Market Commentary 8th July 2024 – from Charlie Hancock

Investor sentiment on domestic UK companies improved following the result of Thursday’s general election. Housebuilder stocks appeared to benefit from the Labour party’s plan to overhaul the UK planning system, with Barratt Developments and Taylor Wimpey gaining 6.73% and 7.63% respectively across the week.

The newly appointed chancellor, Rachel Reeves, hinted that fiscal policy changes would be minimal in the coming weeks and months, with Kier Starmer’s government keen to avoid significant amounts of new borrowing.

Uncertainty surrounding the outcome of the French parliamentary elections dominated headlines during the week, after Marine Le Pen’s National Rally party achieved a majority share of the vote in the first round of elections. However, the National Rally were defeated in the second round of voting on Sunday, with the result being a hung parliament. The leftist New Popular Front achieved the biggest number of seats, followed by Emmanuel Macron’s centrist coalition.

The European Central Bank (ECB) offered little guidance on the path for interest rates in the months ahead. The ECB’s President, Christine Lagarde, stated that Europe faces uncertainties regarding inflation, citing concerns regarding the possibility of ‘new supply-side shocks’.

US economic data was mixed last week. Purchasing Managers’ Index (PMI) data from the Institute for Supply Management (ISM) indicated that both the services and manufacturing sectors experienced contractions in June. The reading for the services sector was the worst since the lockdown period in 2020, suggesting weak growth amongst service businesses. Labour market data showed the US economy added 206,000 new jobs during June, whilst the unemployment rate ticked up to 4.1%.

The Federal Reserve chair, Jerome Powell, stated during a conference on Tuesday that inflation was not likely to hit the central bank’s target until late 2025 or 2026, however, Powell added that the Fed has made “quite a bit of progress” in bringing it lower.

Chinese economic data painted a mixed picture. The manufacturing sector remained in contractionary territory during June, with declining exports hurting growth. The reading for the services sector came in weaker than expected, but the sector remained in expansionary territory overall. Hopes for an imminent turnaround in China’s property market increased, after fresh data indicated that the decline in house prices may be easing.

Newsflow regarding Japan was generally quite gloomy. Revised figures showed that the economy shrank by 2.9% year-on-year during the first quarter of 2024, which was significantly worse than the previous estimate of a 1.8% decline. Consumer spending declined during May, defying economist expectations for an increase.

The Federal Reserve have offered no clear guidance on whether interest rates will be cut in September. Some investors are speculating that the Fed will defer any decision making until after November’s presidential elections.

GBP / EUR – Current 1.1821 Previous 1.1801

The Pound strengthened last week, with currency traders bullish on Sterling both in the build up to and following Thursday’s general election. The Pound gained 1.34% against the US Dollar and 0.17% against the Euro.