Jul 7, 2023 12:37:22 PM
Weekly Market Wrap 07/07/2023
Bond and equity markets were once again plagued by fears of higher interest rates this week, as key US employment data and comments from the Federal Reserve sparked investor fears. The UK may be set for a major regulatory shake up, whilst 10-year yields spike. European economic data offers a number of surprises although the latest readings may not tell the full story.
The UK market ended the week lower. UK Chancellor Jeremy Hunt is expected to repeal a key MiFID II requirement that require investment banks to separate the costs of investment research and trade execution. The intention behind this move is to make the UK finance sector more attractive relative to its peers as well as increase the profile and potential investment into smaller UK companies. UK interest rates are now expected to peak at 6.50% before the end of 2023, up from a previously estimated terminal rate of 6.25%. Views on UK interest rates continue to push higher as persistent inflation and a non-recessionary environment keep the door open for further hikes.
The S&P 500 is set to end the week down 0.87% at 4,411 and the NASDAQ is down 0.59% at 15,089. The latest FOMC minutes were released on Wednesday, with the presence of hawkish sentiment driving markets lower. Minutes showed that despite the Fed’s decision to pause its interest rate increase at its June meeting, a number of Fed participants favored raising interest rates in June by 0.25%. Further commentary showed that “almost all participants” believed that further increases in interest rates would be required in 2023. Data released on Thursday fueled the talk of higher rates and sent markets tumbling, as continued jobless claims unexpectedly fell, US services sector PMI data came in stronger than expected and initial jobless claims came in just above expectations (248k vs est 245k).
The Euro Stoxx 50 is currently down 3.48% at 3,864, the DAX is 3.60% lower at 15,565, whilst the CAC 40 has fallen 3.95% to 7,107. European retail sales data surprised to the downside on Thursday, with MoM sales flat when economists had expected an increase of 0.2%. YoY sales came in at -2.9% (e.-2.7%). The slowdown in sales is thought to have been driven by continued high inflation dragging down real household incomes as well as more cautious consumers. German industrial orders rose by significantly more than expected (6.4% MoM vs 1.2% MoM est), however many economists believe that the large number of high-volume orders was a one-off and that the sector remains on a downward trend.
Yields on 10-Year US government bonds rose by 0.20% this week to 4.04%, as hawkish sentiment within the Fed drives investor worries.
UK 10-year yields have risen to their highest level since 2008 at 4.65%, after rate expectations jumped to 6.50%.
Brent Crude is set to end the week up 2.58% at $76.8 per barrel, as a reduction in US oil reserves offset fears of lower demand brought on by higher rates.
The Week Ahead
Monday – China CPI
Tuesday – UK Unemployment Rate
Wednesday – US CPI
Thursday – US PPI & Initial Jobless Claims
Friday – Consumer Sentiment
*x% up/down to price as of last week’s close