Written by Kayla Tarliman
Last week saw significant fluctuations in US stocks. An early-week rally propelled markets to new highs, but the momentum faded towards the end of the week, primarily due to a downturn in the tech sector. The major indices ended mixed: the S&P 500 and Nasdaq closed lower, while the Dow posted a solid gain.
Both stock prices and interest rates had been rising together earlier in 2024. However, recently, interest rates have declined significantly due to moderating inflation and anticipated Fed rate cuts. Despite this, equities continue their uptrend, bolstered by rising corporate earnings.
A key theme last week was the rotation in market leadership. The tech sector experienced a pullback, while cyclical sectors, which had lagged this year, gained traction. This shift was highlighted by a robust rally in small-cap stocks. Such changes underscore the importance of maintaining a diversified and balanced investment portfolio.
A sharp selloff in high-flying tech stocks led to the S&P 500 experiencing its worst day since December 2022. The index fell 2.3% on Wednesday, breaking a 356-session streak without a 2% decline, its longest streak in 17 years. This came after the index had risen significantly above its 200-day moving average the previous week, a level historically associated with past selloffs.
European stocks are set to open lower on Thursday following significant losses in US stocks overnight, driven by steep declines in the tech sector. European markets extended their losses on Friday, marking the longest losing streak since October 2023. A tech outage caused by defective CrowdStrike software disrupted Microsoft’s Azure and Office365 services, affecting various sectors globally.
By mid-morning CET, the Euro STOXX 50 had fallen 0.5%, and the Euro STOXX 600 was down 0.6%, marking the fifth consecutive session of losses. Major country indices were all in negative territory, with Germany’s DAX down 0.8%, Italy’s FTSE MIB down 0.7%, France’s CAC 40 down 0.7%, and Spain’s Ibex 35 down 0.3%.
Travel and shipping sectors were hit hard by the tech outage. Air France-KLM’s Dutch arm halted most operations, leading to a 1.1% drop in its shares. Lufthansa Group shares fell 1.5% amid warnings of potential delays and cancellations. Similarly, low-cost carriers Ryanair and Wizz Air experienced significant check-in system failures, causing shares to drop by 2.9% and 2.1%, respectively.
European banks also recorded losses, though less severe than those in the travel and shipping sectors. French banks BNP Paribas, Societe Generale, and Credit Agricole saw declines, as did Spanish banks Banco Santander, BBVA, and Bankinter. In Germany, Deutsche Bank shares fell by 1.5%, marking their tenth negative session in the last eleven.
In the bond market, yields held steady, with Bund yields down marginally by 1 basis point to 2.43%. The euro eased by 0.1% against the dollar, falling to 1.0880, while the British pound was down 0.3% to 1.2910.
CrowdStrike Holdings plummeted over 20% in pre-market trading after an update to its cloud platform caused disruptions to Microsoft’s Azure systems. This marked CrowdStrike's worst daily performance since its IPO in 2019. Meanwhile, competitors like SentinelOne, Palo Alto Networks, and Cloudflare saw gains.
Chinese shares ended lower due to muted investor sentiment. The Shanghai Composite Index fell 0.5%, the Shenzhen Composite Index declined 1.3%, and the ChiNext Price Index dropped 1.2%. Property and auto stocks led the losses, with limited expectations for property stimulus measures from the upcoming Politburo meeting.
Hong Kong shares also ended lower, weighed down by technology stocks. The Hang Seng Index fell 0.9%, and the Hang Seng Tech Index declined 1.5%. Major decliners included Meituan and Xiaomi, while gainers included China Resources Power and Cnooc.
Japanese stocks ended lower amid cautious sentiment over potential Bank of Japan rate increases and a rebounding yen. The Nikkei Stock Average declined 1.1%, with notable drops in Mitsubishi Motors, Isuzu Motors, and Sumitomo Realty & Development.
Indian shares closed lower, impacted by finance and bank stocks amid concerns over the budget plan and proposed higher capital gains taxes. The benchmark Sensex declined 0.35%, though Tech Mahindra and Tata Motors saw gains.
Asian shares were hit hard on Thursday as a global tech slump sent investors fleeing to safer assets like short-dated bonds, the yen, and the Swiss franc. Chinese stocks received little support despite a surprise rate cut by the central bank. MSCI's broadest index of Asia-Pacific shares outside Japan lost 0.7%, with Japan's Nikkei tumbling 2.9% and South Korea's KOSPI dropping 2%.
