Highlights
U.S. equities advanced strongly during the week, with several major indexes reaching new highs as resilient corporate earnings, renewed enthusiasm for artificial intelligence (AI)-related stocks, and optimism over a potential reopening of the Strait of Hormuz supported risk appetite. The Nasdaq Composite led the gains, surging 5.12% and posting its strongest weekly performance since April, followed by the S&P 500 and Russell 2000. The Dow Jones Industrial Average also rose nearly 3%. Hopes for progress toward reopening the Strait of Hormuz drove oil prices sharply lower early in the week, easing concerns about energy-driven inflation and contributing to lower Treasury yields. Sentiment softened somewhat later in the week after reports suggested that any agreement could restrict passage for U.S. and Israeli vessels, but equities remained firmly higher overall. A slew of economic data was lined up in the week. The U.S. labour market weakened further in July as shown by the Bureau of Labor Statistics report that employers shed 23,000 jobs, well below expectations for an increase of around 80,000 and the weakest result since February. The unemployment rate unexpectedly declined to 4.1%, while labour force participation also edged lower. Following the payrolls report, market expectations for a September Federal Reserve rate hike declined to around 42% from approximately 58% before the release. Separately, economic activity remained relatively firm despite the weaker labour market. The ISM Manufacturing PMI increased to 55.6 in July, its highest level since May 2022, supported by stronger new orders and production. Services activity also remained in expansion; with the ISM Services PMI little changed at 54.1. In Europe, equities advanced strongly, with the pan-European Euro STOXX 600 Index rising 2.50%. Markets benefited from improved risk appetite, resilient corporate earnings, and hopes that an agreement could facilitate reopening of the Strait of Hormuz and reduce oil prices. Eurozone services activity returned to expansion in July, with the services PMI rising to 51.7 from 49.4 in June, its highest level in five months. The improvement was accompanied by stronger employment and business confidence, while selling-price pressures moderated. Meanwhile, UK business activity strengthened in July, with services PMI returning to expansion at 52.1 after two months below 50. Manufacturing activity also improved, with the PMI rising to 52.8. Moving along to Asia, Japanese equities advanced during the week, with the Nikkei 225 rising 1.93% and the broader TOPIX gaining 1.79%. Investors continued to assess the impact of recent currency intervention and the possibility of another Bank of Japan rate increase. Fiscal concerns surrounding the government’s consumption tax reduction plan remained a counterweight, while household spending data pointed to continued consumer caution. Notably, the yen weakened past JPY 158 per U.S. dollar, giving back part of the gains generated by the previous week’s intervention. The 10-year Japanese government bond yield was broadly unchanged at 2.81%. Yields remained supported by expectations that the BoJ could raise interest rates as soon as September. Chinese equities diverged during the week, with mainland markets advancing while Hong Kong stocks declined. The Shanghai Composite and CSI 300 gained more than 2%, supported by renewed strength in technology and semiconductor shares. The Hang Seng Index fell 0.84%, weighed down by weakness in financial stocks following reports of new taxes on offshore insurance products.
Data Highlights
Non-Farm Payrolls (Jul) fell -21,500bps, from 20K to -23K, expectations were for an increase, from 20K to 80K. Private Non-Farm Payrolls (Jul) stayed the same at 30K, analysts wrongly expected an increase, from 30K to 78K. USD Unemployment Rate (Jul) fell -10bps, from 4.2% to 4.1% against expectations that the figure would remain the same, at 4.2%. CAD Unemployment Rate (Jul) fell -10bps, from 6.5% to 6.4%, expectations were for the figure would remain unchanged. CHF Inflation Rate YoY (Jul) fell -10bps, from 0.5% to 0.4%, in line with expectations. CHF Unemployment Rate (Jul) rose +10bps, from 2.9% to 3%, against expectations for an unchanged print. EUR Unemployment Rate (Q2) rose +20bps, from 8.1% to 8.3%, consensus was for a rise to 8.2%. NZD Unemployment Rate (Q2) rose +20bps, from 5.4% to 5.6%, expectations were -20bps softer, assuming the figure would remain unchanged.
Week Ahead
AUD RBA Interest Rate Decision – Tuesday | USD Inflation Rate YoY (Jul), USD Core Inflation Rate YoY (Jul) – Wednesday | JPY PPI YoY (Jul), GBP GDP YoY (Jun), USD PPI YoY (Jul), USD Core PPI YoY (Jul), CHF GDP Growth Rate QoQ (Q2), EUR GDP Growth Rate YoY (Q2) – Thursday
