ANATOMY OF A FALL
Last week, global asset markets were buoyed by lower than expected US inflation and relief around the outcome of the French elections, which are expected to lead to a more centrist governing coalition.
This week, markets will be digesting the weekends' shock shooting attempt on Presidential candidate Donald Trump. In the immediate wake of the event, influential figures such as Bill Ackman and Elon Musk have come out to publicly endorse Trump and the US futures market suggest that the event may have had the effect of adding momentum to the so-called 'Trump trade'. More developments are likely as investors weigh up the implications.
The ECB meeting on Thursday and various activity measures, including retail sales in Germany and China (today) and the US (tomorrow), are likely to be of note. Focus is set to remain on when and by how much central banks will cut rates this year.
Q2 corporate earnings will also be closely watched for momentum and guidance for the second half, with a number of large US banks as well as some global tech companies reporting this week.
Last week, equity markets were supported by increased expectations for US rate cuts and reduced European political risks. The S&P 500 rose by around 0.9% to new all-time highs, while the Stoxx Europe 600 was up by approximately 1.2%.
US headline inflation slowed by more than expected in June to 3.0% y/y, a 12-month low and down from 3.3% in May. Core prices, which exclude volatile food and energy costs and are considered a better measure of price pressures, were up by 3.3%, also below market expectations.
In Europe, the results of the second round French election gave the left-wing New Popular Front bloc the most seats, but was well short of that needed for a majority. President Macron’s Ensemble alliance was second. This left uncertainty as coalition negotiations are set to take a while before a government is formed.
Nevertheless, the result was positive compared to pre-election expectations given the weaker showing for the far-right National Rally and the larger than expected presence for centrist parties. Read more on this and its financial market implications by clicking on the link below.
Fed Chair Powell's comments to Congress and the Senate on Monday and Tuesday were viewed as leaning towards rate cuts later this year as he highlighted “unexpected weakening” in the labour market.
The case for rate cuts was strengthened by softer inflation data on Thursday. This helped push US bond yields lower (bond prices rise as bond yields fall) last week. The 10-year US Treasury yield fell to 4.20%, the lowest level since March.
Reduced political risk after the French election results also helped reduce Eurozone bond yields. The 10-year German yield declined to 2.49% and the equivalent for France to 3.15%, with the spread of French over German 10-year bonds at 66bps.
This week, the ECB meeting on Thursday and various activity measures, including retail sales in Germany and China (today) and the US (tomorrow), are likely to be of note. Focus is set to remain on when and by how much central banks will cut rates this year.
Q2 corporate earnings will also be closely watched for momentum and guidance for the second half, with a number of large US banks as well as some global tech companies reporting this week.
Mon 15th
Eurozone - Industrial production
Germany - Retail sales
China - GDP, retail sales, industrial production, fixed asset investment
Tue 16th
US - Retail sales, National Association of Home Builders (NAHB) survey
Germany - ZEW business survey
Wed 17th
US - Fed Beige book, industrial production, housing starts
Thu 18th
US - Initial jobless claims
Eurozone - ECB meeting, announcement and press conference
Fri 19th
Germany - Producer price inflation
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.