Market Commentary 2nd July 2024 – from Charlie Hancock

Posted by melaniebond

Market Commentary 2^nd July 2024

Equity Indices

UK equity indices declined last week, with the large-cap FTSE 100 moving 0.89% lower and the mid-cap FTSE 250 index posting a loss of 0.77%.

The Office for National Statistics (ONS) reported that the UK economy expanded by 0.7% during the first quarter of 2024, revising their previous estimate of 0.6% higher. Most economists believe that growth slowed during the 2^nd quarter, with economic indicators pointing to slowing consumer spending.

The Confederation of British Industry (CBI) stated that retail sales fell faster than expected in June, after modest growth during May. The CBI said that firms reported “well below average” sales for this time of year and that sales are expected to remain weaker than average during July.

Europe

European equity indices were mixed last week and the FTSE All World Index – Europe ex UK declined by 0.44%. France’s CAC 40 lost 1.96%, the Swiss Market Index saw a small decline of 0.16%, whilst Germany’s DAX was one of the only major indices in the region to post a gain (+0.40%).

Concerns around the outcome of upcoming elections in France appeared to dent investor confidence last week, with French equities losing ground as a result. Meanwhile, updated Consumer Price Index (CPI) data for France showed that inflation slowed from 2.6% in May to 2.5% in June.

Economic data for Germany was relatively gloomy. The unemployment rate rose to 6%, reaching the highest level since early 2021. Hosting the Euro 2024 tournament appears to have had little impact on consumer confidence, with a closely watched measure of sentiment declining in June. Consumers reported lower spending intentions, with a focus on saving instead. Business confidence also deteriorated during the month.

Equity indices in the US were broadly flat last week, with both the S&P 500 and the Dow Jones Industrial Average indices moving 0.08% lower. The technology heavy NASDAQ 100 index posted a decline of 0.09%.

Economic data in the US last week pointed to slowing growth. A closely watched measure of consumer confidence showed a decline for June, with consumers citing concerns around their income and job market conditions. Data on the housing market pointed to slow activity, with the number of pending existing home sales unexpectedly declining by 2.1% in May as high mortgage rates deterred buyers.

Investors paid close attention to data on the Personal Consumption Expenditures (PCE) index, which is often cited as the Federal Reserve’s preferred measure of inflation. PCE inflation slowed in May to 2.6%, down from the 2.7% recorded in April. Core PCE, which excludes food and energy, also slowed to 2.6%.

Asia

Asian equity indices were mixed and the broad FTSE All World Index – Asia Pacific posted an increase of 0.61%. China’s Shanghai Composite Index fell by 1.03%, whilst Japan’s Nikkei 225 was the strongest performing major index around the globe last week, rising by 2.56%.

Muted investor sentiment contributed to Chinese equities declining last week. Weaker than expected earnings reports have contributed to the decline in confidence amongst investors. Purchasing Managers’ Index (PMI) data showed that growth in the services sector slowed during June, whilst the manufacturing sector contracted for the 2^nd consecutive month. Economists expect Beijing to continue implementing supportive fiscal policy in the coming months.

The Japanese Yen weakened to the lowest level versus the US Dollar since 1986 last week. Recent interventions from policymakers in Japan to try and shore up the value of the currency have failed to have any significant impact. The currency weakness continues to prompt growing speculation that the Bank of Japan (BoJ) will hike interest rates again in the coming months. Last week’s inflation data, which showed that consumer price inflation accelerated to 2.1% in June, also contributed to expectations for the BoJ to tighten monetary policy.

Bond Yields

The 10-Year Gilt yield rose from 4.08% to 4.17%. Data on the UK labour market from job posting company Indeed, showing that wage growth in May increased to a 4 month high, may have contributed to Gilt yields rising last week.

Europe

The 10-Year German Bund yield moved from 2.41% to 2.50% across the week. Data from France and Spain showed that inflation slowed during June, which should provide the European Central Bank (ECB) with ammunition to cut rates further in the coming months, however, political uncertainty continues to contribute to volatility in Eurozone government bond yields.

The 10-Year Treasury yield increased from 4.26% to 4.40% last week, despite economic data pointing to a slowing economy and softer inflation. Investors are not currently expecting an interest rate cut by the Federal Reserve before September.

Currency

GBP / USD – Current 1.2645 Previous 1.2645

GBP / EUR – Current 1.1801 Previous 1.1825

The Pound was relatively stable last week and saw no change against the US Dollar. Against the Euro, the Pound declined by 0.20%.

Commodities

Gold

The Gold spot price saw a marginal increase last week, rising by 0.21% to $2,326.75 per ounce. The precious metal has remained around the $2,300 mark since March.

Oil

The Brent Crude spot price rose by 1.37% to $86.41 per barrel. Oil prices have steadily increased throughout June, following a sharp decline at the end of May. Last week the US senate launched an investigation into domestic oil producers including Exxon Mobil and Chevron, with the Senate accusing the companies of illegally coordinating prices with OPEC.