KEIR, THERE AND EVERYWHERE
Last week, equities continued to rise as tech stocks rebounded from recent losses and European stocks were supported by a lower expected chance of a far-right victory in the French elections. Bond yields rose as central banks continued to express concerns around inflation coming down to the 2% target. Elsewhere, in the UK general election, the Labour party won a landslide victory.
This week, European markets may take a while to digest the early results from the second round French election which seem to indicate a hung parliament though avoiding a far-right government. The economic data calendar is light this week, but June US inflation (Wednesday) is likely to be the main point of interest in terms of the expected policy path for the Fed.
Last week, the S&P 500 rose by around 1.4% as tech stocks rebounded from recent losses. European stocks were supported by a lower expected chance of a far-right victory in the French elections following the first round results last week, with the Stoxx Europe 600 rising by approximately 1.6%.
US labour market data for June showed more jobs added than expected, but unemployment ticked up marginally to 4.1%. The services sector, which accounts for 70-80% of the US economy, exhibited a broad-based contraction in activity in June. The ISM services index - a business survey to assess current and expected conditions - declined much more than expected and indicated weakness in new orders, business activity and employment.
Meanwhile Eurozone data was more positive. Headline inflation fell to 2.5% y/y in June, suggesting inflation could fall closer to the ECB's 2% target in the second half. However, beneath the surface, price pressures remain as services inflation was still elevated at 4.1%, the same as the seven-month high in May. Unemployment in the region also remained at the historical low of 6.4% in May, a full percentage point below the pre-pandemic level and indicative of a strong labour market. Overall, this is set to keep the ECB cautious around rate cuts in the coming months.
Elsewhere, the UK general election gave the Labour party a majority of over 170 seats. It won a landslide victory of some 409 parliamentary seats out of a total of 650. The result was expected, but UK housebuilder stocks gained on hopes that the new government would begin a major housebuilding plan.
Central bank meeting minutes indicated concerns over inflation. The Fed's June meeting minutes implied that inflation needs to come down further before the key rate is cut. The ECB's June meeting minutes, at which it cut rates for the first time since 2019, also suggested that the Bank remains concerned about upside risks to inflation. This was also reflected in speeches by Fed Chair Powell and ECB President Lagarde last week.
Strong economic data and the ECB meeting minutes helped push Eurozone bond yields higher (bond prices fall as bond yields rise) last week, with the 10-year German bund closing as high as 2.61%. The equivalent US Treasury yield fell to 4.29% amid indications of slowing activity, which could justify lower rates.
This week, European markets may take a while to digest the early results from the second round French election which seem to indicate a hung parliament though avoiding a far-right government. The economic data calendar is light this week, but June US inflation (Wednesday) is likely to be the main point of interest in terms of the expected policy path for the Fed.
Tue 9th
US - NFIB small business survey
Thu 11th
US - Consumer prices, Federal budget, initial jobless claims
Fri 12th
US - Consumer sentiment
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.