2024 Weekly Update

Market update

The S&P 500 closed the week at 5,505.00, -1.97% lower. The Dow Jones closed at 40,287.53, +0.72%, with the Nasdaq lower by -3.65%. The volatility index VIX closed the week at 16.52, up from 12.46. The Euro Stoxx 600 fell -2.68%. 

The 10-year UST closed at 4.24%, up from 4.18% a week before. The yield curve is inverted with the yield spread between the 3-month and 10-year UST at -110bps. US Corporate Bond spreads: Investment Grade spreads tightened -1bp at 165bps and High Yield spreads tightened -5bps at 334bps. German 10-year Bunds yield closed at +2.47% down from +2.49% a week before. In Europe, Corporate Investment Grade spreads tightened -6bps at 116bps and High Yield tightened -17bp at 331bps.

The US Dollar Index (DXY) appreciated +0.29% last week and closed at 104.40. The Euro closed at 1.0882 (-0.23%); the Yen appreciated +0.22%, closing at 157.48 and the Swiss Franc appreciated +0.61%, closing at 0.8889. Gold closed at $2,400.83, depreciating -0.44%. Oil was lower, Brent closed at $82.63 (-2.82%) and WTI at $80.13 (-2.53%).

Macroeconomy

Fedspeak

Fedspeak pointed to a September rate cut and closed the door on July 31st meeting, as we heard from several members before their blackout period. Fed Chair Powell was interviewed at the Economic Club of Washington DC. Powell’s initial comments noted that “the three readings in the second quarter…do add somewhat to confidence” that inflation is returning to the 2% target, and that the inflation and labor market mandates are now “in much better balance”. However, he did not get drawn on the timing of rate cuts and commented that policy is “restrictive but not severely restrictive”. Chicago Fed President Goolsbee noted that the labor market was “definitely an area of concern” and that holding rates while inflation was falling meant policy was tightening in real terms. San Francisco Fed president Daly struck a more balanced tone, saying that some recent inflation figures have been “really good” but that “we’re not there yet” in terms of having confidence in achieving price stability. New York Fed President Williams said in a WSJ interview that “I would like to see more data to gain further confidence inflation is moving sustainably to our 2% goal.” Moreover, he pointed out that they would “learn a lot between July and September”. Fed Governor Waller said that “I believe current data are consistent with achieving a soft landing, and I will be looking for data over the next couple months to buttress this view.” Those remarks cemented the idea that a cut was possible at the meeting-after-next in September but made clear that officials wanted to see continued progress on inflation before moving. Fed Governor Kugler said that “continued rebalancing (in the labor market) suggests that inflation will continue to move down toward our 2% target”.

ECB meeting

As widely expected, the ECB (European Central Bank) left their deposit rate unchanged at 3.75% but maintained an implicit direction towards further easing after the first cut last month. The statement and President Lagarde’s Q&A played down potential hawkish angles, with “one-off factors” cited for the recent inflation uptick while strong wage data was seen as slowing into 2025-26. There was also a dovish tweak in the assessment of growth risks. That said, Lagarde didn’t pre-commit to anything in September, describing the next decision as “wide open”. An initial dovish reaction to the ECB largely faded following a hawkish sources story later on, with Bloomberg reporting officials who suggested the ECB may only be able to cut once more this year, rather than the two cuts largely priced by the market.

China

The Chinese Communist Party completed its Third Plenum of the 20th Central Committee on Thursday. The communique released after the meeting brought no surprise with a few points worth highlighting: 1/ continued emphasis was put on “high-quality” growth, which means low likelihood for large-scale stimulus; 2/ continued to focus on the supply side instead of the demand side, so no major measures to boost consumption; and 3/ the housing sector was mentioned only once in the communique, which reduces the likelihood for additional supporting measures for housing. The Politburo meeting at the end of July should give more hints about near-term cyclical policy measures. In terms of economic data, GDP grew +4.7% y-o-y in the second quarter (the worst in five quarters), missing the +5.1% forecast and down from +5.3% growth in Q1, hampered mainly by weak consumer spending and demand. On a q-o-q basis, GDP in the April-June period rose +0.7% from the previous quarter, vs. a revised growth of +1.5% in the January-March period. Other data showed that China’s retail sales slowed to +2.0% y-o-y in June (vs. +3.4% expected and the worst since December 2022) after advancing +3.7% in May, thus highlighting that the world’s second largest economy is struggling to boost consumption. Adding to the negative sentiment, China’s home prices fell again in June, declining -0.67% m-o-m with existing home prices declining -0.85%.

IMF growth expectations

The IMF updated their growth forecasts yesterday, which painted a broadly similar picture for the global economy relative to three months ago. For this year, they still see global growth at +3.2%, and the 2025 number was revised up a tenth to +3.3%. That said, there were some bigger moves at the country level, and several emerging markets saw decent upgrades. That included China, where growth in both 2024 and 2025 was revised up four-tenths, and they now forecast growth of +5.0% in 2024 and +4.5% in 2025. India’s growth was also revised up two-tenths this year to +7.0%.

Highlights

Q2 earnings

Q2 earnings season is underway with roughly 15% of the S&P500’s market cap having reported. The market expects revenue and EPS growth of 4.2% and 7.1% respectively for the quarter. So far, earnings are coming in 5.4% ahead of estimates with 71% of companies beating expectations. The two most important earnings reports last week were American Express and Netflix which put up a reasonably healthy set of numbers and raised guidance for the year. Sector wise, earnings growth is showing a significant improvement in banks driven by JPMorgan. Most sectors are showing a positive average earnings surprise with the exception of the food & beverage and energy sectors.  Over the next 5 trading days, 126 companies representing a quarter of the index’s market cap will post results. These include Coca-Cola, General Electric, General Motors, Tesla, Alphabet, and Amazon. In Europe, 30% of European companies will report Q2 earnings such as LVMH, Hermes, Lonza, BNP or Unilever.

On rates

US Treasuries saw selling pressure last week with the 10yr ending the week up +5.6bps at 4.24% on the back of a few stronger data releases. Fed expectations held steady, with the market pricing a 100% probability of a cut by 9/18 while 63bps worth of reductions are priced in for the year. On the other side of the Atlantic, yields fell after the ECB’s decision to leave the policy rate unchanged at 3.75%. Although hawkish sources emerged in the aftermath of the press conference, the meeting had several dovish elements and maintained an implicit direction towards further easing. Investors expect the ECB to deliver two more rate cuts this year in Sept. and Dec.

What to watch

• Monday: no major events
• Tuesday: US Existing Home Sales (July); Eurozone Consumer confidence (July)
• Wednesday: Eurozone PMI (July, prel.); Germany GfK Consumer confidence; UK PMI (July)
• Thursday: US GDP (Q2), Core PCE (Q2); Germany IFO survey (July)
• Friday: US Core PCE (June); Japan Tokyo CPI (July); France Consumer confidence (July)