This week saw notable movements in global markets, driven by a mix of economic data releases and corporate earnings reports. In the U.S., consumer prices fell for the first time since early 2020, benefiting small-cap stocks. European markets rose on lower-than-expected U.S. inflation data, while Japanese stocks retreated amid yen speculation. Chinese stocks gained on strong export data, and other key markets like Hungary and the Czech Republic saw inflation trends that may allow for rate cuts.
United States
- Rotation benefits small-caps: Stocks moved higher in the first broad advance since mid-April. The Dow Jones Industrial Average, S&P 500 Index, and Nasdaq Composite moved to record intraday highs, with the small-cap Russell 2000 Index gaining 6.00%, marking its best week since early November.
- Light trading volumes: Trading volumes were light, reflecting the summer vacation season and anticipation of major earnings reports. The earnings season kicked off with JPMorgan Chase, Wells Fargo, and Citigroup, all of which saw shares fall due to missed estimates and outlook cuts.
- Consumer prices fall: The Labor Department’s consumer price index (CPI) showed a 0.1% decline in June, the first since May 2020. Core prices rose 0.1%, the slowest pace in over three years. Chicago Fed President Austan Goolsbee called the data “profoundly encouraging.”
- Market reaction mixed: The Russell 2000 Index outperformed the S&P 500 by 209 basis points and the Nasdaq Composite by 581 basis points. The producer price index (PPI) data showed a 0.2% rise in June, complicating the inflation narrative.
- Federal funds futures market: The CPI data led to the pricing in of a rate cut at the Fed’s September meeting. The yield on the benchmark 10-year Treasury note declined to 4.16%, the lowest since March 12.
- Market Indexes Changes:
- DJIA: 40,000.90 (+625.03, 6.13%)
- S&P 500: 5,615.35 (+48.16, 17.73%)
- Nasdaq Composite: 18,398.45 (+45.69, 22.56%)
- S&P MidCap 400: 3,020.71 (+124.91, 8.60%)
- Russell 2000: 2,148.27 (+121.54, 5.98%)
Europe
- Stock indexes rise: The pan-European STOXX Europe 600 Index ended the week 1.45% higher. France’s CAC 40 Index added 0.63%, Italy’s FTSE MIB gained 1.74%, Germany’s DAX rose 1.48%, and the UK’s FTSE 100 Index advanced 0.60%.
- Bond yields fall: French and German sovereign bond yields fell across the curve, while UK gilt yields fell across most of the curve but ticked up at the front end due to positive economic growth data.
- UK economic growth rebounds: UK GDP grew by 0.4% in May, driven by services and construction output.
- BoE policymakers on rates: Three Bank of England rate-setters indicated reluctance to vote for lower borrowing costs, citing wage growth and services inflation.
- Euro area wage growth: Wage tracker data from Indeed showed a 4.20% year-over-year increase in June, up from 3.47% in May.
- French election deadlocked: No party won an outright majority in the second round of the parliamentary election, leading to coalition talks.
Japan
- Stocks retreat: Japanese stocks retreated from record highs due to speculation of intervention in the foreign exchange markets to support the yen.
- Yen speculation: A surge in the yen’s value against the U.S. dollar triggered speculation of intervention. The BoJ conducted rate checks, and officials indicated readiness to take action on exchange rates.
- JGB yield: The yield on 10-year Japanese government bonds eased to around 1.05%, a two-week low, tracking U.S. Treasury yields lower.
- Economic data: Core machinery orders fell 3.2% in May, while industrial production growth for May was revised up to 3.6%.
China
- Stocks gain: The Shanghai Composite Index rose 0.72%, and the CSI 300 added 1.2%. The Hang Seng Index in Hong Kong was up 2.77%.
- Export data: Exports exceeded forecasts in June, rising 8.6% from a year earlier. Imports unexpectedly shrank 2.3% amid weak domestic demand.
- Inflation data: China’s CPI rose 0.2% in June, while core inflation was 0.6%. The PPI fell 0.8%, marking its 21st month of decline.
- Economic policy focus: Analysts are focusing on the upcoming Third Plenum on July 15, expected to unveil key economic policies.
Other Key Markets
- Hungary: The government reported a 3.7% year-over-year CPI inflation rate for June, lower than expected. Core inflation remained broadly unchanged at 4.1%. The data could enable incremental rate cuts.
- Czech Republic: The CPI inflation rate for June was 2.0%, lower than expected. The combination of lower inflation and weak economic activity could allow for modest rate cuts in the second half of the year.