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The S&P 500 Index continued to climb to record highs, although the market’s gains remained notably narrow. As measured by Russell 1000 indexes, growth shares outperformed value stocks by 415 basis points (4.15 percentage points), while the small- and mid-cap benchmarks recorded losses.
The technology-heavy Nasdaq Composite ended the week 73.71% off its lows since the market began its rebound in mid- to late-2022, while the more value-oriented and narrowly focused Dow Jones Industrial Average had gained less than half of that amount, 32.79%. Markets were closed Thursday in observance of the Independence Day holiday, and T. Rowe Price traders noted lighter trading volumes as the week progressed.
Expectations for lower interest rates, fed by signs of weakening growth and easing inflation pressures, seemed to remain a major factor in favoring growth stocks by placing a lower implied discount on future earnings. On Monday, the Institute for Supply Management (ISM) posted its lowest reading of manufacturing activity (48.5, with levels below 50.0 indicating contraction) since February. A separate reading also showed a surprise contraction in construction activity.
While the thought of a slowing economy and a potential recession can be concerning, it is important to remember that they are a natural part of every economic cycle and set the stage for the next growth phase. Fortunately, with the slow unwinding of inflation over the past two years, the Fed should have more room to cut rates, which we believe will shorten the length and severity of a potential recession and help contain the slowdown.
In local currency terms, the pan-European STOXX Europe 600 Index ended 1.01% higher. Political jitters eased as the far right in France failed to win an outright majority in the first round of legislative elections on June 30. Meanwhile, the Labour Party won the UK general election on July 4 with a large majority. Major stock indexes also rose, with France’s CAC 40 Index climbing 2.62%, Germany’s DAX gaining 1.32%, and Italy’s FTSE MIB putting on 2.51%. The UK’s FTSE 100 Index added 0.49%.
A final estimate of eurozone inflation confirmed that the year-over-year change in consumer prices ticked lower in June to 2.5%. However, a crucial services component remained stubbornly high, likely reinforcing the ECB’s case for caution.
Japan’s stock markets gained ground, with the Nikkei 225 Index climbing 3.36% and the broader TOPIX Index advancing 2.65% in local currency terms. Both indexes hit all-time highs during the week, propelled in part by weakness in the Japanese yen, which is typically a tailwind for export-focused industries. The yen strengthened a bit later in the week. In the first three months of the year, Japan’s economy shrank by 2.9% year over year, a sharper contraction than the first estimate that put the decline in gross domestic product (GDP) at 1.8%. The government attributed this revision to corrections in construction orders. The annualized change in GDP was also lowered for the fourth and third quarters of 2023.
Chinese equities fell as underwhelming manufacturing data reinforced concerns about the slowing economy. The Shanghai Composite Index and the blue chip CSI 300 both registered modest losses for the week. In Hong Kong, the benchmark Hang Seng Index gained 0.46% during a holiday-shortened week.
The value of new home sales by the country’s top 100 developers fell 17% in June from the prior-year period, easing from a 34% decline in May, according to the China Real Estate Information Corp. The data boosted hopes that China’s housing market, now in its fourth year of a downturn, may start to gain traction after the government announced a sweeping rescue package in May. China's manufacturing sector shrank in June for the second consecutive month, government data showed. The official manufacturing purchasing managers’ index (PMI) reached 49.5 in June, unchanged from May, as new orders and exports declined. The data reflected the uneven performance of China’s economy this year amid a yearslong property slump that has hit domestic consumption and rising trade tensions that threaten the manufacturing sector.
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Written by Xia Yunchu
Labor Market Recovery: The US economy added 559,000 jobs in June 2024, beating expectations. The unemployment rate declined to 3.8%, signaling a robust labor market recovery. However, wage growth remains moderate, and some sectors face labor shortages. Consumer Slowdown: Recent data shows a slowdown in US retail sales. Consumers are becoming cautious due to rising inflation, supply chain disruptions, and uncertainties related to the pandemic. This trend could impact economic recovery and corporate profits.
Fiscal Challenges: The Eurozone faces fiscal challenges stemming from an aging population. As birth rates decline, the proportion of elderly citizens increases. This puts pressure on pension systems and healthcare budgets. Policymakers must find sustainable solutions to support retirees and maintain economic stability. Tight Labor Market: Despite demographic challenges, the Eurozone's labor market remains tight. Skill shortages persist in certain sectors, leading to wage pressures and potential productivity bottlenecks.
