Key News and Events
- In the U.S., President Trump and congressional leaders reached an agreement to raise the U.S. debt ceiling and set budget levels for the next two years. The agreement increases government spending by around $320 billion and suspends the debt ceiling until July 2021, reducing the chance of another government shutdown before the 2020 elections.
- Central banks around the globe continue to signal their intentions to provide additional monetary stimulus amidst signs of slowing economic growth. The European Central Bank (ECB) kept rates on hold at their meeting last week, but ECB president Mario Draghi indicated that a range of stimulus options, including rate cuts, would be under consideration if inflationary expectations remain sluggish. Meanwhile, the U.S. Federal Reserve (Fed) is widely expected to cut interest rates in their meeting on 30-31 July.
- In the UK, Boris Johnson became the new Prime Minister after his victory in the Conservative Party leadership election. He reaffirmed his pledge that Britain would leave the European Union (EU) on 31 October with or without a deal and vowed to renegotiate the Irish border "backstop" protocols. Meanwhile, EU leaders continue to reiterate that the previously negotiated withdrawal agreement is the best deal available, and that the "backstop" is a necessary part of any deal.
- In Spain, political uncertainty increased as caretaker Prime Minister Pedro Sanchez failed to form a government after the leftist Podemos party declined to support his premiership in parliamentary votes last week.
Week in Markets
- Global equity markets rose over the week.
- The S&P 500 index rose by 1.7% over the week, outperforming the MSCI World index, which rose by 1.0%. On a year-to-date basis, S&P 500 index outperformed the MSCI World index (22.1% vs 19.5%).
- U.S. Large Cap stocks underperformed Small Cap stocks over the week, as the S&P 500 index rose by 1.7% while the Russell 2000 index rose by 2.0%. On a year-to-date basis, the S&P 500 index outperformed the Russell 2000 index (22.1% vs 18.0%).
- Growth stocks outperformed Value stocks over the week as measured by the MSCI USA Growth and Value index. Growth Stocks rose by 2.0% while Value Stocks rose by 1.4% over the week. On a year-to-date basis, Growth Stocks outperformed Value Stocks (27.5% vs 17.5%).
- The 10-year U.S. treasury yield rose by 3bps to 2.08% and 30-year U.S. treasury yield rose by 2bps to 2.60% over the week.
- The 20-year TIPS yield rose by 3bps to 0.53% and 20-year breakeven inflation was unchanged at 1.85% over the week.
- The spreads on the Bank of America Merrill Lynch U.S. Corporate Index fell by 4bps to 114bps and the spreads on the Bloomberg Barclays Long Credit Index fell by 4bps to 154bps over the week.
- The U.S. High Yield bond spread over U.S. treasury yields fell by 18bps to 389bps and the spread of USD denominated EM debt over U.S. treasury yields fell by 8bps to 334bps over the week.
- The S&P GSCI index rose by 0.2% in USD terms over the week.
- The S&P GSCI Energy index rose by 1.1% as the price of WTI crude oil rose by 1.0% to US$56/BBL.
- Industrial Metal prices fell by 1.8% as copper prices fell by 2.0% to US$5,945/MT.
- Agricultural prices fell by 1.8% and gold prices fell by 1.3% to US$1,420/Oz.
- The U.S. dollar appreciated against all major currencies over the week.
- Sterling depreciated by 0.9% against the U.S. dollar over the week, ending the week at $1.24/£.
- The euro depreciated by 0.9% against the U.S. dollar over the week, ending the week at $1.11/€.
- The Japanese yen depreciated by 0.8% against the U.S. dollar over the week, ending the week at ¥108.66/$.
- The Canadian dollar depreciated by 0.8% against the U.S. dollar over the week, ending the week at C$1.32/$.
Highlighted Last Week Releases
GDP Annualized QoQ
The U.S. economy grew at an annualized rate of 2.1% in Q2 2019, slowing from the 3.1% growth recorded previously but beating market expectations of a 1.8% growth. Household consumptions increased at the fastest rate in six quarters, but exports plunged by 5.2% amidst ongoing US-China trade tensions.
CBI Business Optimism
Business optimism in the UK fell to its lowest level since Q3 2016 amidst ongoing Brexit uncertainty. Investment spending plans weakened again, whilst optimism over export prospects also worsened.
Markit/BME Germany Manufacturing PMI
German Manufacturing PMI fell by 1.9 points to 43.1 in July 2019, indicating the steepest contraction in manufacturing activity in seven years. Export orders fell at the sharpest rate in over a decade amidst weakness in the automotive sector, whilst confidence over future output also dropped sharply.
Sources: Global Asset Allocation, Bank of America Merrill Lynch, Barclays Capital, Factset. Click here for index descriptions.
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