Source: Bloomberg, S&P Dow Jones, MSCI, FTSE Russell, 21st July 2024
There were central bank comments, earnings results and data surprises for investors to digest last week. But the most significant market moves were related to trade policy statements associated with the American presidential election and China.
Australian unemployment rose in line with expectations due to increased participation and is unlikely to prevent the RBA from raising rates again if inflation remains unacceptably high.
This week, the latest round of global flash PMI reports will be released, as well as American GDP growth and PCE inflation figures.
Stock market volatility increased sharply last week. US Treasury yields rose slightly, and the US dollar strengthened, even as Jerome Powell said that the FOMC would not need to wait until inflation reached the 2% target to cut interest rates. Both the PBOC and ECB kept rates on hold last week, as widely anticipated.
There were upside surprises in US June advance retail sales (+0.0% but +0.8% ex-autos and gas) and industrial production (+0.6%). However, the production surprise was primarily due to stronger performance from utilities. Expectations for Q2 GDP growth, due to be released this week, have firmed to +1.9% annualised, up from +1.4% in Q1.
The US quarterly earnings season gathered pace, but still only 70 companies in the S&P500 have reported. A note published by FactSet characterised results so far by saying, "On the one hand, the percentage of S&P 500 companies reporting positive earnings surprises is above average levels. On the other hand, the magnitude of earnings surprises is below average levels."
Friday's session was interrupted by the global systems outage that affected 8.5 million Windows devices, according to Microsoft. The problem was a result of a corrupted antivirus update by cybersecurity specialist CrowdStrike, shutting down systems across a wide range of industries requiring robust security protection. Operators that were impacted included airports, TV stations, supermarkets, payment processors and securities trading. The Microsoft share price slipped -3.6% over the week, while CrowdStrike plunged by -17.9% (see chart below) as it suggested that it might take some time to fully restore functionality across all systems.
Semiconductors (-8.4%), semiconductor equipment (-12.8%), and electronic components (-6.4%) were among the worst-performing sectors in the S&P500 ( -2.0%) as the US government announced further curbs on chip exports to China.
ADRs of the emerging market darling TSMC also traded -11.5% lower (in US dollar terms) as Donald Trump suggested that Taiwan needed to contribute more for US military protection. He accepted the Republican Party's nomination for the November presidential election, outlining policies that would potentially increase tariffs on Chinese imports, add 10% tariffs on imports from all other locations, and reduce labour supply through a significant increase in deportations. Homebuilders (+8.6%), regional banks (+6.5%), managed healthcare (+5.9%), and oil and gas (+5.0%) performed relatively well as likely beneficiaries of Republican policies.
The former President is the clear favourite to return to the White House as Joe Biden officially withdrew from the campaign and the nomination overnight. Biden has endorsed his running mate Kamala Harris for the nomination however there is still more water to go under the bridge before Harris is officially selected by the party.
The week began with disappointing activity data from China. Q2 GDP undershot expectations, dropping from +5.3% yoy in Q1 to just +4.7% yoy. The slowing in June retail sales to just +2.0% yoy is indicative of the malaise in the domestic economy, with an upside surprise in industrial production (+5.3% yoy) being the one bright spot. However, the production growth was relatively concentrated in the subsidised high-tech and electric vehicle sectors as authorities attempt to offset foreign restrictions on technology imports.
Over three days last week, the Central Committee of the Communist Party of China convened its third plenary session for the 2022 to 2027 government. Seven plenary sessions are usually held in each government, with the third generally focusing on the economy. Following the conclusion of the event, Sourabh Gupta, Resident Senior Fellow and Head of the Trade 'n Technology Program at the Institute for China-America Studies, an independent think tank based in Washington DC, wrote, "The communique's reference to an analysis of the current economic situation that was conducted at the plenum as well as the related call to realise the 2024 growth and social development targets are interesting in their own right. Typically, this is not content that one associates with Third Plenum communiques, which tend to frame priorities over longer-term horizons".
Australian unemployment rose as expected from 4.0% in May to 4.1% in June, according to the ABS. However, the increase was due to greater labour force participation as an estimated +50.2k Australians found new jobs. Consequently, the increase won't be a barrier to the RBA raising the cash rate in August if the Q2 inflation data, due out on July 31st, suggests that inflation is taking longer to return to target than the RBA deems acceptable. The Reserve Bank will publish updated forecasts in the quarterly Statement on Monetary Policy at the same time as the interest rate decision.
There is relatively little data due out in Australia this week. The Australian and global flash PMI surveys will be published on Wednesday, followed by US GDP that night and PCE inflation the following day. The Fed's preferred core PCE inflation figure is expected to slow to 2.5%, likely allowing for a September cut in the Federal Funds rate.
Source: Bloomberg, NBSC, Federal Reserve, S&P Dow Jones, ABS, 21st July 2024
Significant Upcoming Data:
| Monday | Tuesday | Wednesday | Thursday | Friday |
Australia |
|
| Judo Bank Flash PMIs |
|
|
US | Chicago Fed. Natl. Activity Index | Philly Fed. Non Manuf. Activity; Richmond Fed. Manuf. Index & Bus. Conditions; Existing Home Sales
| Q2 GDP (Adv. Est.; S&P Global Flash PMIs; Durable Goods Orders; Wsale & Ret. Inventories; Kansas City Fed. Manuf. Activity; Adv. Goods Trade; New Home Sales; MBA Mortgage Apps.
| PCE Inflation; Personal Inc. & Spending; Weekly Jobless Claims | UMich Cons. Sentiment; Kansas City Fed. Serv. Activity |
Europe | [German] & French Ret. Sales; Swiss M3 Money Supply; Belgian Cons. Conf.; Irish PPI
| Danish, Dutch & Irish Cons. Conf.; Finnish Unempl. | EZ & German GfK Cons. Conf.; S&P Global & HCOB Flash PMIs; Spanish & Finnish PPI; [German Import Prices]
| EZ M3 Money Supply; German IFO Surveys; French Bus./Manuf. Conf., Prod. Outlook & Tot. Jobseekers; Swedish PPI & Household Lending; Norwegian Unempl. & Ind. Conf.; UK CBI Trends; Irish Cons. Conf.; Belgian Bus. Conf.
| Spanish, Danish & Norwegian Ret. Sales; Spanish & Swedish Unempl.; ECB 1yr & 3yr CPI Exp.; Italian Cons.& Manuf. Conf., Econ. Sent. & Hourly Wages; French Cons. Conf.; Swedish Trade; Finnish House Prices; Irish CPI |
Japan | Tokyo Condos. for Sale | Machine Tool Orders | Jibun Bank Flash PMIs | Services PPI; Dept. Store Sales | Leading & Coinc. Indices; Tokyo CPI |
China | 1yr & 5yr Prime Loan Rates |
|
|
| [Ind. Profits] |
Source: Bloomberg, S&P Dow Jones, MSCI, FTSE Russell, 21st July 2024
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