Inflation Insights: Japan and the United Kingdom are experiencing easing underlying inflation. This suggests that supply chain disruptions and energy price spikes may be temporary. However, central banks remain vigilant, closely monitoring inflation data to guide monetary policy decisions. Global Markets Monitor: APAC markets are closely watching upcoming elections (such as India's state elections) and inflation data. Investors are also awaiting Friday's release of the US Personal Consumption Expenditures (PCE) inflation index, which could impact the Federal Reserve's interest rate trajectory.
Written by Erika Lau
As of Friday close: S&P500: 5432 (+1.6%) ; NADQ Comp: 17688 (+3.2%) ; S&P mid-cap 400: 2895 (-0.8%) ; Russell2000: 2006 (-0.01%) S&P500 and NADQ touched new highs pushed by AI enthusiasm and technology-related stocks, while small and mid-cap underperformed over the week. Core inflation fell to 3.4%, the lowest since April 2021. The Producer Price Index (PPI) inflation, which was announced on Thursday, came as a surprise by declining 0.2%, contrary to expectations of a slight increase. Furthermore, on a year-over-year basis, the core PPI decreased to 2.3%, putting an end to five consecutive months of growth. In a related trend, import prices also experienced a decline of 0.4% in May, marking their first decrease in four months. 10-year treasury yield decreased from 4.43% to 4.21% after higher-than-expected jobless claims built inflation pressure. IG corporate bond market was quiet over the week as investors awaited inflation release and Fed’s meeting.
In Japan, the stock markets had a mixed performance for the week, with the Nikkei 225 Index gaining 0.3% while the broader TOPIX Index declined by 0.3%. The Bank of Japan’s (BoJ) June meeting had a dovish tone, which supported the equity market. In the fixed income markets, the yield on the 10-year Japanese government bond (JGB) decreased to 0.93% from 0.98% the previous week. The Japanese yen, already at historically low levels, weakened further against the US dollar, with the exchange rate reaching around JPY 157.5 from 156.6.
Chinese equities faced a decline during a short week, reflecting ongoing deflationary pressures impacting the economy. The Shanghai Composite Index dropped by 0.61%, while the blue chip CSI 300 decreased by 0.91%. In Hong Kong, the Hang Seng Index fell by 2.31% according to FactSet. Chinese markets were closed on Monday for the Dragon Boat Festival. China’s consumer price index showed a modest increase of 0.3% in May compared to the previous year, matching April’s rise. Core inflation, which excludes volatile food and energy prices, grew by 0.6%, slowing down from April’s 0.7% increase. On the other hand, the producer price index experienced a 1.4% decline compared to the previous year, marking its 20th consecutive month of decline. However, this decline was less severe than the 2.5% drop seen in April. Despite Beijing’s efforts to stimulate the economy and stabilize the markets, weak consumer confidence and a prolonged slump in the property sector have kept prices in China under pressure.
JP 1Q GDP: -0.5%, meet est. of -0.5%, down from prev. 0.1% JP Interest rate: 0.1%, meet est. of 0.1%, same as prev. UK GDP MoM: 0%, meet est. of 0%, down from prev. 0.4% US Core CPI MoM: 0.2%, miss est. of 0.3%, same as prev. US PPI MoM: -0.2%, miss est. of 0.1%, down from prev. 0.1% US Crude Oil Inventories 3.7M, beat est. of -1.2M, up from prev. 1.2M US Interest rate: 5.5%, meet est. of 5.5%, same as prev. US Initial jobless claims: 242K, miss est. of 225K, up from prev. 229K
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Written by Dacian Deng
The U.S. market experienced mixed results as longer-term bond yields fell. The S&P 500 and Nasdaq Composite reached record highs, while smaller-cap indexes pulled back. Growth stocks outperformed value shares due to falling interest rates. However, the artificial intelligence (AI) sector saw some slowdown as U.S. officials slowed the issuance of licenses for AI chip sales to the Middle East and opened antitrust investigations into Microsoft and NVIDIA.
The major indexes had varied performances for the week, with the DJIA up 2.94%, S&P 500 up 12.10%, Nasdaq Composite up 14.13%, S&P MidCap 400 down 5.00%, and Russell 2000 down slightly by 0.03% year-to-date.
Despite positive data indicating a potential recovery in the property sector, stocks in China experienced a decline. The Shanghai Composite Index dropped 1.15%, while the CSI 300 Index fell by 0.16%. In contrast, Hong Kong's Hang Seng Index rose 1.59%.
In economic news, the private Caixin/S&P Global survey showed a slight improvement in manufacturing activity, with a reading of 51.7 in May compared to 51.4 in April, indicating the seventh consecutive month of expansion. The Caixin services purchasing managers' index also exceeded expectations, reaching 54 in May, up from 52.5 in April. This private survey focused on smaller and export-oriented firms, adding to official data from the previous week, which showed an unexpected contraction in manufacturing activity in May.
