Equity markets delivered modest gains last week despite further rate rises in the US and Europe. The American S&P 500 gained +1.01% on the week, once again led by a handful of the index’s mega-cap technology names. Chinese equities enjoyed stronger returns on the week, whilst European equity markets saw modest moves.
The US Federal Reserve raised interest rates by 25 basis points on Wednesday and signaled it will apply further tightening if necessary. The Fed also upgraded its assessment of US growth from modest to moderate. A preliminary estimate of US Gross Domestic Product (GDP) showed the economy grew 2.4% in the second quarter, quicker than the 2% pace posted in Q1. Consumer spending and non-residential investment made notably higher contributions during the quarter[1]. US 10-year Treasury yields rose following the data, though yields dipped back below 4% on Friday morning as a drop in core Personal Consumption Expenditure (PCE) inflation lowered expectations of further rate rises.
The European Central Bank also lifted rates during the week, hiking to 3.75% on Thursday which is the highest level in the bank’s 25-year history. European markets saw mixed returns with Germany’s Dax Performance index up +1.81% and the French CAC 40 +0.59% higher. The UK’s FTSE 100 index meanwhile saw a muted +0.40% weekly return.
Elsewhere during a busy week on the central bank calendar, the Bank of Japan fine-tuned its yield curve control policy which is intended to keep Japanese government bond yields within a narrow range. The Japanese central bank said the former 0.5% cap on 10-year Japanese government bond yields will now be a reference level and it will intervene flexibly to limit yields to a cap at 1%[2]. The move is arguably a tentative first step toward monetary policy normalization. The Nikkei 225 Index closed the week +1.41% higher.
Week Ahead
| Day | Country | Measure | Period | Forecast | Previous |
| Monday | China | Official Composite PMI | July | - | 52.30 |
| Europe | CPI YoY | July | 5.30% | 5.50% | |
| Tuesday | China | Caixin Manufacturing PMI | July | 50.30 | 50.50 |
| Europe | Unemployment Rate | June | 6.50% | 6.50% | |
| US | ISM Manufacturing PMI | July | 46.80 | 46.00 | |
| Wednesday | - | N/A | - | - | - |
| Thursday | China | Caixin Services PMI | July | - | 53.90 |
| Europe | PPI YoY | July | -3.10% | -1.50% | |
| UK | Bank of England MPC Meeting | August | - | - | |
| US | ISM Services PMI | July | 53.00 | 53.90 | |
| Friday | Europe | Retail Sales MoM | June | 0.20% | 0.00% |
| US | Non-Farm Payrolls | July | 200K | 209K | |
| Unemployment Rate | July | 3.60% | 3.60% |
Source: Refinitiv Workspace, 31/07/23
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[1] BEA – gross domestic product second quarter 2023 advance estimate, 31/07/23
[2] BoJ – monetary policy meeting statement, 31/07/23
SJP Approved 31/07/2023