This week, expect some additional volatility in the US as a slew of important data releases hover in the horizon. Before we delve into that, we take a quick a look at some of the key observations this week.
The Nasdaq 100, heavily influenced by tech stocks, continued its descent as earnings reports from major players like Tesla and Alphabet failed to impress. In stark contrast, the small-cap Russell 2000 showed resilience, managing to post solid gains despite broader market turbulence.
With the US market never one to give up its secrets too easily, the US S&P Composite PMI edged up to 55 in July from 54.8 in June, the strongest growth rate since April 2022. This suggests a steady expansion in economic activity. More striking was the advance estimate for US Q2 GDP, which accelerated to 2.8%, far surpassing the 2.0% consensus and the previous quarter’s 1.4% growth. Durable Goods Orders, excluding transportation, also rebounded, increasing by 0.5% in June after a -0.1% decline.
Moving on to outside of the US, not all reports were all positive. The Euro Area Composite PMI fell to 50.1 in July from 50.9, indicating a slowdown in growth. Meanwhile, the UK’s Composite Flash PMI saw a modest rise to 52.7 from 52.3, signaling slight improvement.
Over in Australia, the ASX 200 ended a three-week winning streak, dropping below the 7,900 mark. This decline was largely driven by a downturn in the local tech sector, mirroring the US trend, as well as falls in energy and resource stocks.
China also made headlines with an unexpected move from the People’s Bank of China (PBOC), which cut its primary policy rate, the 7-Day OMO, by 10 basis points to 1.7%—the first reduction in a year. This rate cut aims to stimulate the economy amid concerns about slowing growth.
Commodity markets also reacted to the week’s developments. Crude oil prices fell by 0.46% to $78.28 per barrel, though they did recover somewhat after the stronger-than-expected US GDP report. Gold, on the other hand, dropped by 1.50% to $2,365, continuing its decline from the previous week’s record high of $2,483. The Volatility Index (VIX) rose to 18.47 from 16.51, reflecting increased market uncertainty.
Looking ahead, several key economic indicators are set to influence market sentiment. In New Zealand, building permits and ANZ business confidence data will be closely watched. Australia’s Q2 CPI and retail sales figures, scheduled for release on Wednesday, are key. In Q1, headline inflation rose by 1%, bringing the annual rate to 3.6% YoY, down from 4.1% but still above the expected 3.4%.
The Reserve Bank of Australia’s trimmed mean inflation measure also increased by 1% QoQ, resulting in an annual rate of 4.0% YoY. For Q2, expectations are for a similar 1% QoQ increase in headline inflation, translating to an annual rate of 3.8%. A trimmed mean inflation print of 1.2% or higher could heighten the likelihood of another RBA rate hike before year-end.
China’s upcoming NBS Manufacturing PMI and Caixin Manufacturing PMI releases will provide further insights into the health of the manufacturing sector.
In Japan, the Bank of Japan’s interest rate decision is highly anticipated. The BoJ kept short-term rates unchanged at 0-0.1% in its last meeting in June, following a historic rate hike in March. Market participants are expecting the BoJ to outline a detailed bond tapering plan, potentially reducing monthly government bond purchases from six trillion yen to around three or four trillion yen. There is also speculation of a possible rate hike, with the Japanese interest rate market pricing in a 67% chance of a 10 bps increase.
The US expects key data reports including JOLTS job openings, CB consumer confidence, ADP employment, and the Employment Cost Index this week. The Federal Open Market Committee (FOMC) meeting on Thursday is expected to maintain a dovish tone, keeping rates unchanged at 5.25%-5.50%.
This aligns with recent comments from Fed Chair Powell. The market is fully priced for a 25 bp rate cut in September, with 66 bps of rate cuts expected by year-end. Another key focus will be the US non-farm payrolls (NFP) report, due on Friday.
In June, the US economy added 206,000 jobs, in line with expectations, although prior months’ figures were revised lower. The unemployment rate increased to 4.1% from 4%, with the participation rate slightly up. For July, expectations are for the US economy to add 185,000 jobs, with the unemployment rate remaining stable at 4.1%.
In Europe, the release of Q2 GDP and CPI data will shed light on the economic health of the Euro Area. The Bank of England’s interest rate decision on Thursday will also be closely monitored. In June, the BoE kept rates on hold at 5.25% with a 7-2 vote. While softer labor market data supports the current market pricing in a 50% chance of a 25 bp rate hike, sticky inflation suggests that rates might need to stay higher for longer.
As the US Q2 2024 earnings season progresses, reports from tech giants like Microsoft, Meta, and Apple will be particularly telling.
