Markets in a minute 22nd July 2024

Last week, equity markets declined on both sides of the Atlantic. The S&P 500 ended down nearly 2% whilst the Stoxx 600 finished the week close to 2.7% lower.

The prospect of increased tariffs on China, especially in the semiconductor sector joined forces with comments from the Biden administration hinting at further restrictions on chip manufacturers. This, plus an expectation that the Fed would likely implement a rate cut in September, caused US equity investors to roll back on their appetite for technology stocks with many appearing to take profits. The NASDAQ index reflected this heavy rotation closing the week down over 3.6%

In Europe, the declines appeared to be mainly driven by concerns over a combination of high earnings expectations and sluggish economic growth. Investors in Europe punished slips in earnings and forward guidance from the likes of ASML, Burberry, Hugo Boss and French insurer Scor. With a slew of reporting due in the coming weeks, markets will be heavily focused on earnings.

In the US, the week started off on a positive note as favourable data led to the expectation that the Fed might finally be ready to move into a rate cutting cycle. The initial drop off in the 10yr Treasury yield however, turned out to be short lived.

The positive reaction in Bond prices to a likely rate cut in September was later offset by the fears that an election victory for Trump would bring tax cuts and tariffs that would prove inflationary into the future whilst also potentially leading to an increase in bond issuance. As a result, the 10yr Treasury yield increased over the week (Bond yields rise as Bond Prices fall).

In Europe, the picture was slightly different. Without the 'Trump Trade' to contend with, bond markets were influenced by the prospect of more rate cuts from the ECB and yields drifted lower over the week.

This week, focus is likely to be on the implications of Biden's decision to drop out of the presidential race as well as various business and consumer sentiment surveys. In addition, ahead of next week's Fed meeting, the Bank's preferred inflation measure (PCE) is released on Friday - markets will be watching to see if price pressures ease further, potentially making a September rate cut more likely.

Q2 corporate earnings will also remain in focus, with large tech companies like Microsoft, Google and Tesla reporting this week. Guidance for the second half of 2024 and in terms of AI implementation are set to be key watch points.