Markets Update: Equities show mixed returns amidst rotation

US equities ended the week with mixed returns for the second period in a row, writes Ian Slattery.

Ian Slattery, Zurich Investments

The S&P 500 Index saw a significant drop of more than 2% on Wednesday, its first such decline since February 2023, while the Nasdaq experienced its worst one-day loss since October 2022. 

On Thursday, GDP data revealed that the US economy grew at an annualised rate of 2.8% in the second quarter of the year, surpassing the forecast of 2.1%, indicating strong consumer resilience as the Federal Reserve considers cutting interest rates in the coming months. Recent data suggests that the Fed is successfully reducing price pressures towards its 2% inflation target without triggering a recession. 

The core PCE price index, the Fed’s preferred inflation measure, remained steady at 2.6% annually in June. Including food and energy prices, the headline PCE price index came in at 2.5% annually in June, slightly slowing from 2.6% in May. 

European equity markets dipped midweek as earnings in the technology and luxury goods sectors dragged on returns. The technology sector was notably weak, influenced by negative sentiment from sharp declines in Tesla and other Magnificent Seven stocks in the US. 

Consumer confidence indicators in the Euro Area rose by 1.0 point from the previous month to -13 in July, marking its highest level since February 2022 and exceeding market expectations of -13.4. The ECB’s recent interest rate cuts in June, prompted by a gradual decline in inflation, has boosted optimism. 

Chinese equities declined after unexpected rate cuts by the central bank failed to boost confidence in the economic outlook. On Monday, the People’s Bank of China reduced its medium-term lending facility rate by 20 basis points to 2.3%, marking the first cut since August 2023. The rate cuts signal Beijing’s increasing urgency to stimulate growth after China’s GDP fell short of expectations in the second quarter.

Equities

Global stocks were down last week by -0.5% in euro terms and -0.8% in local terms. Year-to-date global markets are up by 14.2% in euro terms and by 12.2% in local terms.  The US market, the largest in the world, finished at -0.5% in euro terms and -0.8% in local terms.

Fixed Income & FX

The US 10-year yield finished at 4.2% last week. The German equivalent finished at 2.4%. The Irish 10-year bond yield finished at 2.8%.  The Euro/US Dollar exchange rate finished at 1.09, whilst Euro/GBP finished at 0.84.

Commodities

Oil finished the week at $77 per barrel and is up 9.5% year-to-date in euro terms. Gold finished the week at $2,387 per troy ounce and is up 17.7% year-todate in euro terms. Copper finished the week at $8,995 per tonne.

The week ahead

Tuesday 30th July

Eurozone GDP data is released.

Wednesday 31st July

Eurozone CPI data goes to print.

Thursday 1st August

US PMI indices are published.