2024 Weekly Update

Market update

The S&P 500 closed the week at 5,459.1, -0.83% lower. The Dow Jones closed at 40,589.34, +0.75%, with the Nasdaq lower by -2.08%. The volatility index VIX closed the week at 16.39, down from 16.52. The Euro Stoxx 600 rose +0.55%. 

The 10-year UST closed at 4.19%, down from 4.24% a week before. The yield curve is inverted with the yield spread between the 3-month and 10-year UST at -95 bps. German 10-year Bunds yield closed at +2.41% down from+2.47% a week before. 

The US Dollar Index (DXY) depreciated -0.08% last week and closed at 104.32. The Euro closed at 1.0856 (-0.24%); the Yen appreciated +2.36%, closing at 153.76 and the Swiss Franc appreciated +0.60%, closing at 0.8836. Gold closed at $2,387.19, depreciating -0.57%. Oil was lower, Brent closed at $81.13 (-1.82%) and WTI at $77.16 (-3.71%).

Macroeconomy

Inflation

Core PCE (Personal consumption expenditures or consumer spending), the Fed’s preferred inflation gauge, rose +0.18% m-o-m in June, in line with consensus expectations. The small pickup in inflation was driven by a rebound in core goods price growth, while supercore price growth remained stable. Interestingly, sequential growth in shelter fell from +0.4% to +0.3%. The price index was revised from +0.08% to +0.13% for the month of May. On a y-o-y basis, core surprised to the upside, coming in at +2.6% (vs +2.5% expected) due to upward revisions. Overall, the release pointed to a resilient but not overheating US economy.

US GDP

The US GDP report published on Thursday showed growth running at an annualized +2.8% in Q2 (vs. +2.0% expected), up from the +1.4% pace in Q1. The increase in real GDP primarily reflected increases in consumer spending, private inventory investment, and non-residential fixed investment. Trade was a drag on growth, mainly due to strong imports. Stripping out volatile trade and inventory factors, domestic final sales (a better gauge of final demand) grew at a robust rate of 2.7%, moderately faster than in Q1 (2.4%). Final sales to domestic purchasers (excluding government spending as well) rose 2.6% in Q2, similar to the pace in Q1. The main takeaway is that domestic demand remained solid in Q2 despite recent labor market and spending data pointing to softer economic activity in H2.

European PMIs

Euro area flash PMIs surprised to the downside in July. While a stabilization had been expected, the composite PMI was down to just 50.1 (vs. 50.9 expected), barely above the 50 mark that separates expansion from contraction. Sector divergence persisted at the start of the third quarter. The manufacturing sector was once again a key source of weakness, with the manufacturing PMI well entrenched in contraction territory (-0.2 points, bringing it down to 45.6 in July). The details were pretty poor with new orders (-0.7 points to 43.7) and output (-0.8 points to 45.3) both down in July. While it weakened, the services PMI (-0.9 points to 51.9) remained in expansion territory for the sixth consecutive month. Geographically, the German numbers were particularly disappointing, as their composite PMI was back into contractionary territory at 48.7 (vs. 50.6 expected). The numbers were better in the UK, where PMIs came in slightly ahead of expectations at 52.7 (vs. 52.6 expected).

Japan inflation

Japan’s Tokyo CPI core (excluding food) increased from +2.1% y-o-y to +2.2% y-o-y in July, in-line with market expectations and marking the third consecutive month of re-acceleration following a dip to +1.6% y-o-y in April. Excluding the effect of fresh food and fuel costs, inflation rose 1.5% y-o-y, the slowest annual pace in nearly two years. The data comes ahead of the BoJ’s two-day policy meeting that ends next Wednesday.

China

The PBOC (People's Bank of China) unexpectedly cut the short-term policy (OMO) rate by 10bps on Monday, driving banks to lower loan prime rates (LPR). The central bank surprised markets for a second time by conducting an unscheduled lending operation on Thursday and cutting the MLF (medium term lending facility) rate by 20bps, suggesting authorities are trying to provide heavier monetary stimulus to prop up the economy. The PBOC intervenes as private demand growth momentum is not yet strong enough to sustain overall growth.

Highlights

Q2 earnings

40% of the S&P 500 has reported and companies have surprised on earnings by 5.9%. Around 60% of companies have exceeded EPS expectations and 54% of them have beaten revenue estimates. Roughly 46% have had double beats (sales and net income). Big releases last week included GOOG and TSLA. GOOG beat expectations by just 2.5%. For 2Q24, revenues grew 14% y-o-y to USD 84.7 bn, Gross Profit grew 15% y-o-y to 49.2 bn and Gross Margin grew by 90 bps y-o-y to 58.1%. TSLA reported a miss on EPS at 52c (vs. consensus 60c) and cash flow (FCF was $1.3B vs. $1.9B expected) as margins witnessed some pressure. Four Mag 7 tech companies are reporting this week: MSFT on Tuesday, META on Wednesday, APPL and AMZN on Thursday. These companies cover around 20% of the S&P 500 market capitalization. Over in Europe, results have been weak so far with just under half of companies reporting EPS below expectations and 56% failing to meet sales expectations. Fewer than half of European sectors have reported positive net income surprises, led by Consumer, Banks, Basic Resources, and Healthcare. A 6% decline in Stoxx Europe 600 earnings is expected, primarily due to the Financials.

On rates

Treasuries rallied last week after the PCE data reinforced a Fed-cut friendly market narrative. The amount of rate cuts priced for the remainder of 2024 rose by +5.9bps over the week to 68bps. 10yr yields fell -4.5bps, to 4.24% and 2yr Treasury yields fell -12.9bps to 4.38%, their lowest since February. This saw the 2s10s curve steepen +8.5bps to its steepest weekly close since last October at -19.1bps, and earlier in the week reaching its steepest level (around -12bps) since the initial inversion in July 2022. In Europe, 10yr bund yields fell -6.0bps, driven by underwhelming PMI data earlier in the week leaving more room for future ECB cuts.

What to watch

• Monday: US: Dallas Fed manufacturing business index (July)
• Tuesday: US: JOLTS job openings (June), Conference Board consumer confidence (July); Eurozone: GDP (Q2); Euro Area: consumer confidence (July)
• Wednesday: US: Fed interest rate decision, ADP employment (July), employment cost index (Q2); Japan: BoJ interest rate decision; Euro Area: CPI (July); China: manufacturing PMI (July)
• Thursday: US: ISM manufacturing (July), initial jobless claims; UK: BoE interest rate decision; Euro Area: unemployment rate (June); China: Caixin manufacturing PMI (July)
• Friday: US: nonfarm payrolls and unemployment rate (July); Switzerland: CPI (July)