Week 27 in Brief
All three major U.S. indices rose overnight as two Federal Reserve officials downplayed recession fears and signaled a slower pace of rate hikes after July. On Friday, the Dow Jones Industrial Average (.DJI) fell 46.4 points, or 0.15%, to 31,338.15, the S&P 500 (.SPX) lost 3.24 points, or 0.08%, to 3,899.38 and the Nasdaq Composite (.IXIC) added 13.96 points, or 0.12%, to 11,635.31. For the week, the Nasdaq gained 4.5%, while the S&P and Dow advanced 1.9% and 0.8%, respectively.
Benchmark U.S. Treasury yields rose from five-week lows overnight, reducing the scale of inversion in a key part of the yield curve, and also lowering recession concerns.
How did the major indices perform?
For the week:
- The S&P 500 is up 74.05 points, or 1.9%.
- The Dow is up 240.89 points, or 0.8%.
- The Nasdaq is up 507.46 points, or 4.6%.
- The Russell 2000 is up 41.61 points, or 2.4%.
What drove the U.S. market?
- A surprisingly strong jobs report showed that employers are continuing to hire despite worries about a possible recession. But the data also likely keeps the Federal Reserve on track to raise interest rates sharply.
- Treasury yields shot higher immediately after the release of the jobs data, underscoring expectations of Fed rate hikes, but then eased back. The yield on the two-year Treasury jumped as high as 3.15% from 3.03% late Thursday, but it then moderated to 3.11%. The 10-year yield, which influences rates on mortgages and other consumer loans, rose 3.08% from 3% a day earlier.
- The choppy trading Friday comes ahead of a key report Wednesday on inflation at the consumer level. The consumer price index, which in May came in at the highest level since 1981, is projected to show an increase of 8.8% over the 12 months ended in June, according to FactSet.
How did the European markets perform?
- European shares edged higher on Friday and were set for a small weekly gain as investors waited for U.S. jobs data to indicate the health of the world’s biggest economy, while recession fears receded slightly.
- European stock exchanges closed higher on Friday, except for Spain.
- The STOXX Europe 600, which includes around 90% of the market capitalization of the European market in 17 countries, was up by 2.11 points, or 0.51%, to finish the day at 417.12
- The UK’s FTSE 100 rose 7.16 points, or 0.1%, to close at 7,196.
- Germany’s DAX 30 was the best performer of the day, soaring 172 points, or 1.34%, to reach 13,015.
- France’s CAC 40 increased by 26 points, or 0.44%, to 6,033. Italy’s FTSE MIB jumped 216 points, or 1%, to end the day at 21,774.
- Spain’s IBEX 35, on the other hand, declined 22 points, or 0.27%, to 8,100.
How did Asian markets perform?
- Asian stock markets followed Wall Street higher on Friday after two Federal Reserve officials said the US economy might avoid a recession and news reports said China might boost construction spending to stimulate its struggling economy.
- Shanghai, Tokyo, Hong Kong, and Sydney advanced for a second day.
- The Shanghai Composite Index advanced 0.2% to 3,370.85 after news reports said China might add 1.5 trillion yuan ($220 billion) to spending on public works construction this year to stimulate economic growth.
- The Nikkei 225 in Tokyo gained 1.4% to 26,869.82 and the Hang Seng in Hong Kong added 0.5% to 21,757.04.
- The Kospi in Seoul rose 0.7% to 2,350.97 and Sydney’s S and P-ASX 200 was 0.5% higher at 6,680.10. New Zealand and Southeast Asian markets advanced.
Bonds and Commodities
- The U.S. benchmark 10-year yield dropped to a six-week low of 2.746 earlier this week, as investors pared back expectations of U.S. policy rate increases as concerns about an economic downturn increased.
- Gold prices steadied on Friday but were set for a fourth straight weekly drop, as the dollar resumed its rally while the focus shifted to the U.S. non-farm payroll print that could influence expectations of interest rate hikes.
- Spot gold was little changed at 1,740.31 per ounce by 1114 GMT. Bullion has lost nearly 4% so far this week, which would be its worst since mid-June last year. U.S. gold futures firmed at $1,739.90 could influence expectations of interest rate hikes.
- Oil rose in volatile trade on Friday but was still heading for a weekly decline as concern over a potential recession-driven demand downturn outweighed tight global supplies.
- Brent Crude rose 35 cents, or 0.3%, to $105.00 a barrel by 1045 GMT and U.S. West Texas Intermediate crude gained 19 cents, or 0.2%, to $102.92.
EUR/USD The euro was pinned at a 20-year low on Friday, licking its wounds at the end of its worst week in two months as investors braced for Europe to tip into a recession, while markets awaited U.S. jobs data to set the next direction for the dollar. The single currency has hit a successive 20-year low this week on signs the eurozone economy will tip into recession. The euro is down more than 2% this week on fears that gas shortages loom in Europe and economic growth will suffer. It hit a two-decade trough of $1.0144 overnight.
GBP/USD Sterling fell against a strengthening dollar as an unfavorable macroeconomic backdrop overshadowed concerns about politics after Prime Minister Boris Johnson announced his resignation. Johnson announced he would stay on until his successor was chosen. Concerns about post-Brexit spats with the European Union also weakened the pound. The pound rose on Thursday after media reports of his imminent resignation earlier in the day and held on to the gains after Johnson said he was quitting. The pound fell 0.8% to $1.1996. It hit its lowest since March 2020 at $1.1877 on July 6.
USD/JPY: The dollar edged lower against the Japanese yen on Friday after former Japanese Prime Minister Shinzo Abe was shot while campaigning for a parliamentary election. Abe, Japan’s longest-serving leader, died on Friday after being shot as he spoke in the western city of Nara. The yen rose as much as 0.5% immediately after the news of the shooting but later ceded most of those gains and by 1047 GMT, it was up 0.1% at 135.89.
Next week will kick off the start of the corporate earnings season, as a number of the largest U.S. banks and financial services firms are set to report second-quarter earnings later in the week.
JPMorgan Chase, Morgan Stanley, and First Republic Bank will report on Thursday, followed by Wells Fargo, BlackRock, Citigroup, U.S. Bancorp, BNY Mellon, and PNC Bank on Friday. Earnings are also expected from PepsiCo. Delta Air Lines, and UnitedHealth, among others.
June inflation data will be made available this week with the latest update to the Consumer Price Index (CPI) on Wednesday, followed closely by the Producer Price Index (PPI) on Thursday.
On Friday, we can expect the latest updates on retail sales and industrial production tracking the month of June, along with the preliminary July update to the University of Michigan’s Consumer Sentiment Index (MSCI).