with clients. This is supplemented by a market data sheet, offering a summary of financial market performance. Last week’s summary is below. 

Economic and political backdrop

UK GDP grew in May, increasing 0.4% sequentially, after stalling in April. The expansion was driven by upticks in services and construction output, particularly infrastructure and homebuilding. On a rolling three-month basis, the economy grew 0.9%, the fastest pace since 2022.

Three Bank of England (BoE) rate-setters indicated that they were still reluctant to vote in favour of lower borrowing costs, prompting markets to scale back bets on a rate cut at the central bank’s 1 August meeting. Chief Economist Huw Pill said the BoE had made “substantial progress” in bringing down inflation but noted that key drivers, such as wage growth and services inflation, were still showing “uncomfortable strength.” Jonathan Haskel and Catherine Mann, both regarded as hawkish on monetary policy, indicated that they would rather hold rates steady until evidence of a sustained drop in services inflation emerged.

A major factor supporting many stocks last week appeared to be Thursday’s release of the Labor Department’s consumer price index (CPI). Headline prices fell -0.1% in June, marking the first decline since soon after the start of pandemic lockdowns in May 2020. More encouraging, perhaps, core (less food and energy) prices rose a less-than-expected 0.1%, the slowest pace in over three years. At a roundtable hosted by the Chicago Federal Reserve, Chicago Fed President Austan Goolsbee called the data “profoundly encouraging” and a sign that inflation was on its path back to the Fed’s annual target of 2.0%.

The market’s reaction to the data was notably mixed, however. In the wake of the report, the Russell 2000 Index outperformed the large-cap S&P 500 index by 209 basis points (bp), while besting the Nasdaq Composite by 581 basis points. Moreover, according to Bespoke Investment Group, it was only the second time since 1979 that the Russell 2000 rose by over 3% while the S&P 500 finished in the red, and the first time since October 2008.

Friday’s producer price index (PPI) data arguably further complicated the inflation narrative and its implications for the market. The headline PPI rose a tick more than expected at 0.2% in June, while May’s decrease was also revised upward to flat. Investors seemed to take satisfaction in the core (less food, energy and trade services) PPI reading, which came in unchanged for the month. As with the overall economy, input inflation trends remained concentrated in services, particularly machinery and vehicle wholesaling.

The inflation data sent shockwaves through the federal funds futures market, which began pricing in the virtual certainty of a rate cut at the Fed’s September meeting. T. Rowe Price Chief US Economist Blerina Uruçi has upped her expectations for future rate cuts modestly, but she thinks that the resilience of the economy will lead the Fed to stay “higher for longer.” This makes current market pricing of more than two cuts (of 25bp each) by December 2024 and almost seven cuts by December 2025 aggressive, in her view.

She also notes that inflation remains “sticky” in certain key categories. While food inflation has moderated, for example, it seems to have settled above its pre-pandemic range. Meanwhile, momentum in agricultural prices and the recent uptick in restaurant prices suggest some upside risks.

Wage tracker data from online jobs platform Indeed indicated that the year-over-year (YoY) increase in salaries for euro area openings listed on its site stood at 4.2% in June, an acceleration from the annual increase of 3.5% recorded in May. T. Rowe Price European economist Tomasz Wieladek said: “If more evidence of persistent wage inflation in forward-looking indicators emerges, the ECB [European Central Bank] may well have to cut at a slower pace than markets expect.”

No party won an outright majority of 289 seats in the second round of the parliamentary election in France, heralding a long period of talks to form a coalition government. The left-wing New Popular Front won 182 seats. President Emmanuel Macron’s Ensemble came in second, with 168. The hard-right National Rally won 143 seats.

Exports exceeded forecasts in June, rising 8.6% from a year earlier, up from 7.6% growth in May. Analysts attributed the strength in overseas demand to manufacturers frontloading shipments ahead of potential tariff hikes from several major trading partners. However, imports unexpectedly shrank -2.3% in June, down from May’s 1.8% gain amid weak domestic demand. The overall trade surplus increased to a multi-decade high of USD 99.05 billion from USD 82.62 billion in May.

China’s CPI rose a lower-than-expected 0.2% in June from a year earlier, narrowing from May’s 0.3% rise. Core inflation, which strips out volatile food and energy costs, rose 0.6%, unchanged from May. The PPI fell -0.8% from a year ago, marking its 21st month of decline, but eased from a -1.4% drop in May.

