This week's global market update highlights significant economic events, including the cooling U.S. labor market, market index changes, and key developments in Europe, Japan, China, and other key markets.
United States
- Downside Economic Surprises: Major benchmarks closed lower due to the busiest week of quarterly earnings reporting and significant monthly economic data. The small-cap Russell 2000 Index pulled back sharply, while the equal-weighted S&P 500 Index outperformed its market-weighted counterpart.
- Nasdaq Correction: The Nasdaq Composite pulled back over 10% from its July high, entering a technical correction.
- AI Capital Expenditures: Companies like Amazon, Microsoft, Meta Platforms, and Alphabet reported significant capital expenditures to support AI capabilities. Amazon's shares fell over 11% following a report of USD 30 billion in capital expenditures in the first half of the year.
- Job Growth Slows: The economy added only 114,000 jobs in July, with private sector job growth at its lowest since October 2021. The unemployment rate rose from 4.1% to 4.3%.
- Manufacturing Sector Contraction: The Institute for Supply Management’s (ISM’s) manufacturing activity gauge fell to 46.6 in July, marking nearly two years of contraction.
- Interest Rates and Market Volatility: Long-term interest rates fell, with the 10-year Treasury note yield dropping to 3.79%. Futures markets now price in a 73.5% chance of a 50 basis point rate cut at the next Fed meeting.
Market Index Changes
- DJIA: 39,737.26 (-852.08, 5.43% YTD)
- S&P 500: 5,346.56 (-112.54, 12.09% YTD)
- Nasdaq Composite: 16,776.16 (-581.72, 11.76% YTD)
- S&P MidCap 400: 2,948.01 (-126.95, 5.98% YTD)
- Russell 2000: 2,109.31 (-150.76, 4.06% YTD)
Europe
- Market Performance: The STOXX Europe 600 Index ended the week 2.92% lower. Germany’s DAX fell 4.11%, France’s CAC 40 dropped 3.54%, Italy’s FTSE MIB lost 5.30%, and the UK’s FTSE 100 declined 1.34%.
- Interest Rate Cuts: The Bank of England (BoE) cut its key interest rate by a quarter point to 5.00%, its first reduction since March 2020. The European Central Bank is also expected to cut rates later this year.
- Inflation and Economic Growth: Eurozone inflation rose to 2.6% in July, with the economy expanding by 0.3% in the second quarter. The unemployment rate increased to 6.5% in June.
Japan
- Market Losses: Japan's stock markets fell significantly, with the Nikkei 225 Index down 4.7% and the TOPIX Index down 6.0%. The yen strengthened to around JPY 148.9 against the U.S. dollar.
- Interest Rate Hike: The Bank of Japan (BoJ) raised its key short-term interest rate to around 0.25% and detailed plans to taper bond purchases.
- Economic Outlook: The BoJ lowered its core inflation outlook for fiscal year 2024 to 2.5% and its growth outlook to 0.6%.
China
- Mixed Equities Performance: The Shanghai Composite Index gained 0.5%, while the CSI 300 lost 0.73%. The Hang Seng Index declined 0.45%.
- Manufacturing Contraction: The official manufacturing PMI slipped to 49.4 in July, marking the third consecutive monthly contraction. The nonmanufacturing PMI also declined to 50.2.
- Industrial Profits: Profits at industrial firms rose by 3.6% in June from a year ago, driven by stronger industrial production growth and slower producer price declines.
Other Key Markets
- Middle East: Oil prices surged following the killing of Hamas’ political chief in Iran but later declined due to global economic growth concerns. The Israeli shekel weakened, and Israeli stocks traded lower.
