Weekly market recap

Your weekly global financial market newsletter

  • President Joe Biden has dropped his candidacy for the next US presidential election after mounting pressure from his fellow party members to endorse Vice President Kamala Harris.
  • After just a few days, she has managed to consolidate her position and win the support of the most important people in the Democratic Party, including former President Barack Obama and other leaders who might have been considered her rivals.
  • Given that Harris is seen as a supporter of Biden's approach to economic issues and is likely to ride the same wave on foreign policy, the news had only a mild, rather positive effect on the markets.

Indices

US stocks had a mixed week despite Friday’s gains, again dominated mainly by value and small-cap stocks, with large growth stocks in the technology sector again lagging. Thus, the S&P 500 index posted its first daily loss of over two percent since February 2023 in Wednesday’s sell-off, while the Nasdaq posted its worst daily result since October 2022. The DJIA index, on the other hand, benefited much more from good macro data, as the preliminary US GDP result for the second quarter in particular significantly exceeded investors’ expectations.

European equity markets fared relatively better than US stocks thanks to a good earnings season. The pan-European STOXX Europe 600 ended 0.55% higher Germany’s DAX gained 1.35%, France’s CAC 40 Index lost 0.22%, and the UK’s FTSE 100 Index rose 1.59%.

US30
+0.75%
US100
-2.56%
US500
-0.83%
GER30
+1.35%

Commodities

US natural gas continues to fall and over the past week its price has reached $2/MMBtu for the first time since early May. Several weeks of gas price declines are due to a drop in consumption, which has fallen by more than 10% in the US due to cooler temperatures. In addition, price increases in April and May have led to increased production from the largest producers, adding 22 billion cubic feet (Bcf) of gas to storage during the uptick week, beating market expectations of a 15 Bcf increase. Gas storage levels are now 16.4% above the five-year average. However, extreme heat is expected in August, which could lead to an increase in gas demand for power generation, which should occur due to increased use of air conditioners.

The price of Brent Crude Oil also recorded its third weekly decline, approaching USD 80 per barrel for the first time since June. One of the main factors is limited demand in China, which is one of the world’s largest consumers. Fears of a possible economic slowdown, fuelled by interest rate cuts, have led to a negative mood in the markets, fuelled by uncertainty over whether OPEC+ countries will agree to production cuts next quarter, which will be discussed.

Gold
-0.35%
Silver
-4.42%
BRENT
-1.82%
NATGAS
-5.73%

Forex

The Japanese yen emerged as the strongest currency of the week, marking its most substantial weekly gain in three months. On Thursday, it reached its highest value against the USD since early May, trading at 151.95 yen per USD. The main reason is speculation about a possible interest rate hike by the Bank of Japan, which will decide on monetary policy settings on Wednesday. This speculation was also supported by Tokyo’s core inflation growth data. The BoJ has also recently intervened in favour of the yen, leading investors to close out their positions in carry trades that benefited from the interest rate differential between Japan and the US. The final reason is the shift of investors into safe assets, including the Japanese yen, due to uncertainty in equity markets and the fall in shares of large technology companies.

EUR/USD
-0.24%
USD/JPY
-2.40%
GBP/USD
-0.36%
USD/CAD
+0.77%

Macro

Several important macro data influenced market developments last week. A positive surprise came from the preliminary US GDP growth figure, according to which the US economy expanded an annualized 2.8% in Q2, up from 1.4% in Q1, and above forecasts of 2%. The Core PCE Price Index, which measures personal consumption expenditures and is considered the Federal Reserve’s preferred gauge to measure underlying inflation, also provided a positive surprise. On a monthly basis, it rose 0.2% in June, following a 0.1% increase and beating expectations of a 0.1% increase.

Preliminary PMI data from S&P Global points to a contraction in the manufacturing sector, as the July Manufacturing PMI fell below the 50-point level for the first time since December 2023 to 49.5, following June’s 51.6 (forecast 51.7). The services sector continues to expand, as the S&P Global Services PMI rose to 56 points in July from 55.3 in June, reaching its highest level in 28 months. 

Durable goods orders fell 6.6% in June, mainly due to a drop in demand for transportation equipment, posting the first decline after four consecutive monthly increases and missing market expectations of a 0.3% increase. Core durable goods orders excluding transportation rose 0.5% after a 0.1% decline in May, beating expectations of 0.2%.

Sales of new homes fell 0.6% month-over-month to a seasonally adjusted annualised rate of 617K in June 2024, which, while better than a month ago, was expected to rise by 3.5%. Building permits in the United States rose by 3.9% to a seasonally adjusted annual rate of 1.454 million in June 2024, above preliminary estimates of 1.446 million.

PMIs in the EU, Germany and the UK point to continued contraction and problems in the manufacturing sector, and in all three cases the declines were even worse than initially expected. The services sector is also slowing (except in the UK), but unlike the manufacturing sector, the PMIs are in the expansion zone (above 50 points).

What to watch out for this week

  • Earnings season in the US has entered a key phase, with major technology companies such as Meta Platforms, Qualcomm, Amazon, Microsoft and Apple reporting their results.
  • The main news of the week will be the US Federal Reserve's interest rate decision on Wednesday. Rates are expected to be left unchanged at 5.5% for the eighth straight session, but everyone will be waiting for Fed chief Jerome Powell's outline of the next direction of monetary policy and a hint of a possible rate cut in September.
  • We will also learn what the labour market situation looks like. First, the JOLTs Job Openings survey for June will be released on Tuesday, then on Wednesday the ADP private sector employment report for July and on Friday the keenly anticipated Nonfarm Payrolls and unemployment report for July.
  • In addition, we'll get Pending Home Sales data, Consumer Confidence from the Conference Board, and the final PMI from S&P Global along with the PMI from ISM.
  • In Europe on Tuesday, we will hear how GDP is trending in several major economies including Germany, and also for the entire Eurozone. In addition, we are due to see preliminary inflation numbers for Germany for the entire Eurozone, which could give a clue as to whether the ECB will be forced to adjust its monetary policy at its next meeting.
  • Then on Thursday, the Bank of England will still decide on the interest rate change, which is expected to cut rates from 5.25% to 5.0% after seven holdouts.

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