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Written by Erika Lau
US ended higher for the week as it tapped into the second week of the earnings release. A cooler labor market, as indicated by lower-than-expected nonfarm payrolls, lowered the inflationary pressure and gave investors a greater hope of loosening interest rates. Powell’s response to the data also pushed back stagflation worries which further encouraged investors.
For individual stocks, AAPL beat consensus revenue expectations and announced the largest buyback of 110bn USD helped boost investors’ confidence. TSLA also lifted the market after a 15% rally under China’s tentative approval of the self-driving technology.
Europe ended lower amid mixed earnings and an unsure interest rate outlook. The German DAX index experienced a decrease of 0.88%, while France’s CAC 40 Index saw a decline of 1.62%. Italy’s FTSE MIB index also weakened, with a decrease of 1.81%. In contrast, the UK’s FTSE 100 Index registered a gain of 0.90% and reached a new high, primarily fueled by the robust performance of mining and energy stocks.
Chinese stocks rose during a week as investors expressed optimism regarding increased government assistance that China would utilize various monetary policy tools, such as potential interest rate reductions and adjustments to the reserve requirement ratio. SSEC rose by 0.52%, while the prominent CSI 300 index of blue-chip stocks saw a slight gain of 0.56%. A larger rally in Hong Kong with the surge of HSI by 4.67%.
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Written by Leo Xu Mingyuan
Stocks recorded their third consecutive week of broad losses, as concerns over tensions in the Middle East and the possibility of U.S. interest rates remaining high. Mega-cap technology shares lagged as rising rates placed a higher theoretical discount on future earnings.
Some strong economic data appeared to increase worries that the Federal Reserve would push back any interest rates cuts to the fall, if not to 2025. On Monday, the Commerce Department reported that retail sales rose 0.7% in March, well above consensus expectations of around 0.3%, while February’s gain was revised upward to 0.9%. The retail sales data helped push the yield on the benchmark 10-year U.S. Treasury note to its highest intraday level since last November.
Fed officials expressed their concern with recent economic data. On Tuesday, Fed Chair Jerome Powell stated at an economic conference that "recent data have clearly not given us greater confidence and instead indicate that it’s likely to take longer than expected to achieve that confidence."
Consumer prices in the UK grew an annual 3.2% in March, down from 3.4% in February. Although the inflation rate fell to its lowest level in two and a half years, the decline was slightly less than forecast by Bank of England (BoE) due to elevated price growth in fuel and communication goods. Higher oil prices and the somewhat sticky inflation data prompted financial markets to push out expectations for a first cut in UK interest rates from June to sometime in the fall.
European Central Bank (ECB) policymakers at the IMF meeting reiterated that June was the likely target date for lowering borrowing costs, barring unexpected economic shocks. Three to four rate cuts this year priced in by markets were in line with the bank’s economic outlook.
Chinese equities rose after the economy expanded more than expected in the first quarter. The Shanghai Composite Index gained 1.52%, while the blue chip CSI 300 added 1.89%. In Hong Kong, the benchmark Hang Seng Index gave up 2.89% as escalating geopolitical tensions in the Middle East hurt investor sentiment.
China’s gross domestic product expanded an above-consensus 5.3% in the first quarter from a year ago, accelerating slightly from the 5.2% growth in last year’s fourth quarter. On the monetary policy front, the People’s Bank of China injected RMB 100 billion into the banking system via its medium-term lending facility compared with RMB 170 billion in maturing loans and left the lending rate unchanged, as expected. The operation resulted in a net withdrawal of RMB 70 billion from the banking system, marking the second cash extraction this year.
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Written by Jonathan Chen
While the S&P 500 ended a record-setting streak by falling just below the flatline, it still managed to secure a win for the week. The Dow Jones Industrial Average saw a slight increase of about 0.2%, whereas the tech-heavy Nasdaq Composite experienced a minor drop close to 0.4%. This mixed closing was amid investors bracing for the Fed's upcoming meeting, focusing on potential rate cuts and the central bank's latest viewpoint on inflation and economic growth.
The week also highlighted anticipation for major tech companies' earnings reports, with Alphabet and Microsoft set to start the earnings season. These reports are keenly watched due to the significant influence these companies have on both the global economy and investors' portfolios.
