Market and Macro Overview for the Week (26th Jul – 2nd Aug 2024)

Macro Trends

Financial markets faced significant declines last week due to poor corporate results on both sides of the Atlantic and fears of a US economic slowdown. Wednesday's rally, sparked by Jerome Powell's comments on a possible September rate cut, was short-lived. Friday's disappointing employment report further clouded the outlook for rates and the US economy. In Europe, the Bank of England joined the ECB in cutting rates to aid recovery. Meanwhile, Japan had a challenging week as the BOJ tightened its monetary policy.

Stock Markets

Major benchmarks closed lower as investors reacted to the busiest week of the quarterly earnings season and significant monthly economic data. The recent rotation toward value stocks and small-caps stalled, with the small-cap Russell 2000 Index pulling back sharply. However, an equal-weighted S&P 500 Index performed better than its market-weighted counterpart, indicating broader market performance beyond the Magnificent Seven tech giants. The Nasdaq Composite entered a technical correction, falling over 10% from its July high. In Europe, the STOXX Europe 600 Index dropped 4.60% amid concerns over weak U.S. economic data. Germany’s DAX fell 4.11%, France’s CAC 40 dropped 3.54%, Italy’s FTSE MIB lost 5.30%, and the UK’s FTSE 100 declined 1.34%. Japan’s stock markets faced heavy losses following a hawkish turn from the Bank of Japan. The Nikkei 225 Index fell 4.7%, and the TOPIX Index dropped 6.0%. The Nikkei experienced one of its largest single-day drops, comparable to those in March 2020 and October 1987, due to disappointing U.S. macroeconomic data dampening investor risk appetite. All made worse by big global equity long positioning in late June, poor seasonals that started in mid-July, the AI?unwind trade, a cloudier economic reality and Trumps Presidential odds deteriorating.?

Fixed Income & STIRs

Longer-term interest rates plummeted following the ISM manufacturing report and jobs data, sending the 10-year Treasury yield to its lowest intraday level (3.79%) since late December. The Federal Reserve left short-term rates unchanged, but expectations for further cuts rose sharply. The CME FedWatch tool showed futures markets pricing a 73.5% chance of a 50 basis point rate cut in September, up from 11.5% the previous week. UK gilt yields fell as the Bank of England lowered borrowing costs for the first time in four years. German bund yields also decreased, with markets anticipating more ECB rate cuts later this year. In Japan, the BoJ raised its key short-term interest rate to around 0.25%, its second hike this year, after exiting its negative interest rate policy in March. The BoJ also announced plans to reduce monthly JGB purchases to about JPY 3 trillion by Q1 2026, reducing purchases by JPY 400 billion each quarter.

FOREX Markets

The Dollar ended last week with significant losses due to less hawkish remarks from Fed Chair Jerome Powell and disappointing US employment figures. These factors shifted market expectations, leading to anticipation of two Fed rate cuts by year-end. Japan's intervention in the currency markets, with substantial Yen buying after breaching a key psychological level against the Dollar, further influenced the Dollar's decline. The Canadian Dollar was the weakest among major currencies, pressured by predictions of a near-term BoC rate cut and the downturn in oil prices, slightly alleviated by hopes for a ceasefire between Israel and Hamas. In contrast, the Australian Dollar was the second strongest, benefiting from delayed expectations of an RBA rate cut and renewed risk-on sentiment around Hong Kong and China’s financial markets. The New Zealand Dollar followed closely, buoyed by similar risk-on sentiments. The Swiss Franc rallied robustly against other major European currencies after unexpectedly high inflation readings.

CryptoCurrencyMarkets

Bitcoin fell almost 10% last week, now trading around $61,800. Low volumes on Bitcoin Spot ETFs in the US indicate institutional investors shunned BTC. Ethereum Spot ETFs, launched on July 23, saw negative net outflows of $115 million. Ether (ETH) is down nearly 9%, following a 6.5% drop last week, trading around $3,000—over 50% below its all-time high of $4,800 at the end of 2021.

Commodities & Energy

Crude oil prices continued to fall for the fourth consecutive week. A brief buying spurt on Wednesday, triggered by rising Middle East tensions after the death of a Hamas leader in Iran, was insufficient to reverse the trend. The market is focusing on demand and the global economic slowdown, sidelining geopolitical tensions. The OPEC+ Joint Ministerial Monitoring Committee recommended no change in policy. Brent crude is down to around USD 77.00, while US WTI is at USD 73.50 a barrel. Commodities reliant on Chinese growth, such as ags, copper, and iron ore, continued to trade poorly. Following a bullish post-COVID and Russia sanctions period, the market is reverting to typical trends, with commodities rising on supply shocks and trending down otherwise. Copper however remained lethargic last week, trading at USD 4.10. Gold though is performing well, driven by rising risk aversion and falling US bond yields, closing near its all-time high at around USD 2442.

What to watch next week

MON - Data: Chinese Caixin Services PMI, EZ/UK/US Final Composite/Services Final PMIs, ISM Services PMI, BoJ Minutes / Speakers: Fed’s Daly TUE - Data: German Industrial Orders, EZ Retail Sales, Canadian Trade Balance, RBA Policy Announcement / Speakers: RBA’s Bullock WED - Data: German Industrial Production, Chinese FX Reserves & Trade, BoC Minutes / Speakers: ECB’s Rehn THU - Data: US IJC, Banxico & RBI Policy Announcements, BoJ SOO / Speakers: RBA’s Bullock, Fed’s Barkin FRI - Data: Chinese CPI, Norwegian CPI, Canadian Jobs

MARKETS WEEKLY PRICES COMPARISON