Weekly market recap

Your weekly global financial market newsletter

  • The U.S. banking sector is experiencing a strong week, buoyed by the Federal Reserve's consideration of substantially easing capital requirements for banks. This potential regulatory relief follows the 2023 regional banking crisis, promising a more favourable operating environment for financial institutions.
  • At the same time, the Fed said that all 31 banks that the Fed has stress tested are above their minimum capital requirements and are well enough positioned to handle a severe recession.
  • The hypothetical scenario assumed a 40% decline in commercial real estate prices, a 36% decline in home prices and a 10% unemployment rate. Banks would lose $685 billion in the scenario.

Indices

US stocks experienced a relatively quiet week, disrupted by Friday’s volatility. Major stock indices first surpassed their all-time highs on Friday, only to see a significant drop following the release of macroeconomic data, resulting in weekly losses. However, for the month, stocks recorded gains with the S&P 500 rising 3.67%, the DJIA up 1.76%, and the Nasdaq 100 rallying 5.05%. The first half of the year saw even better performance, with the S&P gaining 14.5%, the Nasdaq 18.1%, and the Dow 3.8%. The main driver was technology stocks, particularly Nvidia, which benefited from growing investor enthusiasm for artificial intelligence. Expectations of a Fed interest rate cut also influenced market movements.

In Europe, stocks were affected by nervousness and uncertainty over the snap election called by President Emmanuel Macron. The pan-European STOXX Europe 600 ended 0.72% lower, Germany’s DAX rose 0.40%, France’s CAC 40 Index lost 1.96%, and the UK’s FTSE 100 Index eased 0.89%.

US30
-0.08%
US100
-0.09%
US500
-0.08%
GER30
+0.40%

Commodities

Crude oil prices fell significantly on Friday due to weaker demand for gasoline in the U.S. and data from the EIA showing growing U.S. crude and gasoline inventories, raising concerns about demand in the world’s largest oil consumer. However, prices strengthened considerably during the week, reaching two-month highs amid expectations that peak summer fuel demand will lead to a supply deficit and that OPEC+ will further curb supply in the third quarter.

Gold prices strengthened slightly during the week, though they remain far from their all-time high. The latest PCE data, at its lowest level since 2021, has fueled hopes that the Fed will cut interest rates twice this year, supporting gold prices. Despite lower-than-usual gold demand in India, the second-largest gold consumer, gold gained 5% in the second quarter and has risen 14% since the beginning of the year. Besides favourable monetary policy, increased demand from key central banks in Asia, particularly the PBoC, has also boosted gold prices, setting a new record at $2,450.

Gold
+0.19%
Silver
-1.39%
BRENT
-0.28%
NATGAS
-8.29%

Forex

The Japanese yen continued to decline last week, hitting a new 38-year low of 161.28 yen per dollar, despite market expectations of government intervention around the 160 yen level. The currency remains under pressure as revised GDP data showed the Japanese economy contracted at an annualized rate of 2.9% in the January-March period, a sharper decline than the previous estimate of 1.8%. In response, the Ministry of Finance appointed Atsushi Mimura as Japan’s top monetary diplomat. Consequently, the yen depreciated by 2.3% against the dollar in June alone, marking a 14% loss since the beginning of the year, as the Bank of Japan adopted a more moderate approach to monetary policy normalization than investors had anticipated.

EUR/USD
+0.19%
USD/JPY
+0.67%
GBP/USD
+0.03%
USD/CAD
-0.08%

Macro

Last week’s data was dominated by reports from the US, with Friday’s PCE Price Index data being the most anticipated. According to the Bureau of Economic Analysis, the Core PCE Price Index (excluding food and energy) rose by 0.1% in May. On a year-over-year basis, both the headline and Core readings increased by 2.6%, aligning with expectations and marking the lowest Core reading since March 2021. However, these figures remain above the Fed’s target of around 2%.

Thursday’s final GDP data revealed that the US economy expanded at an annualized rate of 1.4% in Q1 2024, slightly above the second estimate of 1.3%, but still indicating the slowest growth since the contractions in the first half of 2022. Additionally, durable goods orders rose by 0.1% month-over-month in May, marking the fourth consecutive monthly increase, though at a sluggish pace.

US consumer confidence data from the Conference Board fell slightly above expectations to 100.4. In housing market data, new home sales in the U.S. dropped 11.3% month-over-month to a seasonally adjusted annual rate of 619,000 in May 2024, marking the biggest decline since September 2022. Building permits fell by 2.8% to a seasonally adjusted annual rate of 1.399 million in May, the lowest since June 2020. Additionally, pending home sales decreased by 6.6% year-over-year in May 2024, a slight improvement from the 7.4% drop in the previous month.

In Europe, the Ifo business climate indicator for Germany fell to 88.6 points in June from 89.3 points in May, below the forecast of 89.7 points. The GfK Consumer Climate Index for Germany also dropped to -21.8 in July 2024 from a slightly revised -21.0 in the previous period, missing market estimates of -18.9 and marking the first decline in five months. In the UK, final GDP data showed the economy grew by 0.7% quarter-over-quarter in Q1 2024, higher than the preliminary estimate of 0.6%, marking the strongest expansion in over two years and ending the recession from the previous year. Year-on-year, the British economy grew 0.3%, slightly above the initial estimate of 0.2%.

What to watch out for this week

  • The most important news of the week will be released on Friday with the publication of the US Nonfarm Payrolls report. The US economy is expected to have added 180,000 jobs in June, down from 272,000 in May, indicating a gradual cooling of the labour market. The unemployment rate is projected to remain steady at 4%. Earlier in the week, additional labour market data will be available through the JOLTS report, the ADP employment report, and Challenger job cuts.
  • Investors will also be focused on the FOMC Minutes, which could provide insights into the Fed's monetary policy direction for the rest of the year. Additionally, manufacturing PMI data from both S&P and ISM is expected to indicate continued contraction, while the services PMI is likely to show a slowdown in the sector. The week will be shortened due to the Independence Day holiday.
  • In Europe, attention will be on the results of the first round of early elections in France and the UK, where a significant political shift is anticipated on July 4. Polls suggest a landslide victory for Keir Starmer’s Labour Party and a major defeat for Rishi Sunak’s Conservatives after 14 years in power.
  • Key CPI reports for the Eurozone and Germany are also expected, with a slight easing in inflation anticipated. The Euro Area's unemployment rate is expected to remain at a record low of 6.4%, and retail sales are projected to rebound.

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