Hey Everyone, we’ve seen the month of July coming in very strong and now we will want to see if the momentum continues thru August. Get my take on the current markets below.
Market Sound-Bites:
Major indexes finished higher on the week despite another outsized 75bps rate hike from the Feds and news that the economy contracted at a 0.9% for Q2. A “bad news is good news” dynamic appeared to have taken hold, with investors seemingly penciling in a lower terminal federal funds rate after the second-quarter economic contraction. Growth stocks outperformed value stocks on weakness in the retail sector. The month of July has been very favorable for the bulls with the DOW up about 10%, the S&P up over 12.5% and NASDAQ up about 16%. I would also note that Consumer sentiment is at all-time lows since keeping track in 1970.
All eyes were on this week’s Fed meeting, which concluded with Fed policymakers announcing a widely expected 75bps rate increase on Wednesday. Many market participants seemed to interpret Fed Chair Jerome “power Ranger Boom Boom” Powell’s post-meeting press conference as surprisingly dovish. On Thursday, we saw that the Q2 GDP contracted by an annual rate of 0.9% with consensus expectations for an increase of 0.5%. The Q2 GDP number marked the second consecutive quarter of contraction, which is the widely accepted definition for an economic recession. The market seized on this downbeat news about the economy as a sign that the Fed could slow or stop its rate hikes sooner than expected, extending the stock rally through the end of the week.
Sparked by “Boom Boom” Powell’s dovish post-FOMC meeting comments, the U.S. Treasury yield curve steepened, with intermediate- and short-term yields decreasing and long-maturity rates holding generally steady. The year-end FED Terminal Rate is currently at 3.40% (3.80% in 2023) and with rates currently at 2.25% – 2.50% suggests 90bps more rate hikes over 3 more FED meetings this year.
An early estimate of euro area inflation came in above expectations, hitting 8.9% in July—up from the 8.6% registered in June. The rise in headline inflation was driven by food and energy prices. European natural gas prices rose after Russia reduced gas supplies from the Nord Stream pipeline to 20% of capacity. The IMF reduced its outlook for euro area economic growth in 2022 to 2.6% from its previous projection of 2.8% in April and lowered its projection for 2023 to 1.2% from 2.3%.
Global risk appetite over the week was boosted by tentative expectations that the U.S. Federal Reserve may need to slow down the pace of its interest rate hikes helped the yen recovered from 24-year lows, strengthening to six-week highs against the USD. According to the BoJ, Japan’s economy has picked up, mainly led by private consumption, which is expected to continue to recover. Data released during the week showed that Tokyo core consumer prices, a leading indicator of nationwide trends, rose 2.3% year on year in July.
In China, the real estate sector received a boost after Reuters reported that Beijing plans to set up a real estate fund worth CNY 200 billion to CNY 300 billion to support distressed developers. U.S.-China tensions prevailed amid reports that the U.S. public company accounting regulator would not accept any restrictions on its access to the audit papers of U.S.-listed Chinese companies otherwise they could risk being delisted from US Exchanges.
Enjoy this week’s Round-Up:
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