Global capital markets had a mixed week with release of price and jobs data in U.S. and Europe. Decreasing unemployment in USA had positive impact on markets, while stocks of AI related companies dipped after many weeks of unstoppable gains. In macro news, U.S. monthly inflation remained unchanged in May, as a modest increase in the cost of services was offset by the largest drop in goods prices in six months. In addition, sales of new U.S. single-family homes dropped to a six-month low in May as a jump in mortgage rates weighed on demand, offering more evidence that the housing market recovery was faltering. Brent crude futures had a good week with higher expected demand in the coming months. In Europe, the release of the most recent economic data in France, Spain, Italy and Germany painted a mixed picture for investors and the stock market fell marginally because of it, as well as the worrying environment of political uncertainty in many of the countries in the region. Yield on the U.S. 10-year and 5-year bonds continued to rise.

Global Updates
  • The MSCI All Country World Index edged slightly upwards this week with the news of cooling inflation in the U.S.
  • US PCE data indicated softening inflation in May. Core PCE inflation slowed to 0.1% in May from 0.3% in April, the lowest in six months. Wages and salaries have grown by 0.4% in the same period. 
  • U.S. jobless claims fell for the second week to 233,000, indicating a gradual softening in a weak U.S. labor market. U.S. manufacturing data has shown positive new orders and delivery times for manufacturing, with a higher PMI of 51.7.
  • European equities declined over the week as political uncertainty and a slowing European economy affected sentiment. The big three French banks Societe Generale, BNP Paribas, and Credit Agricole fell 10-14% during the week. The inflation rate in June eased to 2.1% in France and 3.4% in Spain while holding steady in Italy at 0.8%. German unemployment rose to 6% in June.  
  • As the election in the UK took center stage, the Bank of England dealt a blow to the incumbent government, announcing that high borrowing costs and financing costs have negatively impacted the highly leveraged private equity sector. It recommended increased transparency and improved risk management practices to resolve the problem. 
  • Brent crude futures for August trended up by 0.63% to $86.93 per barrel on the expectation of cooling U.S. inflation and the U.S. Federal Reserve cutting rates soon. 
  • Japan’s 30-year bonds touched a 13-year high yield of 2.29%, as the yen crossed a 38 year low against the U.S. Dollar and investors speculated that the Bank of Japan would soon adopt a hawkish policy.
  • German carmaker Volkswagen’s shares fell 2% as investors reacted adversely to its $5 billion investment in the U.S. EV carmaker Rivian, while Rivian’s shares rose 37%, with market capitalization of $3 billion.
U.S. Equity
  • The S&P 500 & Nasdaq trended higher this week. Investor confidence continues to be strong with cooling inflation and resilient growth in the U.S. economy, as the looming Presidential election dominated the news in anticipation of the first debate between President Joe Biden and Donald Trump. 
  • AI related stocks including Nvidia, Qualcomm, Broadcom, etc. declined during the week. Financials, energy, and utilities benefitted from the saturation of AI-tech stocks pricing out investors. Stronger fuel demand expectations benefitted energy related companies. 
  • The U.S. Supreme Court has placed restrictions on the Securities and Exchange Commission’s ability to impose penalties using in-house tribunals as it violated the right to a jury trial. 
  • The E.U. penalized Apple for illegal practices in its app store. The penalty may exceed 10% of Apple’s global revenues, which may amount to $40 billion in fines.
  • Atlanta Federal Reserve president Raphael Bostic said with narrowing inflation in federal funds, a rate cut is likely in the fourth quarter of this year. 
  • Gold has risen 5% in this quarter and 14% year-to-date, pushed by the demand for an interest free commodity with the possibility of rate cuts by central banks.
  • FedEx stock gained during the week on the assurance to investors of a strong 2025 outlook and the planned buyback in the third quarter.
  • General Mills stock fell 4% and the company lowered its guidance for the coming quarter after its fiscal fourth-quarter earnings were less than estimated.
  • J.D. Power and GlobalData speculated that the outage from the cyber-attack on CDK retail software could possibly decrease car sales in June by up to 7.2%. Delayed sales are expected to rollover to July.
  • Boeing is facing a lawsuit for violating the 2021 settlement for the crashes of its 737 Maxes.
U.S. Fixed Income
  • The Bloomberg U.S. Aggregate Bond Index marginally declined this week as the markets awaited the U.S. presidential debate.
  • The U.S. 10-year Treasury yield rose to 4.31% and the yield on the 2-year note reset to 4.73% over the week. During the week, the U.S. 10-year Treasury yield fell below 4.28% following the release of news that U.S. inflation was cooling.
  • The U.S. Dollar Index rose to a 10-day high this week touching 105.9.
Sources

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