The State of Markets: A Goldilocks Market For Equities?
Evidence for a slowdown in the US economy continued to build this week. In particular, Monday’s ISM manufacturing print was disappointing; Wednesday’s ADP employment and ISM services were both weaker than expected; and, while headline payrolls beat expectations yesterday (by 16k), there were significant downward revisions in May (-54k) and April (-57k). With that, the unemployment rate was higher than expected (4.1% vs. 4.0%).
Unsurprisingly, therefore, US yields moved lower across the curve (e.g. with US 10 year yields down 20bps since Monday’s close, see chart below). As such, and with the dollar lower (DXY: -3.7% last week), US equities performed well (especially the tech/growth heavy parts of the market). Most notably, both the S&P500 and NASDAQ100 broke out of their recent trading ranges and made new record highs.
The key question, therefore, is whether next week’s CPI release will add to that emerging theme (i.e. of weaker growth and inflation – and therefore expectations of looser Fed policy). All eyes will be on that CPI data (due Thursday at 1:30pm London time). Other key US data points will include NFIB small business optimism (Monday) as well as PPI inflation and the University of Michigan Sentiment (both on Friday). Elsewhere Powell will be giving his (second) semimanual testimony to Congress (on Monday & Wednesday). Tomorrow is the second round of French elections and earnings season gets going this week (please see below for a full list of key data, events, and earnings reports).
Key chart: US 10 year Treasury yield (%), shown with 50, 90, & 200 day moving averages
Upcoming important data/events this week:
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Events: |
Powell’s semi-annual testimony to Congress: Senate Banking Committee (Monday at 5:15pm) & House Financial Services (Wednesday at 3pm). Second round of French elections (Sunday). |
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Monday: |
US consumer credit (May, 8pm). |
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Tuesday: |
Japanese M2 & M3 money supply (Jun, 12:50am); US NFIB Small Business Optimism (Jun, 11am). |
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Wednesday: |
Chinese headline CPI & PPI (Jun, 2:30am). |
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Thursday: |
US headline & core CPI (Jun, 1:30pm). |
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Friday: |
US Michigan sentiment (July first estimate, 3pm). |
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Key earnings: |
PepsiCo, Progressive (Thurs); JPMorgan, Well Fargo&Co, Citigroup (Fri). |
Key Research
Longview on Friday, 5th July 2024
“UK Election – And US Liquidity, How Much Is There?”
Once again, tech stocks seem bullet proof, and have been the driving force behind US equities this past week, pushing both the S&P500 and NASDAQ100 out to new all-time highs.
Illustrating that, the chart below splits the sectors of the S&P500 into its three key components (long duration growth, cyclicals, and defensives4). This week, long duration growth (i.e. IT) continued to retrace its losses from mid-June, made a new record high, and is now up 32% YTD (as of Wednesday’s close). Naturally, that’s mostly been driven by Nvidia (+9% since last Monday), and more recently Tesla (+36% in 2 weeks). Other key semiconductor stocks, though, have also performed well in that time, e.g. with strong gains in Micron (+7%) and Broadcom (+10%). Cyclicals and defensives, in contrast, are only up ~12% YTD (and broadly flat in recent weeks, FIG 1).
Key North American macro data & events
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Events: |
Speeches by the Fed's Powell testifying to Senate Banking (Mon, 5:15pm) & to House Financial Services (Wed, 3pm), Goolsbee & Bowman give opening remarks at Childcare Event (Wed, 7:30pm), Bostic in moderated Q&A (Thurs, 4:30pm) & Musalem in Q&A on the Economy (Thurs, 6pm). |
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Monday: |
US consumer credit (May, 8pm); US New York 1 year inflation expectations (Jun, 4pm). |
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Tuesday: |
US NFIB Small Business Optimism (Jun, 11am). |
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Wednesday: |
US wholesale trade sales (May, 3pm); US wholesale inventories (May, 3pm). |
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Thursday: |
US headline & core CPI (Jun, 1:30pm); US weekly jobless claims (1:30pm); US monthly budget statement (Jun, 7pm). |
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Friday: |
US building permits (May, 1:30pm); US headline & core PPI (Jun, 1:30pm); US existing home sales (Jun, 2pm); US Michigan sentiment (July first estimate, 3pm). |
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Key earnings: |
PepsiCo, Progressive (Thurs); JPMorgan, Well Fargo&Co, Citigroup, Bank of NY Mellon, Fastenal (Fri). |
Fig B: US CPI Services and Services less rent of shelter (M-o-M %)
Key European macro data & events
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Events: |
Speech by the ECB's Nagel in Germany (Wed, 9am); Istat publishes note on the Italian economy (Wed, 10am). Second round of French elections (Sunday). |
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Monday: |
German imports/exports & trade balance (May, 7am); Eurozone Sentix investor confidence (Jul, 9:30am). |
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Tuesday: |
N/A |
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Wednesday: |
Italian industrial production (May, 9am). |
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Thursday: |
German headline CPI (June final estimate, 7am). |
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Friday: |
French headline CPI (June final estimate, 7:45am); German wholesale price index (Jun, 7am). |
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Key earnings: |
N/A |
Fig C: Eurozone Sentix investor confidence (index)
Key UK macro data & events
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Events: |
Speeches by the Bank of England's Haskel on ‘What’s done and what’s to come’ (Mon, 5:15pm) & Pill at Asia House (Wed, 2:30pm). |
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Monday: |
N/A |
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Tuesday: |
BRC retail sales (Jun, 12:01am). |
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Wednesday: |
N/A |
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Thursday: |
RICS house price balance (Jun, 12:01am); monthly GDP, industrial & manufacturing production, goods trade balance & construction output (May , 7am). |
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Friday: |
N/A |
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Key earnings: |
N/A |
Fig D: UK RICS house price balance (index) against Rightmove house prices (Y-o-Y %)
Key Asia-Pacific macro data & events
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Events: |
RBNZ policy decision (Wed, 3am). |
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Monday: |
Japanese cash earnings (May, 12:30am); Japanese bank lending (Jun, 12:50am); Australian home loans value (May, 2:30am). |
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Tuesday: |
Japanese M2 & M3 money supply (Jun, 12:50am); Australian Westpac consumer confidence (Jul, 1:30am); Australian NAB business confidence (Jun, 2:30am); Japanese machine tool orders (June first estimate, 7am). |
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Wednesday: |
Japanese PPI (Jun, 12:50am); Chinese headline CPI & PPI (Jun, 2:30am). |
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Thursday: |
Australian household spending (Jun, 12am); Japanese machinery orders (May, 12:50am). |
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Friday: |
Japanese industrial production & capacity utilisation (May final estimate, 5:30am); Chinese imports/exports & trade balance (Jun, Sunday time tentative). |
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Key earnings: |
Fast Retailing, Seven & i Holdings (Thurs). |
Fig E: Japanese M2 & M3 money supply (Y-o-Y %)
Longview research published recently
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Last week: Longview on Friday, 5th July 2024: Monthly Global Asset Allocation No. 42, 3rd July 2024: Tactical Equity Asset Allocation No. 246, 2nd July 2024: Prior week: Longview on Friday, 28th June 2024: Quarterly Asset Allocation No. 58, 28th June 2024: Monthly Global Asset Allocation No. 41, 26th June 2024: Global Macro Report, 25th June 2024: |