Weekly market recap

Your weekly global financial market newsletter

  • Last week's Monday sell-off spooked investors, but it turned out to be a short-term warning. Weak July's U.S. nonfarm payrolls report at the end of the previous week, which reinforced fears of the US falling into recession, but also the tightening of monetary policy by the Bank of Japan and an unwinding of the yen carry trade were to blame.
  • The question is whether this was an exceptional phenomenon that will not be repeated so soon, or a warning to investors that the rally in the equity markets may not last forever. Because even though this is the confluence of two important news stories, the reaction in the form of the highest daily declines in several years and the VIX index shooting to 65.73 (and its subsequent drop to 20.69) shows that the markets are actually very vulnerable at the moment.

Indices

Stock markets around the world have had a relatively wild week, first experiencing their worst sell-off in years, but eventually managing to recover the losses. For example, Japan’s Nikkei 225 lost over 12% on Monday, the most since 1987, but added over 10% on Tuesday, its best daily performance since 2008. U.S. stock indexes shed 2 to 3 percent on Monday, losing over 10 percent from their highs this year (the Nasdaq Composite even lost over 15 percent).

On Tuesday, stock markets managed to erase most of the losses and ended up with mixed results, both in the US and Europe. The pan-European STOXX Europe 600 Index ended 0.27% higher, Germany’s DAX gained 0.35%, and France’s CAC 40 Index added 0.25% and the UK’s FTSE 100 Index was little changed.

US30
-0.60%
US100
+0.39%
US500
-0.04%
GER30
+0.35%

Commodities

The price of US natural gas, after falling for several weeks, dropping from over $3 per MMBtu to $1.89 per MMBtu (and writing off nearly 40%) since mid-June, posted a significant gain last week, gaining almost 9%. The price increase was primarily driven by warmer temperatures in the US and a 21 billion cubic feet (bcf) increase in gas in storage, 14.9% above the five-year average.

The price of gold also saw a significant drop on Monday to below the $2,400 per troy ounce level, but managed to erase most of the losses by the end of the week, ending the week above the $2,430 mark. Geopolitical tensions are playing into the hands of gold, which is still considered as a safe haven. Investors also expect the Fed to cut interest rates as early as September, as confirmed by some Fed officials stating last week that inflation appeared to be easing enough.

Gold
-0.50%
Silver
-3.90%
BRENT
+3.71%
NATGAS
+8.95%

Forex

Although the British pound managed to strengthen on Thursday and Friday, it lost 0.33% against the dollar for the week, extending its now four-week losing streak, the longest since last September. The latest declines have been driven by the Bank of England’s rate cut and possible further rate cuts at its next meeting, as the central bank responds to falling inflation. In addition, the British pound is not helped by the turmoil in the country, including anti-immigration riots and speculation of tax hikes, which has dampened enthusiasm for the pound.

On the other hand, the Canadian dollar broke its three-week slump against the US dollar, which after a volatile Monday that saw it climb as high as 1.39 (and the lowest since October 2022) finally managed to strengthen by more than a percent during the week. Although its appreciation stalled on Friday, it got as high as 1.37, where it was last at in July this year.

EUR/USD
+0.05%
USD/JPY
+0.06%
GBP/USD
-0.33%
USD/CAD
-1.03%

Macro

Last week was relatively poor in terms of macro data. We saw better-than-expected data for the final service sector purchasing managers’ indices and composite PMIs in Germany, the UK and the Eurozone as a whole. The indices did fall, but the decline was smaller than expected and the readings still point to expansion. In the US, we saw mixed data as the S&P PMIs fell more than expected (but are still above 50), while the Services PMI from ISM rose to 51.4 (down from 48.8 in June) suggesting a slight recovery in US services activity.

In more positive news, the number of people applying for unemployment benefits in the U.S. decreased by 17,000 to 230,000 for the week ending August 3, coming in below market expectations of 240,000.

What to watch out for this week

  • In the US, investors and traders will be most interested in inflation data, both consumer and producer. The consumer price index is expected to show a stagnation or slight decline in the annual inflation rate to 2.9%, while core inflation is expected to fall to 3.2% (the lowest level since April 2021). On a month-on-month basis, both headline and core CPI are expected to rise by 0.2%. PPI is expected to slow to 0.1% MoM.
  • Other important data in the US will include retail sales that are expected to rise 0.3%, rebounding from a flat reading in June, housing starts, building permits, preliminary figures for Michigan consumer sentiment, and the Philadelphia Fed Manufacturing Index. In addition, investors will be watching with interest speeches by several Fed officials.
  • In the EU, the second GDP estimate is expected to confirm that euro area GDP grew by 0.3% in Q2, matching Q1 growth. In the UK, preliminary GDP data is also due, with the economy expected to grow by 0.6% in Q2. UK inflation is expected to fall to 2.3%, and should move closer to the BoE's target. Unemployment, on the other hand, should rise to 4.5%, the highest level since October 2021.

Disclaimer

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