Week 28 in Brief
Stocks climbed sharply Friday as investors digested data showing U.S. retail sales rose by 1% in June, a slightly stronger number than economists had expected.
Although some of the increase was tied to higher prices of gasoline and food, the market appeared encouraged that the all-important consumer hasn’t succumbed to the strongest inflation in four decades.
How did the major indices perform?
- The Dow Jones Industrial Average DJIA jumped 658.09 points, or 2.1%, to close at 31,288.26, snapping a five-day losing streak.
- The S&P 500 SPX gained 72.78 points, or 1.9%, to finish at 3,863.16, also snapping five straight days of losses.
- The Nasdaq Composite COMP advanced 201.24 points, or 1.8%, to end at 11,452.42, booking gains for a second consecutive day. For the week, the Dow booked a small weekly loss of 0.2%, while the S&P 500 slipped 0.9% and the Nasdaq fell 1.6%.
What drove the U.S. market?
- Stocks climbed sharply Friday as investors digested data showing U.S. retail sales rose by 1% in June, a slightly stronger number than economists had expected.
- Although some of the increase was tied to higher prices of gasoline and food, the market appeared encouraged that the all-important consumer hasn’t succumbed to the strongest inflation in four decades.
- A survey of consumer sentiment by the University of Michigan showed slight improvement this month. Its sentiment index rose to 51.1 in July, from a June reading of 50, which was the lowest level in decades. The University of Michigan found that consumers’ expectations for inflation over the next year moderated slightly, as did their expectations for price pressures over the next decade — likely a reflection of lower commodity prices.
- U.S. industrial production output fell 0.2% in June, the first decline this year.
- Citigroup Inc. shares surged 13.2% after the bank reported second-quarter profits that were more robust than analysts had anticipated, even though income had fallen compared to the same quarter last year.
- Wells Fargo & Co. shares shrugged off a relatively weak earnings report, as a slowdown in its mortgage-lending weighed on revenue while larger provisions for credit losses constricted profits.
How did the European markets perform?
In European equities, the STOXX Europe 600 Index (XX: SXXP) closed 1.8% higher Friday, paring its weekly decline to 0.8%. The UK’s FTSE 100 Index (UK: UKX) closed up 1.7% Friday but still fell 0.5% for the week.
EU recession fears are more pronounced than they are in the U.S., especially given the grim energy outlook and the shutting of the Nord Stream 1 pipeline for annual maintenance.
The exchange rate between the euro and the dollar is also now about equal. For the first time since 2002 (in the early years of the euro’s existence) the ratio came close to 1:1; - but could come at a cost of global economic stability. Towards the end of the week, the euro even dropped below parity at $0.9998 and is down almost 12% YTD.
How did Asian markets perform?
In Asia, the Shanghai Composite Index (CN: SHCOMP) fell 1.6% Friday, booking a weekly loss of 3.8%. Hong Kong’s Hang Seng Index HSI00 shed 2.2% Friday and dropped 6.6% for the week.
Japan’s Nikkei 225 (JP: NIK) benchmark ended 0.5% higher Friday for a weekly gain of 1%.
China also reported its economy grew just 0.4% annually in the second quarter, as Beijing’s stringent COVID-19 lockdowns have taken a toll on economic activity. Economists polled by The Wall Street Journal expected a rise of 0.9%. The economy contracted 2.6% in the April to June period from the prior quarter, marking the first quarterly contraction since the first quarter of 2020.
Bonds and Commodities
- The yield on the 10-year Treasury note (BX: TMUBMUSD10Y) fell 2.8 basis points to 2.929% Friday for a weekly decline of 16.9 basis points, according to Dow Jones Market Data. Bond yields and prices move in opposite directions.
- In oil futures CL, West Texas Intermediate crude for August delivery CLQ22 rose 1.9% to settle at $97.59 a barrel. For the week, oil prices fell 6.9%.
- Gold for August delivery GCQ22 slipped 0.1% Friday to settle at $1,703.60 an ounce, bringing the yellow metal’s weekly loss to 2.2%.
- Asia’s emerging market currencies fell further on Friday even as the U.S. dollar took a breather from its relentless surge and was set to post weekly losses with a worsening global growth outlook dampening risk sentiment.
- The ICE U.S. Dollar Index DXY, a gauge of the dollar’s strength against a basket of rivals, was down 0.5%.
- On Friday, the Indian rupee hit a fresh record low at 79.95 per dollar before easing a bit.
- In cryptocurrencies, Bitcoin was up 2% at $21,074.
Next week will be an eventful one dominated by corporate earnings reports, as earnings season continues. Bank of America, Goldman Sachs, IBM, Johnson & Johnson, Lockheed Martin, Netflix, Tesla, United Airlines, AT&T, Snap, and more will report results.
We can also expect important updates on the U.S. housing market, with June housing starts and building permits on Tuesday, followed by existing home sales on Wednesday.
Overseas, the European Central Bank (ECB) is widely expected to raise its benchmark interest rate for the first time since 2011. The U.K. and Japan are set to release their latest inflation figures tracking the month of June, providing an update on global price pressures.