Banks gained after upbeat earnings from big names including Morgan Stanley and Bank of America. Financials as well as healthcare were the best performing sectors of the week and have now moved into positive territory for the year. In contrast technology stocks were the notable laggards with earnings reports from Tesla and Netflix underwhelming. Losses from the two tech mega-caps weighed on the Nasdaq, with the index seeing its worst one-day drop since March on Thursday, and down 0.6% for the week. The S&P 500 added 0.7% in its second week of gains while the Dow Jones climbed 2.1% and is on a ten-session winning streak.
With cooling US inflation and a resilient labour market the odds of recession have reduced, lifting sentiment. Attention now turns to the Federal Reserve which meets this week. Markets are expecting policymakers to raise rates by 0.25 percentage points, in what they believe to be the final rate hike. Shorter duration government bond yields rose for the week, although the 10-year Treasury yield was little changed, ending at 3.837%.
European markets were higher on hopes that the European Central Bank may also be nearing its rate peak. For the week the STOXX 600 added 1%. European equities found support on Tuesday after governing council member Klaas Knot said further rate hikes beyond the July meeting were not a guarantee. First quarter eurozone GDP was upwardly revised, with the economy unchanged for the period meaning that it avoided a technical recession. The UK FTSE 100 outperformed, up over 3%, boosted by a weaker pound. UK inflation cooled more than expected in June, helping send property companies higher.
Chinese equities were lower for the week, with the economic picture remaining weaker than hoped. The Shanghai Composite dropped 2.2% and the Hang Seng lost 1.7%. In the second quarter China’s economic growth eased to 0.8% on a quarter-on-quarter basis. While there were some government pledges to help business conditions and boost household spending market reaction was muted, awaiting greater stimulus measures, which could potentially be seen at the politburo meeting later this month. In a holiday shortened week, the Nikkei 225 struggled to regain its recent momentum, ending 0.3% lower. Japan’s core inflation rose to 3.3% year-on-year in June, its fifteenth consecutive month exceeding the Bank of Japan’s 2% target. The BoJ meets this week and is expected to once again hold rates steady.
The value of your investment can fall as well as rise in value, and the income derived from it may fluctuate. You might get back less than you invest. Currency exchange rate fluctuations can also have a positive and negative affect on your investments. Please note that EFG Harris Allday does not provide tax advice. Past performance is not a reliable indicator of future performance.
This document has been produced by the EFG Harris Allday research team utilising data from documents produced by EFG Asset Management (UK) Limited for use by the EFG group and the worldwide subsidiaries and affiliates within the EFG group. EFG Asset Management (UK) Limited is authorised and regulated by the UK Financial Conduct Authority, registered no. 7389746. Registered address: EFG Asset Management (UK) Limited, Park House, 116 Park Street, London W1K 6AP, United Kingdom, telephone +44 (0)20 7491 9111.