Following a really strong end to the second quarter, markets stumbled in the first week of July. Both equity and bond markets fell in what was an extremely(!) quiet news week. It’s likely that the next few weeks will be much more instructive for markets as we see companies report their second quarter earnings’ numbers and then we have the US Federal Reserve meeting at the end of the month. This week the key focus will be on the US inflation numbers which come out on Wednesday and the start of corporate reporting season in the US (with the banks on Friday).
Last week
- Stock markets stumbled after a very strong end to the 2nd quarter
- The UK stock market was the laggard: dragged down by Astrazeneca
- It was a very quiet news week! What little news there was, generally came in on the soggy side: US jobs numbers came in a touch worse than expected
- Bond yields rose, with UK 10-year gilts rising above 4.6%
This week
- US inflation data (CPI) is the key event this week. It is currently running at 4% and Bloomberg economists expect it to drop to 3.1%. It is due out on Wednesday.
- Friday sees the start of US earnings season, with JP Morgan, Blackrock and Citigroup set to report.
- In the UK, we have jobs data out tomorrow (unemployment is expected to hold steady at 3.8%) and then growth data (GDP) out on Thursday.
Equity returns are in GBP, Oil is in USD. Gold is shown in GBP. Bond returns are all shown in GBP. Source Bloomberg.
Last week in more detail
- Stock markets stumbled last week after a strong run in June. This saw the global share market fall by 2.4% on the week, with UK and European share markets both falling by 3.4%. One of the key drivers in the fall in the UK market, was the 10% decline on the week in the price of Astrazeneca (“Astra”). Astra carries a 7.5% weighting in the FTSE All Share index (it is the biggest stock) and it fell by just over 10% last week on the back of disappointing trial results for its new lung cancer drug.
- The big drop in Astrazeneca meant that the FTSE 100 (where it carries an 8% weighting) fell by more than the FTSE 250 (which fell by 2.2%) last week. The FTSE 100 still remains ahead for the year-to-date, although last week’s fall saw it drop into negative territory for the ytd.
- There was very little in the way of economic data last week, but what there was generally came in on the soggy side and set the tone for the stock market pull-back. In the UK, housing data from Halifax showed a 2.6% year-over-year decline in house prices (the largest such decline since 2011) and in the US there was evidence of a slightly weaker jobs market than expected. The monthly US jobs data (non farm payrolls) is always keenly watched and this month’s number showed that 209,000 new jobs had been created in June (the lowest number since December 2020). This was a bit less than had been expected and came alongside wages which were a bit higher than expected (average hourly earnings grew by 4.4% compared to expectations for a reading of 4.2%).
- Minutes from the Federal Reserve’s last policy meeting were released last week. They indicated that US interest rates would remain “higher for longer” and this led bond yields to rise (as higher rates were priced in). Furthermore, they made for another dose of negative sentiment in a week that was shortened by the US independence day holiday and generally very light on news!
- Bond yields rose last week, with the UK 10-year bond yield closing at 4.64%. This is the highest level it has been at since October 2008. This rise in bond yields saw bonds fall in price. UK gilts fell by about 2% on the week, UK corporate bonds fell by about 1% on the week, whilst high yield bonds fell by about 0.7%.
Last week saw UK Government Bond Yields rise to their highest level since October 2008
Source: Bloomberg
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