In a disappointing week for global markets, equities declined with weak second quarter earnings announcements of multiple companies. European manufacturing data showed continuing contraction and US manufacturing and employment data also disappointed. Bank of England cut policy rates by 25 basis points and Bank of Japan raised rates by 25 bps. Fed Chair Jerome Powell indicated it is highly likely the Fed will cut interest rates at their meeting in September.

Global Updates
  • The MSCI All Country World Index dropped sharply this week with release of poor manufacturing data in Europe and U.S.A, and resurgence of geopolitical tensions in the Middle East.  Data released this week indicated softening employment and weakening manufacturing and construction sectors.
  • Fed Chair Jerome Powell announced the Fed’s decision to keep interest rates the same during its latest meeting. He also alluded to the possibility of interest rates cuts as soon as September if the U.S. economy follows its expected path.
  • Inflation unexpectedly heated up in the Eurozone this month, presenting a fresh challenge to policymakers. Consumer prices were 2.6% higher on year in July, picking up pace from 2.5% in June
  • The HCOB final Purchasing Managers’ Index (PMI) for German manufacturing fell to 43.2 in July from 43.5 in June, above a preliminary flash estimate of 42.6. HCOB France final purchasing managers index (PMI) for the manufacturing sector, compiled by S&P Global, slid to 44.0 points in July from 45.4 in June.
  • The Bank of Japan on Wednesday raised its benchmark interest rate for the first  and cited concerns about the historically weak yen, leading to a jump in the Japanese currency. Gov. Kazuo Ueda embraced the view that a rate increase could help growth by pushing up the yen and reassuring consumers who have had to pay more for imported goods.
  • U.K. central bank lowered its benchmark lending rate for the first time since 2020 by 25 bps to 5% on Thursday. The FTSE 100 edged higher.
  • The S&P Global UK Manufacturing PMI was revised higher to 52.1 in July 2024, from a preliminary of 51.8 and compared to 50.9 in June. This marked the sharpest expansion in the manufacturing sector since July 2022.
U.S. Equity
  • The S&P 500 ended the week marginally higher and the Dow Jones index rose this week with large falls in technology stocks being marginally outweighed by growth in selected large cap stocks based on second quarter earnings. Small stock caps continued to outperform large cap technology stocks. The Nasdaq dropped drastically as the market broadly underperformed.
  • U.S. labor costs increased moderately in the second quarter as private sector wages grew at the slowest pace in 3-1/2 years, more evidence that inflation was firmly on a downward trend and could help facilitate an interest rate cut in September.
  • MSCI reported a 13% increase in foreclosed commercial properties by banks and lenders in the second quarter amounting to $20.5 billion, the highest in 10 years. It is considered as an indicator that the commercial lending sector is approaching the bottom of the downturn cycle.
  • U.S. home insurers suffered their worst underwriting loss this century in 2023, as a toxic mix of natural disasters, inflation and population growth in at-risk areas put a vital financial market under acute pressure, according to rating agency AM Best. Insurers providing policies to homeowners were hit with a $15.2 billion net underwriting loss last year.
  • Intel stock plunged after it reported a loss of $1.6 billion in the recently ended quarter. Intel plans to lay-off 18,000 employees and cut $20 billion in expenses. Intel also announced suspension of its dividend in the coming quarters.
  • Billionaire investor Bill Ackman scrapped the launch of Pershing Square USA, days before the fund was slated to begin trading on the NYSE, having seen at least one prominent pledged investor back out and undergoing a fresh bout of regulatory scrutiny.
  • Fast food giant McDonald’s reported a drop in sales in the second quarter after 3 consecutive years of sales growth. Economists consider it indicative of changes in the spending patterns of low-income consumers.
  • Amazon shares slipped as revenue outlook disappointed investors due to increased investment on AI and cloud-computing infrastructure. Total sales rose 10% year-to-year to $148 billion and $13.5 billion in profits in Q2 2024.
  • Boeing named aerospace industry veteran Kelly Ortberg as its CEO to turn around the planemaker beset by legal and regulatory problems after a quarter in which it lost more than $1 billion.
  • Spirit Airlines is taking extraordinary measures to attract passengers and stem increasing losses. The budget airline will be furloughing 240 pilots, downgrading 100 captains and suspending the recruitment of pilots and flight attendants to reduce training expenses and cut costs.
  • 3M has picked the Otis Worldwide finance chief Anurag Maheshwari as CFO to replace the outgoing CFO Monish Patolawala
U.S. Fixed Income
  • The Bloomberg U.S. Aggregate Bond Index rose marginally this week.
  • The U.S. 10-year Treasury yield fell to 3.94% and the yield on the 2-year note fell to 4.12% over the week.
  • The U.S. Dollar Index dropped marginally to 104.07 this week.
  • U.S. treasury yields and the dollar slid after weaker-than-expected ISM U.S. manufacturing data led to risk off moves in the global markets.
Sources

HCM-030624-063.GWS