Weekly market recap

Your weekly global financial market newsletter

  • Although the Japanese yen strengthened by more than ¥4 from ¥161.5 to ¥157.4 per dollar in the span of an hour on Thursday after the inflation figures, the Bank of Japan was unwilling to confirm that it had intervened in the currency market in favour of the dollar. Yet all indications are that intervention did occur.
  • The Bank of Japan (BOJ) conducted so-called rate checks with traders on Friday morning and Thursday's appreciation was also accompanied by a significant increase in volume, similar to past interventions by the BoJ.
  • But Japan's top currency official, Masato Kanda, told reporters on Thursday that he was unable to confirm the intervention and on Friday argued that given the yield differential between the United States and Japan, speculation was likely behind the moves.
  • Meanwhile, money market data released by the Bank of Japan on Friday showed that the BoJ could have used up to $22 billion in funds for intervention. Data on the central bank's current account balance shows that on Tuesday, July 16, the first business day of next week in Tokyo (Monday is a holiday in Japan), there will be a liquidity outflow from the financial system of 3.17 trillion yen ($20 billion) related to transactions with the government sector, compared with a previously projected surplus of about 400 billion yen. The difference amounts to 3.57 trillion Japanese yen, equivalent to the aforementioned USD 22 billion.

Indices

Stocks in the US were once again hitting all-time highs thanks to the expected interest rate cut by the Fed. After Thursday’s inflation, most major indices posted new highs, but the subsequent shift of investors from growth and technology stocks to value titles ultimately led to Thursday being the worst day for US stocks since late April. Friday’s trading was no longer affected by better-than-expected manufacturing inflation data, and stocks once again attacked their all-time highs, followed by another sell-off before the close of the session. However, technology stocks did not fully recover from Thursday’s sell-off and ended in the red.

Investor optimism also spilled over to European stock markets, which also strengthened. The pan-European STOXX Europe 600 Index ended the week 1.45% higher, France’s CAC 40 Index added 0.63%, Germany’s DAX gained 1.48% and the UK’s FTSE 100 Index advanced 0.60%.

US30
+1.59%
US100
-0.30%
US500
+0.87%
GER30
+1.48%

Commodities

US Natural gas continued the declines last week that had accompanied it for the previous four weeks, and its price fell to below $2.3/MMBtu, the lowest since May 10. This was mainly due to increased production of the commodity, decreasing flows to major US LNG export facilities and excess gas in storage. However, Friday’s surprise technical rally on the rebound from long-term lows eventually led to US Natural gas notching a modest weekly gain of 0.43%. That’s the first weekly gain after four weeks of declines that saw its price fall by more than 20%.

Gold strengthened for the third week in a row and is once again approaching its long-term highs, closing the week above the $2,400 per troy ounce level. The precious metal benefited significantly from weaker-than-expected US inflation data, which increases the chances of an early rate cut by the US Fed, as well as other central banks, including the ECB, BoE or PBoC.

Gold
+0.85%
Silver
-1.40%
BRENT
-1.74%
NATGAS
+0.43%

Forex

The US dollar fell for the second week in a row, under pressure from lower-than-expected inflation and heightened expectations of an early rate cut. On Friday, the dollar index traded as low as 104.1, the lowest level since early June.

The euro reached its highest level since early April thanks to a weakening dollar, and despite uncertainty following the French parliamentary elections, where the left surprisingly won but did not gain a majority.

The British pound, which, like the euro, has been gaining against the dollar for the past two weeks, has been similarly strong. The pound even hit its highest level in over a year at the end of the week, getting significantly closer to the psychological value of $1.3 per British pound.

The Japanese yen saw the strongest gains following the aforementioned intervention by the Bank of Japan, which, according to estimates, could have used foreign exchange reserves of up to 3.57 trillion yen for the move. And analysts expect that the BoJ may use the lower liquidity on Monday’s holiday to intervene again, similar to what it did in late April.

EUR/USD
+0.63%
USD/JPY
-1.80%
GBP/USD
+1.35%
USD/CAD
-0.05%

Macro

During a relatively poor week in terms of macro data, the most important news of the week was US inflation, both consumer and producer. US consumer prices fell by 0.1% in July for the first time since June 2020, with markets expecting a 0.1% rise after stagnating in May. Core inflation also rose below expectations in July, with the 0.1% figure (0.2% expected) the lowest since September 2021. Inflation thus appears to be heading back towards the Fed’s 2% target.

Friday’s manufacturing inflation, on the other hand, surprised markets with its faster-than-expected rise, while even the May reading was revised up. Thus, month-on-month inflation surprised with a 0.2% rise, similar to the revision of May’s 0.2% decline to 0.0%. Core inflation rose by 0.3% in May (originally 0.0%), with June’s growth again higher than expected (+0.4% vs +0.2%).

German inflation growth also confirmed its downward trend in June, according to the final data. In contrast, UK GDP posted a surprise 0.4% growth in May after stagnating in April, helped mainly by services and construction output. In rolling three-month terms, the economy grew by 0.9%, the fastest pace since 2022.

What to watch out for this week

  • In the US, earnings season will probably be the most watched, with big companies such as GS, BlackRock, UnitedHealth, BoA, Morgan Stanley, Charles Schwab, J&J, Netflix, and Amex reporting their results.
  • From Monday through Thursday, we'll also be treated to speeches by several Fed officials, including Fed chief Jerome Powell, who is set to be interviewed on Monday by David Rubenstein at the Economic Club of Washington, DC.
  • On Tuesday, US retail sales are expected to show no growth last month after a slight 0.1% increase in May, indicating a slowdown in consumer spending. In addition, important housing market data will also be watched, including building permits, housing starts, and the NAHB housing index.
  • In Europe, we will first hear on Tuesday what the business mood is like in Germany, where the ZEW Indicator of Economic Sentiment is projected to dip after eleven consecutive months of growth. The most important news of the week will then be the ECB's interest rate decision, which is expected to leave rates unchanged after a June rate cut of a quarter percentage point.
  • In the UK, inflation data is expected which is forecast to remain at the BoE's 2% target, with the core rate expected to drop to 3.4%. In addition, unemployment in June is also expected to remain at the same level as May, at 4.4%.
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