Read the top 10 stories to remember the week which ended July 9th.
#1: Mixed results for US stocks
The S&P 500, the Nasdaq and the Dow all posted gains under 0.5%, adding to their record high of the previous week. Large cap and growth stocks kept outperforming during the second week in a row, leaving value stocks trailing behind. Note that markets were closed on Monday in observance of Independence Day.
#2: Falling US bond yields creating new opportunities
The benchmark 10-year US Treasury note yield declined to hit a 5-months low on Thursday to 1.30% and climbed back later in the week. This drop made investors fear for a slowing global growth – remember that as recently as March, the yield was 1.74%. However, equity investors appeared to have welcomed the decline, as falling bonds yields usually improve the appeal of equities, as they imply a lower discount on future earnings, which makes corporate dividends more attractive by comparison. Within the S&P 500, the real state sector – which is quite sensitive to interest rates – performed the best.
#3: Oil interrupted its rally
After an ongoing rally, U.S. crude oil prices fell for the first time after a six-week consecutive weekly gains that made the commodity price climb above $75 a barrel – its highest since October 2018. Major oil-producing countries are still uncertain about whether to cut future supply levels, leaving an uncertainty regarding the barrel price over the next few weeks. This uncertainty made Energy stocks fare the worst among other sectors in the S&P 500.
#4: Great optimism regarding US earnings
Wall street analyst have rarely hoped for a better earnings season. In fact, they are waiting for what they claim to be the biggest quarterly earnings growth rate in a decade, if we believe in FactSet. Second quarter earnings are expected to grow 69% compared to last year, which would not be too exaggerated considering that this time last year was a complete lockdown for a good part of the planet.
#5: European shares also remained unchanged
There was not much movement with shares in Europe, as they are shyly recovering from a pullback coming from fear of surging coronavirus case that might slow economic growth. The STOXX Europe 600 Index ended the week 0.19% higher. Major indexes were mixed. Germany’s Xetra DAX Index ticked up 0.24%, France’s CAC 40 Index declined 0.36%, and Italy’s FTSE MIB Index dropped 0.91%. However, the UK’s FTSE 100 Index ended the week flat.
#6: Coronavirus infections keep rising
Our new enemy, the Delta variant, is helping coronavirus make a comeback, with infections rate surging in the UK and across continental Europe, with Spain being the worst victim of the lot. Catalonia was even forced to reimpose restrictions. France’s Health Minister Olivier Véran is urging his population to get vaccinated and fears a 4th wave by the end of July. In the UK, the health minister Sajid Javid said that starting mid-August, vaccinated adults will not need to quarantine after close contact with an infected person anymore, and obligations for daily tests will be lifted as well. Vaccine should heavily reduce contagion risk and serious illness.
#7: New inflation target for the ECB
The European Central Bank has adopted a 2% inflation target over the medium term, slightly above their vague “below but close to 2%” previous target. The ECB Predient Christine Lagarde assured that the ECB would use “especially forceful or persistent monetary policy action” as interest rates are nearing their lower limit and inflation is a little under what it should be. She also noted that, in a transitory manner, inflation could go above its target for a while.
#8: Japanese markets took a hit last week
Sharp losses were recorded by Japan’s stock market for the week, with the Nikkei 225 Index falling almost 3% and the broader TOPIX Index dropping 2.25%. As mentioned above, the Delta variant is spreading and undermining the global economic sentiment. Tokyo was placed under a fourth state of emergency due to rising cases. Yield on the 10-year Japanese government bond retreated by 0.03% expecting that the monetary policy remains unchanged. In fact, the monetary policy might even be eased further in the face of a struggling economy. The yen strengthened its position in the face of the US dollar thanks to safe-haven demand.
#9: Chinese stocks sending mixed signals
Chinese stocks were also mixed for the week, with the Shanghai Composite Index ending slightly higher while the large-cap CSI 300 Index recorded a modest loss. Of course, the tech sector saw a decent sell trend on the regulatory risk that Beijing further tightens its grip on US-listed Chinese companies in an addition to the government’s crackdown on domestic tech companies.
#10: Europe has a new football Champion!
Italy managed to beat England in the Euro Football Championship’s final last Sunday. The match ended 3-2 on penalties after having ended 1-1 during extra time. England, a football country, was very disappointed as they remain without a major trophy since the 1966 World Cup. It seems that playing in Wembley was not enough for the English to get in their game. Italy have not won the Euros since 1968 but the Azzurri are on an unbeaten run of 33 games since September 2018 and have never lost against England at a major event.