August Market Summary
GLOBAL EQUITIES: Q2 earnings data kept Delta variant concerns at bay, initially reversing the S&P 500’s mid-week decline. However, despite US Q2 GDP posting above its pre-pandemic peak, it came in lower-than expected, leading the S&P 500 to end the week lower by -0.35%. Meanwhile, Chinese stocks saw significant volatility as investors grappled with Beijing’s tighter financial regulations. The MSCI China Index ended the week lower at -6.06%. In the UK, a drag in the mining sector and variant concerns left the FTSE 100 up only 0.10%.
COMMODITIES: Though COVID-19 cases have been resurging, investors expect vaccinations to soften variant impacts by limiting the need for lockdowns. For the week ended July 23, US crude oil inventories fell by 4.1 mn barrels (bbl), indicating a supply shortage. As a result, WTI and Brent prices ended higher at $73.95 per bbl and $75.41 per bbl, respectively.
FIXED INCOME: US Treasury yields oscillated this past week following softer-than-expected inflation data and the July FOMC statement. Some saw the statement as a sign that the Federal Reserve’s tapering timeline will be in-line with consensus expectations. US 2-Year and 10-Year yields ended the week at 0.19% and 1.24%, respectively. UK Gilt yields meanwhile traded relatively flat, ending the week at 0.56%. In Germany,Bund yields continued to move lower, with 10-year yields hitting their lowest levels in over 5 months after a disappointing business sentiment release, before ending last week at -0.46%.
FX: The US dollar depreciated against a basket of currencies, falling -0.93% following infrastructure spending discussions, weak US economic data, and the Fed’s resistance to discuss tapering. Meanwhile, the Euro hit three-week highs against the US dollar, and ended last week up at1.1856.
POLICY: At its July meeting, the FOMC left its target rate unchanged, but notably stated that the economy has continued to strengthen and has made progress towards the Fed’s dual mandate. While some saw the statement as hawkish, others await explicit information on asset purchases.
GROWTH: US Q2 GDP posted significantly below consensus at 6.5%YoY, as inventories, construction, and declines in federal spending weighed on reopening-driven consumption. In the Euro area, Q2 GDProse to an above-consensus 2% QoQ, led by strong growth in Italy andSpain, while growth in Germany disappointed.
INFLATION: US Core PCE inflation printed a lower-than-expected 3.5%YoY in June, largely driven by reopening-sensitive industries and supply chain disruptions. Euro area headline flash HICP inflation rose above expectations to 2.16% YoY in July, driven by services inflation but offset by non-energy industrial goods.
LABOR: US jobless claims declined by a less-than-expected 400k for the week ended July 24, a sign that new variants have not impacted labor markets thus far. June’s Euro area unemployment fell to 7.7% as COVID19 restrictions eased and service sector businesses reopened.