China’s economic recovery has been uneven this year despite numerous measures to spur growth as a protracted property sector slump and weak domestic demand have restrained consumer prices. Many analysts have shifted focus to the Third Plenum on 15 July, a three-day meeting of the Chinese Communist Party that is expected to unveil key economic policies for the coming years.

Japanese stocks retreated at the end of the week from the record highs they reached on Thursday amid heightened speculation that the authorities intervened in the foreign exchange markets to support the Japanese yen.

The speculation was triggered by a surge in the value of the yen against the US dollar and was reinforced by a Nikkei report that the Bank of Japan (BoJ) conducted rate checks with banks on the euro-yen currency cross on Friday after the yen rose. A stronger yen hurts the profit outlook for Japan’s export-focused industries and makes Japanese assets more expensive for foreign investors.

Masato Kanda, the vice minister for international affairs, declined to comment to the media on whether there had been intervention to prop up the yen, but he said recent moves were out of line with fundamentals. Chief Cabinet Secretary Yoshimasa Hayashi said the authorities were ready to take all possible action on exchange rates.

Over the week, the yen strengthened to JPY 157.8 against the USD from JPY 160.8 at the end of the previous week.

On the economic front, core machinery orders, a leading indicator of capital spending in the coming six to nine months, unexpectedly declined for a second month in May. They fell -3.2% sequentially to JPY 857.8 billion, after dropping -2.9% in April, mainly due to a sharp decrease in the nonmanufacturing sector. Meanwhile, May’s industrial production growth was revised up from an initial estimate of 2.8% to 3.6% amid strong rebounds in the output of motor vehicles, electrical machinery, information and communication electronics equipment and general-purpose and business-oriented machinery.

The value of new housing loan commitments in Australia fell -1.7% month over month (MoM) in May. This month’s NAB survey reported -0.3% MoM decline in employment, the most in a year.


Last week, the MSCI All Country World Index (MSCI ACWI) rose 1.4% (15.4% YTD).

In the US, the S&P 500 Index recorded a gain of 0.9% (18.6% YTD). Stocks moved higher in the first notably broad advance since mid-April. The Dow Jones Industrial Average, S&P 500 Index and technology-heavy Nasdaq Composite – adding 0.3% (23.0% YTD) – moved to record intraday highs. The biggest advance was notched by the small-cap Russell 2000 Index, gaining 6.0% (6.8% YTD) and marking its best week since early November. As measured by various Russell indexes, value stocks also handily outperformed growth stocks, with Russell 1000 Growth Index declining -0.4% (24.7% YTD), while Russell 1000 Value Index rallying 2.8% (9.1% YTD). Trading volumes were light over much of the week, however, reflecting both the summer vacation season and investors waiting for the arrival of major earnings reports.

The unofficial start of earnings season kicked off Friday, with second-quarter earnings releases from JPMorgan Chase, Wells Fargo and Citigroup. Shares of all three fell at the open of trading, with JPMorgan and Wells Fargo both missing estimates and the latter cutting its outlook. As of the end of the week, analysts polled by FactSet were expecting growth in overall earnings registered by the S&P 500 to accelerate from 5.9% in the first quarter to 9.3% in the second, which would mark the fastest rate since the first quarter of 2022.

In Europe, the MSCI Europe ex UK Index added 1.5% (11.4% YTD) as investors welcomed lower-than-expected US inflation data. Major stock indexes rose as well. Germany’s DAX Index put on 1.5% (11.9% YTD), France’s CAC 40 Index advanced 0.6% (5.3% YTD) and Italy’s FTSE MIB Index climbed 1.7% (18.3% YTD). Switzerland’s SMI Index surged 3.0% (14.5% YTD). The euro appreciated versus the US dollar, ending the week at USD 1.09 for EUR, up from 1.08.

The FTSE 100 Index firmed 0.6% (9.0% YTD) and the FTSE 250 Index jumped 2.0% (9.6% YTD). The British pound strengthened versus the US dollar, ending the week at USD 1.30 for GBP, up from 1.28.

The TOPIX Index rose 0.4% (23.8% YTD) and the TOPIX Small Index added 1.1% (15.4% YTD). 

