In a slow week, global capital markets rose gently to positive news from Europe and the US. The labor department data on US inflation and employment buoyed stock markets worldwide. Federal Reserve Chairman Jerome Powell’s comments on Capitol Hill gave a fillip to investor confidence globally. The stock indices in the US, India and Japan reached new highs. The Euro, Pound, Yen and Yuan appreciated against the Dollar. The Treasury yields sharply declined with the release of inflation data, raising optimism for a rate cut in investors. On the geo-political front, NATO members have announced fresh support for Ukraine at their summit in Washington. Air defense systems are a part of the military support package. Canadian Tory leader Pierre Poilievre continues to widen his lead over Justin Trudeau. Politicians and media continue to await an announcement from Joe Biden’s camp on his withdrawal from the Presidential race.

Global Updates
  • The MSCI All Country World Index edged upwards this week. 
  • US inflation dropped to 3% year-on-year in June from 3.3% in May. The declining inflation was enabled by falling energy prices in the US, combined with Jerome Powell’s testimony on Capitol Hill.  The markets are now pricing in a rate cut in September. Following this, the Japanese Yen, Euro and Pound appreciated against the Dollar, as long Dollar currency trades have become less attractive.
  • European equity markets surged higher, with the Stoxx 600 touching one month high, buoyed by falling inflation in the UK, US and EU. 
  • The French elections have ended in a hung parliament with the coalition of left-wing parties defeating Marine Le Pen’s and Emmanuel Macron’s parties. However, they were unable to win a simple majority in the elections.
  • The UK’s new labor government cheered as official data showed a 0.4% month-on-month growth in the country’s GDP. Prime Minister Keir Starmer reiterated his commitment to increase defense spending to 2.5% of GDP to ensure military preparedness.
  • China was a mixed picture during the last week. China’s CPI inflation in June was 0.2% year-on-year undermining expectations. PPI fell 0.8% in a low demand environment. Simultaneously, the country’s outbound shipments surged 8.6% in June year-on-year from 7.6% in May. Chinese imports declined by 2.3% with lackluster domestic demand at the same time.
  • The OPEC+ has reported almost perfect compliance with the supply cuts for June. Global demand for crude is expected to continue to exceed its supply as the product cuts are extended to 2025.
  • French software maker Dassault Systems lowered its annual revenue guidance with lower than expected second quarter revenue of $1.62 billion.
  • British energy titans British Petroleum and Shell have indicated the possibility of booking a $2 billion reduction in their second quarter earnings. 
  • Taiwan Semiconductor Manufacturing Company (TSMC) stock has surged as the ‘AI Boost’ in the second quarter helped its revenue to surpass estimates. TSMC market cap briefly crossed the $1 trillion mark this week. Morgan Stanley had raised its outlook on the stock earlier this week, based on strong demand.
  • German Shipping company Hapag-Lloyd lifted its earnings view for the year after a strong first half performance on the basis of increased freight rates and global demand.
U.S. Equity
  • The S&P 500 and Nasdaq indices touched new highs this week with the S&P crossing 5,600 and Nasdaq crossing 18,500. The Dow Jones index also continued its upward trajectory. 
  • Federal Reserve Chairman Jerome Powell testified on the state of the US economy on Capitol Hill and remained reticent on the possibility of a rate cut, but reiterated the importance of achieving growth without inflation. Powell also indicated that cooling labor markets have limited the potential for wage driven inflation. Investors inferred that the Fed has pivoted on its ‘higher for longer’ policy as the economy is no longer overheated.
  • Amazon faces possible scrutiny from UK’s Groceries Code Adjudicator for mistreatment of grocery suppliers and non-compliance with its code of conduct. Amazon’s compliance score dipped 10% to a score of 47% this year. 
  • Apple has regained the position of the world’s most valuable company. 
  • Microsoft and Apple have relinquished their observer seats on the OpenAI board. Both companies face possible scrutiny by antitrust watchdogs in the EU and US. 
  • HSBC is restructuring its investment banking division to resemble Citigroup and Morgan Stanley. 
  • Delta reported a 29% fall in second quarter profits, pressured by higher fuel cost and discounted bookings to attract passengers.
  • PepsiCo’s sales in North America plunged 4% in the second quarter after two years of price hikes. This indicates a troublesome drop in consumer spending for low cost consumer goods.
  • Boeing has agreed to plead guilty to the fatal 737 MAX crashes. 
  • After a long period of negotiations, the Paramount Global and Skydance Media complicated merger agreement has gone through. The Redstone family will completely sell its stake in Paramount to Skydance Media as part of the agreement.
  • Oklahoma energy company Devon Energy, has acquired Grayson Mill Energy for $5 billion.
U.S. Fixed Income
  • The Bloomberg US Aggregate Bond Index marginally rose this week. The bond markets have been lukewarm this week with political changes occurring in the developed world. 
  • The US 10-year Treasury yield fell to 4.215% and the yield on the 2-year note reset to 4.52% over the week. 
  • The US Dollar Index fell to 104.37 this week after Fed chair Jerome Powell’s testimony in front of the Congress.
Sources

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