Key News and Events
- A UK-flagged oil tanker was seized by the Iranian military in the Strait of Hormuz last week. The latest incident followed a seizure of an Iranian oil tanker two weeks ago off the coast of Gibraltar by British troops over charges that it was carrying oil to Syria in breach of EU sanctions. The U.S. military also reportedly destroyed an Iranian drone in the Strait of Hormuz after it threatened an American warship.
- Despite escalating tensions in the Middle East, oil prices fell over the week as Hurricane Barry proved less damaging than previously expected, allowing oil producers from the Gulf of Mexico to resume supply following an earlier evacuation. Meanwhile, Iranian foreign minister Mohammad Javad Zarif suggested during his visit to New York that Iran would permanently accept enhanced inspections of its nuclear programme in return for a permanent lifting of U.S. sanctions.
- The European Parliament narrowly elected Ursula von der Leyen, previously the German defence minister, as the next European Commission President. She won 383 votes, nine more than the 374 votes required to be elected in the first round.
- The results of the UK Conservative Party leadership election will be announced on Tuesday, with Boris Johnson widely expected to win and become the next Prime Minister.
Week in Markets
- Global equity markets fell over the week.
- The S&P 500 index fell by 1.2% over the week, underperforming the MSCI World index, which fell by 0.8%. On a year-to-date basis, S&P 500 index has outperformed the MSCI World index (20.1% vs 18.3%).
- U.S. Large Cap stocks outperformed Small Cap stocks over the week, as the S&P 500 index fell by 1.2% while the Russell 2000 index fell by 1.4%. On a year-to-date basis, the S&P 500 index has outperformed the Russell 2000 index (20.1% vs 15.6%).
- Growth stocks underperformed Value stocks over the week as measured by the MSCI USA Growth and Value indexes. Growth Stocks fell by 1.4% while Value Stocks fell by 1.0% over the week. On a year-to-date basis, Growth Stocks have outperformed Value Stocks (25.0% vs 15.9%).
- The 10-year U.S. treasury yield fell by 6bps to 2.05% and 30-year U.S. treasury yield fell by 6bps to 2.58% over a week in which Fed officials hinted at rate cuts at their meeting later this month.
- The 20-year TIPS yield fell by 8bps to 0.50% and 20-year breakeven inflation rose by 1bps to 1.85% over the week.
- The spread on the Bank of America Merrill Lynch U.S. Corporate Index was unchanged at 118bps and the spread on the Bloomberg Barclays Long Credit Index was unchanged at 158bps over the week.
- The U.S. High Yield bond spread over U.S. treasury yields rose by 5bps to 407bps and the spread of USD denominated EM debt over U.S. treasury yields rose by 1bps to 342bps over the week.
- The S&P GSCI index fell by 4.3% in USD terms over the week.
- The S&P GSCI Energy index fell by 6.6% as the price of WTI crude oil fell by 7.6% to US$56/BBL. Oil producers from the Gulf of Mexico resumed supply over the week as Hurricane Barry proved less damaging than previously expected.
- Industrial Metal prices rose by 2.4% as copper prices rose by 1.9% to US$6,066/MT.
- Agricultural prices fell by 3.6% and gold prices rose by 2.3% to US$1,440/Oz.
- The U.S. dollar appreciated against most major currencies (except the Japanese yen) over the week.
- Sterling depreciated by 0.5% against the U.S. dollar over the week, ending the week at ¥1.25/$.
- The euro depreciated by 0.3% against the U.S. dollar over the week, ending the week at ¥1.12/$.
- The Japanese yen appreciated by 0.3% against the U.S. dollar over the week, ending the week at ¥107.74/$.
- The Canadian dollar depreciated by 0.2% against the U.S. dollar over the week, ending the week at ¥1.31/$.
Highlighted Last Week Releases
Industrial Production MoM
Industrial production stagnated in the month of June, slowing from the 0.4% growth recorded in the previous month. For the second quarter as a whole, industrial production fell by an annualized rate of 1.2%, recording a second consecutive quarterly decline.
Retail Sales Ex Fuel MoM
In the UK, retail sales excluding fuel defied analyst expectations of a third consecutive decline, increasing by 0.9% in the month of June and rebounding from a 0.4% fall recorded previously.
Consumer prices in the Eurozone rose by 1.3% in the year to June 2019, slightly above analyst expectations of a 1.2% inflation rate. Core inflation accelerated to 1.1%, up from 0.8% previously.
Sources: Global Asset Allocation, Bank of America Merrill Lynch, Barclays Capital, Factset. Click here for index descriptions.
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