Weekly Macro Matters
Macro Matters – Weekly review, w/c July 08
Markets reached record highs in a holiday-shortened week, driven by growth stocks and falling Treasury yields. US PMI data disappointed, while European data remained resilient. The Labour Party won a landslide victory in the UK election, ending the Conservative Party’s 14-year reign.
TradeDay Macro Matters
Macroeconomic / Geopolitical Developments
• Markets up to record highs in holiday-shortened week
• US PMI data misses, European data mostly beats
• FOMC Minutes show Fed not ready to cut rates
• US Jobs data slows, yields lower, stocks nudge up
• Labour win landslide victory in UK election
• What’s Ahead
Markets Up to Record Highs in Holiday-Shortened Week
The S&P 500 continued its ascent to record highs, driven by a 2% weekly gain in growth stocks, with the Nasdaq Composite rising 3.5%. The Dow Jones Industrial Average recorded modest gains of 0.7%. Light trading volumes, due to the Independence Day holiday, supported the rally, which was fueled by optimism about lower interest rates amid signs of slowing growth and inflation. A positive employment report showing moderating growth pushed the 10-year Treasury yield down to 4.27%, bolstering equity markets further.
US PMI Data Misses, European Data Mostly Beats
The US ISM Services PMI fell sharply to 48.8 in June, its lowest level since 2020, while Manufacturing PMI also contracted for a third consecutive month. In contrast, Europe’s PMI data showed resilience, with the Eurozone Services PMI revised up to 52.8, indicating ongoing growth despite struggles in the manufacturing sector. The mixed data between the US and Europe may influence differing monetary policy trajectories.
FOMC Minutes Show Fed Not Ready to Cut Rates
Minutes from the Federal Reserve’s June meeting revealed caution about cutting rates, as inflation remains above the 2% target. While some policymakers emphasized the need for tighter policy if inflation persists, others showed readiness to respond to economic weaknesses. The minutes highlighted concerns about slowing growth and labor market cooling, suggesting that any rate cuts will depend on sustained progress in inflation reduction.
US Jobs Data Slows, Yields Lower, Stocks Nudge Up
June’s jobs report showed a deceleration in hiring, with 206,000 jobs added, slightly above expectations but below previous months. The unemployment rate rose to 4.1%, the highest since late 2021, as more workers entered the labor force. Treasury yields fell in response, reflecting growing bets on Fed rate cuts by September. Despite the slowing labor market, stocks edged higher, buoyed by investor optimism.
Labour Win Landslide Victory in UK Election
The Labour Party secured a historic landslide victory, ending 14 years of Conservative rule. Keir Starmer’s centre-left party achieved the second-largest majority in UK history, while the Conservatives suffered their worst-ever defeat. Starmer pledged to address urgent national challenges, including Brexit, the pandemic’s fallout, and the cost-of-living crisis. This shift in UK political dynamics signals a significant change in the country’s economic and social priorities.
What’s Ahead
Central Bank Watch:
• Fed Chair Powell testifies to Congress (Tuesday)
• Reserve Bank of New Zealand Interest Rate Decision (Wednesday)
Macro Data Watch:
• 07/09/2024: UK Retail Sales; Fed Chair Powell testimony
• 07/10/2024: Chinese CPI; RBNZ Interest Rate Decision
• 07/11/2024: German CPI; UK GDP; US CPI
• 07/12/2024: German Retail Sales; US PPI; Michigan Consumer Sentiment Index
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