In Australia, the S&P ASX 200 Index climbed 1.8% (7.4% YTD) as US CPI signalled further signs that inflation is slowing down, and the market now expects more than two rate cuts by the Fed this year. Australian government bond yields abated with the curve largely unchanged. The Australian dollar modestly strengthened against the US dollar by 0.2%.

MSCI Emerging Markets Index rose 1.8% (11.7% YTD), with a positive contribution to performance from the stock markets of China, India, Taiwan and Brazil and a negative contribution from that of South Korea. 

Chinese stocks gained as strong export data offset concerns about deflationary pressures. The Shanghai Composite Index increased 1.3% (1.7% YTD) and the blue-chip CSI 300 Index moved up 1.8% (3.1% YTD). In Hong Kong, the benchmark Hang Seng Index rallied 3.3% (10.8% YTD).

In Hungary, the government reported that CPI inflation in June was measured at a YoY rate of 3.7%. This was another lower-than-expected CPI reading, and it was lower than the 4.0% YoY rate measured in May. In fact, in MoM terms, June was the second consecutive month in which inflation increased 0.0%.

According to T. Rowe Price credit analyst Ivan Morozov, stable food prices are the main reason for lower headline inflation. Core inflation, on the other hand, stayed broadly unchanged at a YoY rate of 4.1%, while its MoM increase of 0.45% was driven by services costs. Overall, Morozov believes that the data are slightly dovish and could enable policymakers to continue reducing interest rates incrementally in the months ahead.

In the Czech Republic, the Czech government reported this week that CPI inflation in June was measured at a YoY rate of 2.0%. This was notably lower than expectations of 2.4% and lower than the YoY reading of 2.6% in May.

According to Morozov, inflation fell by -0.3% in MoM terms, pushing three-month inflation momentum close to 0.0%. Also, he notes that the downside surprise was mostly driven by non-core items. Nevertheless, he believes that the combination of lower-than-expected inflation and weak economic activity data could pave the way for the central bank to pursue modest short-term interest rate reductions in the second half of the year.

Last week, the Bloomberg Global Aggregate Index (hedged to USD) returned 0.6% (1.1% YTD), Bloomberg Global High Yield Index (hedged to USD) 0.8% (5.0% YTD) and Bloomberg Emerging Markets Hard Currency Aggregate Index 1.0% (3.4% YTD).

The yield on the benchmark 10-year Treasury note declined sharply in the wake of the CPI report, briefly touching its lowest level (4.16%) since 12 March. Over the week, the 10-year yield decreased -10bp to 4.18% from 4.28% (up 30bp YTD). The 2-year Treasury yield declined -15bp to 4.45% from 4.61% (up 20bp YTD).

There was light issuance in the high yield bond market due to the closely watched economic reports and in anticipation of earnings season. Meanwhile, the bank loan market – which typically performs well amid higher rates – maintained its firm tone despite the softer-than-expected CPI report and its implications for Fed rate cuts, largely due to resilient demand.

French and German sovereign bond yields were lower across the curve, falling in sympathy with US Treasury yields after US inflation slowed more than expected. Over the week, the 10-year German bund yield decreased -6bp, ending at 2.49% from 2.55% (up 47bp YTD).

UK gilt yields fell across most of the curve but ticked up at the very front end as economic growth in May surprised to the upside, stoking uncertainty about whether the BoE would ease monetary policy. Over the week, the 10-year gilt yield declined -1bp, ending the week at 4.11% from 4.12% (up 58bp YTD).The yield on 10-year Japanese government bonds (JGBs) eased to 1.06%, a two-week low, as investors assessed the outlook for monetary policy after the sharp rebound in the yen.

Japanese yields also tracked US Treasury yields lower as hopes for a US interest rate cut rose on soft US inflation data. The BoJ has come under pressure to raise rates again in July to defend the currency and narrow the difference between domestic and foreign bond yields. The central bank is expected to unveil its plans for reducing bond purchases this month after reports that it met with market participants this week.

Yoram Lustig, CFA
Head of Multi Asset Solutions,

Yoram Lustig

Michael Walsh, FIA, CFA
Solutions Strategist

Michael Walsh

Eva Wu,
Solutions Strategist

Eva Wu