US markets plunged on Monday, building on the decline seen at the end of the prior week following the jobs report which sparked concerns about the US economy and whether the Federal Reserve may have been too slow to begin cutting interest rates. Tech names were some of the hardest hit from the rout. The VIX volatility index briefly jumped to its highest level since March 2020, and the S&P 500 was dangerously close to correction territory. Equities managed to bounce on Tuesday and then fluctuated between losses and gains through the week.
Some support was found in the latest economic data, with ISM’s services Purchasing Managers’ Index (PMI) moving back into expansionary territory for July while weekly jobless claims fell more-than-expected for the week ended 03 August. Overall, the S&P 500 ended marginally below the flatline, the Nasdaq Composite fell 0.2% and the Dow Jones Industrial Average lost 0.6%. Meanwhile, Treasury yields ticked up over the week with the 10-year yield gaining for three sessions and ended the week at 3.943%.
Japanese markets also fell victim to the heightened volatility. Another key factor in the market sell-off was the aftermath of the previous week’s interest rate hike from the Bank of Japan, coupled with a stronger yen prompting traders to unwind their yen carry-trade. As a result, Monday saw the Nikkei 225 plunge over 12% in its biggest one-day percentage drop since the October 1987 market crash, with the yen at a seven-month high against the US dollar. The equity index staged a comeback the following session, jumping 10%. Further support came from comments from deputy governor Shinichi Uchida which signalled that the Bank of Japan wouldn’t raise rates imminently, a dovish contrast to comments made the prior week from Governor Ueda. Ultimately the Nikkei ended the week 2.5% lower while the yield on the 10-year Japanese government bond ended down at 0.86%.
European equities were unable to avoid the sell-off at the beginning of the week. However, after Monday’s slump the benchmark index was able to record four consecutive sessions of gains with recession fears calming and investors looking to buy the dip. For the week the pan-European STOXX 600 ended 0.3% higher. Regional performance was more mixed with France and Germany seeing slight gains, UK and Swiss indices were little changed while Italy was lower.
In China, the Shanghai Composite lost 1.5% for the week on mixed economic data for July. The consumer price index rose more-than-expected however, factory gate prices remained persistently deflationary. Meanwhile imports rebounded from June’s decline, but exports came in lower-than-expected pointing to sluggish demand. In Hong Kong, the Hang Seng managed to notch a 0.9% rise. There was also particular strength seen in Latin American indices for the week. Brazil’s Bovespa was up 3.8%, despite inflation accelerating in July and state-owned oil major Petrobras slumping after its quarterly results.
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.