US stocks had got off to a good start to the week, closing out a strong July, however August began with stocks under pressure amid rising Treasury yields. For the week the S&P 500 was down 2.3%, while the Nasdaq lost 2.8%, both declining for four consecutive sessions. It was a busy week for corporate earnings with particular attention on the tech mega-caps Amazon and Apple. Amazon delivered stronger-than-expected results, sending its shares over 8% higher on Friday, while in contrast Apple’s report was more mixed, with weakness in iPhone sales, sending shares lower. Energy was the best performing sector of the S&P 500, helped by rising oil prices after news that Saudi Arabia is to extend its oil production cut. Meanwhile utilities was the worst performing sector, down over 4%.
Stocks saw particular pressure on Wednesday as investors digested the surprise US credit rating downgrade from Fitch. The ratings agency said that the move from AAA to AA+ was due to an “expected fiscal deterioration”. This sparked a rise in Treasury yields, with the 10-year note hitting a nine-month high. Some of the gains in yields were pared back on Friday after the non-farm payrolls report. While there were signs that hiring was cooling, wage pressures continued to rise. The 10-year Treasury yield ended at 4.05% up from 3.95% the previous week. Gains also came after the Treasury Department indicated that it would increase its debt issuance.
The rising US yields also weighed on European equities as well as a wave of company earnings, with the pan-European STOXX 600 down 2.4% for the week. Germany’s DAX had touched a record high on Monday however ended the week 3.1% lower. While eurozone annual inflation eased further to 5.3% in July, it still remains above the European Central Bank target and the final reading for July’s Manufacturing PMI came in at 42.7, its lowest level since May 2020. The UK FTSE 100 fell 1.7%, with the Bank of England hiking interest rates by 25bps to a 15-year high of 5.25%. The central bank warned that rates were likely to stay high for longer.
Japan’s Nikkei 225 also ended the week lower, following the general downbeat sentiment offsetting robust domestic earnings. Japanese government bonds continued to tick higher following the prior week’s Bank of Japan meeting. Hong Kong’s Hang Seng index shed 1.9% for the week, but bucking the trend, the Shanghai Composite managed to log a modest 0.4% increase. Stocks, particularly property names managed to find support after the governor of the central bank pledged to divert more financial resources to the private sector. China’s economic recovery still is precarious with Caixin’s Manufacturing PMI slipping back into contraction for July.
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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.