Global stock markets fell back last week, and that trend has continued this morning. Concerns about US economic data weighed on sentiment and dragged markets lower on Thursday and Friday last week, despite some decent corporate earnings being reported. Bond futures markets have quickly moved to price in 5 interest rate cuts this year in the US and markets have opened sharply lower this morning.
Last week
- Global stock markets fell back last week, with poor US economic data dragging markets lower
- US corporate earnings continued their positive trend, although some high-profile misses dragged the market lower.
- UK corporates posted some decent earnings numbers and announced more share buybacks
- The Bank of England cut interest rates to 5%
- The Bank of Japan raised interest rates to 0.25%
- Bonds rallied hard as more interest rate cuts got priced into markets for later this year
This week
- This week will likely be shaped by concerns around US economic data and any associated comments – particularly from the US Federal Reserve
- US ISM services data is out today, and US initial jobless claims are out on Thursday
- Chinese inflation data is out on Friday
- UK PMI data is out later today and there are also a smattering of UK companies reporting their earnings including Travis Perkins (tomorrow), L&G and Glencore (Wednesday), Entain and Persimmon (Thursday) and Hargreaves Lansdown reports on Friday.
Equity returns are in GBP, Oil is in USD. Gold is shown in GBP. Bond returns are all shown in GBP. Source Bloomberg.
More detail:
- Global stock markets fell last week, dropping by about 1.4%. Recession fears in the US (following a weak jobs number on Friday and a poor ISM Manufacturing reading on Thursday) combined with disappointing 3rd quarter guidance from Amazon served to drag stocks down on Friday, giving global stocks their worst daily return since March last year. Japanese stocks were the outlier, although this was down to the strength of the Yen, which rose by over 5% vs the Pound last week.
- Last week was a very busy one for US corporate earnings, with nearly 40% of the US index reporting numbers. In aggregate, the numbers so far for this earnings season have been strong. However, there have been some high-profile names which have disappointed (notably in their guidance), which has dragged the index lower. We have now had 78% of US S&P 500 companies report their earnings and the blended growth rate is 11.5%. This is better than the 8.9% growth rate that was expected and would mark the 4th consecutive quarter of positive earnings growth. Of the high-profile companies, Meta, Microsoft, Apple and Amazon all reported last week and all beat their earnings’ expectations. High capital spending on Artificial Intelligence demands was one of the key features of these companies reports and the market penalized companies such as Amazon which missed on its revenue expectations and also guided downwards for its Q3 expectations.
- There was also earnings reports from some of the UK companies last week. Index heavyweights Shell and HSBC both reported last week, with both companies beating earnings and revenue expectations. Furthermore, they continued the trend of UK companies of buying back their own stock. Shell announced a $3.5 billion buyback program for Q3 and HSBC announced a $3billion buyback program. Standard Chartered bank also continued this theme, with the announcement of a $1.5 billion share buyback program: a 50% increase on the previous quarter.
- The Bank of England cut interest rates to 5% (from 5.25% last week), with a 5-4 vote from the MPC carrying the day. Last week also saw the US Federal Reserve meet (where they held interest rates at 5.5%) and the Bank of Japan meet. The Bank of Japan raised rates to 0.25% (from 0.1%) which makes for their highest interest rates since 2008! Although the US Federal Reserve held rates steady, Chairman Powell did pave the way for future cuts saying that “we can afford to dial back the restriction in the policy rate”.
- US economic data was poor last week. This, combined with the no change policy (with respect to interest rates) from the Federal Reserve prompted the sell-off on Thursday and Friday, with many commentators suggesting that the Fed was behind the curve in cutting rates. The Institute for Supply Management’s (ISM’s) gauge fell unexpectedly to its lowest level since last November (with a reading of 46.6) and the US monthly jobs number (payrolls) came in at 114,000 vs expectations for a reading of 175,000. Furthermore, the unemployment rate went up to 4.3% (from 4.1%) and wages went down.
- The poor economic data led to interest rate cuts being priced into markets and bond yields falling. At today’s readings, there are now 5 rate cuts being priced into US bond markets by the end of the year and 2 further cuts being priced into UK markets.
- The fall in bond yields led to strong price returns across government bond markets, with UK gilts rising by 1.1% on the week and UK Credit markets rising by 0.6%.
The value of investments and the income from them can go down as well as up and you could get back less than you invested. Past performance is not a reliable indicator of future performance.
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