In a disappointing week for global markets, equities declined with weak second quarter earnings announcements of some of the biggest names in technology. The correction caused the worst daily wipeout since October 2022. The week started on a troubled note with severely underwhelming earnings reports from a number of large companies. Over in Europe, manufacturing data showed continuing contraction, with Germany and France being the biggest losers. However, towards the end of the week, positive US GDP data and falling inflation buoyed the falling equity markets. In geopolitics, Russia attacked Ukrainian energy facilities in two regions between the capital Kyiv and the Russian border with drones, leaving tens of thousands of people without power.

Global Updates
  • The MSCI All Country World Index dropped sharply during the week with ‘Magnificent Seven’ stocks enduring the brunt of the fall after announcing highly underwhelming second quarter earnings. Towards the end of the week, the markets did recover slightly owing to falling inflation in the US.
  • The manufacturing PMI in Europe dropped to 45.6 in July from 45.8 in June. This was the 16th month of contraction in European manufacturing. Manufacturing in Germany and France contracted the most, which led to a domino effect with a reduction in employment, orders for supplies and raw materials. 
  • The People’s Bank of China lowered its key policy rate and benchmark lending rates by 10 basis points. The one-year Loan Prime Rate was reduced from 3.45% to 3.35% and five-year LPR from 3.95% to 3.85%. After this, five of China’s major state-owned banks cut deposit rates to cushion a hit to their already record low margins.
  • Oil prices declined for a third consecutive week, pressured by muted demand in China and expectations of a Gaza ceasefire deal that could ease Middle East tensions and accompanying supply concerns.
  • Japan’s factory activity contracted slightly in July as new orders fell, and firms remained under pressure from higher prices. However, the expansion in the service sector helped overall activity in Japan’s private sector return to growth in July.
  • Ukraine announced a deal to restructure its debt of $20 billion with a creditors group. The deal ensures $11.4 billion cash flow till 2027 for defense and public expenditure.
  • The prolonged weakness in metal prices, especially in copper, continued as weakness of import demand from China continued to influence global price levels.
  • Spotify’s stocks rose owing to higher than expected profits of €1.11 billion and revenue of €3.81 billion. Deutsche Bank’s share price dropped following the announcement of its first quarterly loss in four years.
U.S. Equity
  • All the major large cap indices fell during the week. Small cap technology stocks outperformed large cap technology stocks. However, towards the end of the week, the Dow Jones Average Index marginally recovered owing to solid U.S. GDP data.
  • The CBOE Volatility Index rose to the highest level since April, after poor second quarter results of technology leaders Tesla, Alphabet and others sparked a sell-off.
  • U.S. prices rose moderately in June, underscoring an improving inflation environment that potentially positions the Federal Reserve to begin cutting interest rates in September. The personal consumption expenditures price index nudged up 0.1% last month after being unchanged in May.
  • The U.S. GDP grew at an annualized rate of 2.8% during the second quarter of 2024, exceeding estimated growth of 2% and rising from 1.4% in the first quarter. Consumer spending also rose driven by consumption of goods and vehicles, while consumption of services lagged. 
  • In the US labor market, jobless claims for the week ended 20th July fell to 235,000 indicating a softening of the labor market. 
  • Tesla stocks tumbled during the week, as the company’s profits and net revenue fell in the second quarter. The company’s net income fell to $1.5 billion from $2.7 billion over a year. 
  • Woodside Energy announced plans to acquire Tellurian for $900 million. Tellurian’s LNG development in Louisiana will complement Woodside’s majority holdings in the Shenzi oil-and-gas field.
  • Leading global investment firm KKR has entered an agreement to purchase wealth management firm Janney Montgomery Scott from The Penn Mutual Life Insurance Company to enter the retail investment business.
  • Shares of U.S. carmakers Ford and Stellantis plummeted during the week owing to poor second quarter results caused by rising inventories and warranty repair costs.  
  • Google’s negotiations to acquire the cybersecurity startup Wiz for $23 billion has failed.
U.S. Fixed Income
  • The Bloomberg U.S. Aggregate Bond Index remained in line this week. 
  • The U.S. 10-year Treasury yield rose to 4.246% and the yield on the 2-year note reset to 4.431% over the week.
  • The U.S. Dollar Index rose marginally to 104.37 this week. 
  • 2-year bond yields fell to five-month lows with investors moving to short-term U.S. government debt following a risk-off sentiment in the global stock markets.
Sources

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