HARD HATS, NO RATE CUTS
Positive news on the trade and earnings front supported equities last week. Bond yields rose as the outlook for further rate reductions in 2025 was dimmed by healthy economic data while the ECB left its deposit rate unchanged for the first time in a year.
Last night, news emerged that the US and EU had struck a trade deal with a 15% tariff rate being agreed on most goods and a zero-for-zero deal on selected items. US futures indicate a positive reaction by markets.
High-profile Q2 earnings and guidance from the likes of Microsoft and Meta (both Wednesday), and Apple and Amazon (both Thursday) are likely to be a market focus this week, as well as economic data including Q2 GDP for the Eurozone (tomorrow) and the US (Wednesday) and the Fed's post-meeting press conference (Wednesday).
Global PMIs - a survey of business conditions - for June indicated that economic activity remains healthy. The composite PMI for the Eurozone was higher than expected, rising to an 11-month high. In the US, the services PMI increased by more than projected while that for manufacturing unexpectedly fell into contractionary territory.
There was positive news on tariffs last week, with the US and Japan agreeing to a deal whereby Japanese imports to America would be taxed at 15%, which was 10% lower than that threatened by Trump.
The ECB left its deposit unchanged at 2.0%, in line with market forecasts, and President Lagarde stating that the central banks was now "in a wait-and-watch situation". Interest rate markets subsequently priced in a lower probability of rate cuts for the rest of 2025.
Global equities rallied as sentiment was supported by the potential for global trade deals with the US and lower tariffs than threatened, as well as good economic data. The S&P 500 was up by 1.5% last week while the Stoxx Europe 600 rose by 0.5%.
The potential for fewer rate cuts from the ECB helped push up European bond yields (bond prices fall as yields rise), with the 10-year German bund yield rising by 3bps to 2.73% last week. The equivalent US Treasury bond yield fell by 4bps to 4.38%.
- Tue 29th US - Job Openings and Labour Turnover Survey (JOLTS), consumer confidence • Eurozone - Q2 GDP
- Wed 30th US - Fed meeting decision and press conference, Q2 GDP
- Thu 31st US - Initial jobless claims, employment cost index • Eurozone - Unemployment rate
- Fri 1st US - Employment report, ISM manufacturing consumer sentiment • Eurozone -Consumer prices
This is intended as a general review of investment market conditions. It does not constitute investment advice and has not been prepared based on the financial needs or objectives of any particular person.