Furthermore, the US market witnessed crude oil gaining more than 6% over the week, driven by bullish economic data and ongoing tensions in the Red Sea region. This rise in oil prices was supported by freezing temperatures affecting US production, a reduction in crude inventories, and various global economic factors.
The Swiss National Bank made a surprise interest rate cut, becoming the first major financial center to do so recently. Investors were also anticipating major economies' manufacturing PMI and CPI data as they continue to address inflation concerns.
Additionally, European stocks experienced mixed movements, with the tech sector influencing Wall Street's performance and Bitcoin's value jumping significantly. The Dutch TTF benchmark for European gas prices saw a significant decrease, suggesting a possible easing of the energy crisis.
Chinese regulators reportedly blocked Syngenta's planned $9bn Shanghai IPO due to liquidity concerns. Indian stocks did not experience the traditional pre-election rally as the country prepares for parliamentary elections; US yields and a significant earthquake impacted markets like Nikkei and Hang Seng. Meanwhile, China's solar sector is facing oversupply and low prices, suggesting a year of consolidation ahead.
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Written by Kevin Xia
Oil Prices Rise on Strong Global Demand and Fed Rate Cut Expectations: Oil prices rose on March 13, 2024, on expectations of strong global demand, including in the United States, and as even somewhat sticky U.S. inflation did not dent expectations the Fed might start cutting rates soon. Brent futures for May delivery were up 36 cents, or 0.44%, at $82.28 a barrel.
US Consumer Prices Rise: The consumer price index increased 0.4% for the month of February and 3.2% from a year ago. The monthly gain was in line with expectations, but the annual rate was slightly ahead of the 3.1% forecast from the Dow Jones consensus.
US Fed: The Federal Reserve held its key interest rate steady Wednesday for the fifth consecutive meeting, as the central bank awaits more data to determine when to cut rates.
European and US Equity Futures Trade Higher: On March 18, 2024, European and US equity futures traded higher following a selloff in equities and bonds when markets rounded off a week that saw hot inflation concerns roiled markets.
Europe's Worst Earnings Season Since Covid: Europe had its worst earnings season since the onset of Covid.
Red Sea Situation and Fruit Exports: Maersk's March 2024 market update covered the Red Sea situation, fruit exports, port updates, inland solutions, labor regulations, and last-mile strategies.
Eurozone Inflation Drops to 2.4%: The European Central Bank (ECB) was slower to raise interest rates, but that did not stop eurozone inflation from dropping to 2.4%, just above the 2% target rate.
Asia Markets Fall Ahead of Central Bank Interest Rate Decisions: On March 18, 2024, Asia-Pacific markets fell ahead of central bank monetary policy decisions from the Bank of Japan and the Reserve Bank of Australia. Asian Markets Mixed Ahead of Bank of Japan Decision: On March 19, 2024, Asian markets were mixed ahead of a much-anticipated Bank of Japan meeting.
Written by Erika Lau
The U.S. stock market mostly ended higher for the week, driven by favorable inflation news. The Nasdaq Composite and S&P 500 reached record levels, with the S&P 500 having its strongest start to the year since 2019. The gains were broad-based, with an equal-weighted version of the S&P 500 outperforming the market capitalization version. Large, technology-oriented growth stocks continued to outperform, contributing to the overall performance.
The release of the Commerce Department’s core personal consumption expenditures (PCE) price index, which is considered the Federal Reserve’s preferred measure of inflation, helped boost market sentiment. The index rose 2.8% for the 12 months ended in January, in line with expectations, alleviating concerns raised by the Labor Department’s consumer price index, which showed higher-than-expected core prices. Despite the positive reaction in the stock market, Federal Reserve policymakers maintained their stance of not rushing to cut interest rates.
The manufacturing sector, however, surrendered some of its recent momentum, with the Institute for Supply Management’s (ISM) gauge of manufacturing activity falling below expectations in February. Durable goods showed a more positive outlook, and personal incomes saw a significant increase in February.
The yield on the 10-year Treasury note reached its lowest level in weeks, reflecting the positive reaction to the PCE data and the downside surprise in the manufacturing sector. U.S. Treasuries generated positive returns as yields decreased, and municipal bonds received an additional boost from light issuance.
In the investment-grade corporate bond market, spreads widened due to heavy supply, as February saw a record-breaking amount of new issuance. High yield market trading activity was subdued early in the week but tightened credit spreads following the release of the core PCE price data.
Overall, the U.S. stock market experienced gains, driven by positive inflation news, while the manufacturing sector showed a slight decline. Bond markets reacted positively to the economic data, and corporate bond issuance reached a new record in February.
