Market Commentary Week ending 28 July 2024
US: Small-cap growth and GDP beat expectations
US indexes recorded mixed results and showed similar trends to last week, with the S&P 500 down 0.83%, the Nasdaq 100 down as much as 2.56%, and the small-cap Russell 2000 up as much as 3.47%. Interestingly, after an impressive rally in value and small-cap stocks in recent weeks, the returns of the three indexes (S&P 500, Nasdaq 100 and Russell 2000) have converged strongly since the beginning of the year and are currently hovering in the 12–15% range.
This week’s macroeconomic data did not allow us to get an unequivocal impression of how the country’s businesses are doing and what kind of sentiment prevails among consumers. First of all, it was reported on Wednesday that 617 thousand units were sold in June. of new homes, when economists predicted 639 thousand. In addition, on the same day, the S&P Global agency reported that the PMI score for the manufacturing sector fell below the 50-point mark again and entered a period of contraction in business activity.
On the other hand, it was reported on Thursday that the US GDP growth in the second quarter was as high as 2.8% on an annual basis, when analysts had predicted a rise of 2%, and the growth of the previous quarter was 1.4%. It is true that it is worth noting that the growth of state expenditure contributed particularly strongly to the growth. Also on Thursday, durable goods orders (excluding transportation goods) reported better-than-expected growth of 0.5% in June, when economists had forecast a 0.2% rise.
Finally, on Friday, the US Department of Commerce announced the results of the PCE Price index, which more or less met analysts’ expectations. True, the annual growth of the price level (excluding food and energy prices) reached 2.6% and exceeded analysts’ forecast by 0.1%.
In the midst of quarterly earnings season, big tech companies have suffered big losses. During the week, Tesla’s share price fell as much as 8.11%, Alphabet — 5.97%. While overall sentiment appears to be negative this quarterly earnings season, analysts at FactSet raised their forecast to expect total earnings for S&P 500 companies to grow 9.8% last quarter, up from 9.7% last week.
Europe: Shrinking manufacturing sector and the Olympics
Most European stock indexes rose up to 2% last week, with the DAX up 1.35%, the UK’s FTSE 100 up 1.59% and France’s CAC 40 down 0.22%.
Eurozone purchasing managers’ index data came out last week, marking weaker-than-expected results. Europe’s manufacturing sector is still experiencing contraction, with the PMI score for this sector falling slightly to 45.6 points. Although the service sector PMI remained above the 50-point mark, the result of the index fell by almost 1 point in the last month and did not meet analysts’ expectations.
The Paris Olympics, which started on Friday, have not had a noticeable impact on the capital markets so far. Of course, it is expected that the huge flow of tourists will contribute to the growth of sales of services and luxury goods — the LVMH conglomerate is a big sponsor of this event, which has signed as much as 150 million. partnership agreement worth EUR.
Meanwhile, the results of the United Kingdom’s PMI were more positive than those of the Eurozone. The PMI of the manufacturing sector of this country remained above the 50-point limit for the third month in a row and reached 51.8 points. The services sector PMI rose slightly to 52.4 points and was more or less in line with analysts’ expectations.
The share price of the LVMH conglomerate, which announced its quarterly results, experienced a relatively large (2.46%) drop. Stellantis stock price fell by as much as 12.95% after the company posted quarterly results that fell short of investors’ expectations.
Asia: A strong yen and unexpected interest rate cuts in China
Asian stock indexes fell sharply last week, with Japan’s Nikkei 225 down as much as 5.98%, China’s CSI 300 down 3.67% and Hong Kong’s Hang Seng down 2.28%.
In Japan, the local currency strengthened against the dollar for the third week in a row and reached the level of 154.2 yen per one US dollar. Such strengthening of the currency has a negative impact on the country’s exporters. There was active speculation in the public space about the possible increase of the interest rate during the upcoming BoJ meeting on July 30–31. Finally, a 2.2% year-on-year change in Tokyo-area inflation came in last week, beating analysts’ projections.
The People’s Bank of China surprised analysts with its decision to cut interest rates. The medium-term borrowing rate was cut by 20 basis points to 2.3%, the first rate cut since 2023. August.
