SUMMARY
Risk markets stumbled last week, along with US Treasuries. It didn’t help risk sentiment on Friday when a software update from cybersecurity company CrowdStrike proved faulty, bringing down communications infrastructure reliant on Microsoft Windows overnight, affecting banks, airlines, etc.
Economic data released in China showed that the country is continuing to struggle as far as reigniting its growth, with 2Q24 GDP and June retail sales both weaker than expected.
CPI in both the UK and the Eurozone (revised) for June came in as expected. Core CPI in the UK was 3.5% (YoY), and core CPI in the Eurozone was 2.9% (YoY) as both economies experience slowing inflation. This should be positive as far as the future direction of travel of central bank policy rates, although the ECB did not change its policy approach at its monetary policy meeting last Wednesday (here). (Keep in mind also that services CPI remains well ahead of goods CPI in most G7 countries, which is problematic and an area of focus of central banks.)
The US economy continues to serve up mixed economic data, with much of last week’s attention focused on the slight uptick in first time jobless claims for the week ended July 12 (data released Thursday).
According to LSEG I/B/E/S (July 19 report here), 82.9% of the 70 S&P 500 companies that have released earnings so far this cycle have beat bottom-line expectations (vs historical average of 66.8%). The forward P/E ratio of the index is 21.5x. 134 additional companies release earnings this coming week, including automotive companies GM and F, Mag 7 companies TSLA, AMZN and GOOG, along with KO, SBUX, MCD, V, T and many others.
The Republicans held their national convention last week in Milwaukee and – as expected – nominated former President Trump as their candidate for President in the upcoming 2024 election. Mr Trump chose Ohio junior Senator JD Vance as his running mate (VP). President Biden continues to face pressure to abandon his run for a second term from senior Democratic party members and influential donors.
MARKETS LAST WEEK
Having started the week on a positive tone, most global equity markets tracked by EMC lost ground the remainder of the week, with emerging markets equities being the poorest performers and (rather shockingly) Chinese equities the best. Benchmark indices in the US, UK, Europe and Japan were all lower last week.
US stock indices started to slide mid-week, although weekly performance across indices was mixed. The colossal failure of the CrowdStrike software upgrade knocked out important systems of major global companies on Friday, adding to the heaviness of US markets generally as the week drew to a close. For the second week running, tech stocks were the worst performers, with the NASDAQ down 3.6% WoW. The Russell 200 was the best performer (+1.7% WoW), with the DJIA also in positive territory as a rotation continues. Earnings so far have generally been supportive although outlooks feel cautious.
UST yields were slightly higher across the curve last week, perhaps less due to economic data and more due to expectations management by various Fed governors and officials, including Fed Chairman Powell, that spoke during the week. A Fed Funds rate cut appears highly unlikely at the upcoming FOMC meeting on July 30-31. However, the CME FedWatch Tool is projecting three 25bps reductions at the remaining 2024 FOMC meetings (in September, November and December).
Corporate credit spreads were little changed in investment grade but 10bps tighter in US high yield as credit catches a bid in the run-up to likely Fed rate decreases starting in September.
Gold and oil were weaker last week, the Yen was slightly stronger, and the Dollar held its ground. The surprise runner of the week was Bitcoin, which bounced off its recent lows and surged 15.2% last week.
WHAT DROVE MARKETS LAST WEEK
Rather than dribble out what you probably already know, I have provided below a few things worth reading, watching or listening to that were influential as far as market performance last week.
Fed Chairman Powell was interviewed at the The Economic Club of Washington DC last Monday by Dave Rubenstein, and you can watch the 40 minute discussion here. The conclusion was largely ambivalent.
Bloomberg Businessweek interview with Republican nominee-for-president Donald Trump on June 25th. The transcript from #Bloomberg which has been fact-checked (with comments) is available here for Bloomberg subscribers. You can listen to an audio summary podcast with commentary on YouTube (Bloomberg Big Take) here, which is available to anyone.
If you are interested in the various speeches at the RNC, including Donald Trump’s 1.5 hour acceptance speech, you can find them at links here on NPR website: Trump acceptance speech (1.5 hours) and various other speeches at the RNC including VP JD Vance and – my favourite – Hulk Hogan.
WHAT’S AHEAD THAT MATTERS
President Biden – will he run, or will he step aside? The saga continues. As I mentioned last week, it reminds me of the lyrics of one of my favourite songs ever by The Clash (1982): “Should I stay or should I go”?
Central bank policy meetings: FOMC and Bank of Japan, both July 30-31; Bank of England Aug 1. Although I suppose the BoJ could surprise and the BoE is on the fence, the Fed is expected to leave monetary policy intact at their upcoming meetings, focusing instead on the meeting (most likely in synch with the ECB).
As already mentioned, 134 S&P 500 companies release earnings this coming week, including automotive companies GM and F, Mag 7 companies TSLA, AMZN and GOOG, along with KO, SBUX, MCD, V, T and many others.
Loads of economic data next week: US 2Q24 GDP; preliminary PMI data for US, UK and Eurozone for July; German retail sales for May; US PCE (Fed focus) for June; Japanese CPI for July; US pending home sales; consumer confidence surveys in the Eurozone and US.
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