HL LIVE
HL commentary as it happens
Friday 26th July
Brent Crude bounces back to $82.5 per barrel.
At around $82.5 per barrel, Brent Crude has recovered most of this week’s losses helped by the better-than-expected US output figures.
US GDP beats expectations. All eyes turn to US inflation numbers (PCE)
The outlook for the broader economy has brightened after US GDP numbers for June came in at 2.8%, beating forecasts. Hopes for a September rate cut across the pond remain high, and today’s PCE inflation numbers will be closely watched. There are other data points on the agenda for later including the University of Michigan’s Consumer Sentiment Index, as well as personal income and expenditure. If a crash in economic output is avoided, and rates can come down without letting inflation out of the bag again, then it would be hard not to give the Fed some credit for engineering a Goldilocks scenario. But there’s still some way to go to declare a fairytale.
Big tech continues its slide. US small caps, pharma, aero & defence on the rise
Pharmaceutical companies were broadly in positive territory. There was positive data from would-be competitors in the booming area of obesity treatment, but these medicines still have significant hoops to jump through before reaching pharmacy shelves. There’s likely some contagion from the slump in the market value of the Magnificent Seven as investors look to lock in some profits from the star performers of recent times. Small-caps, regional banks, asset managers all had a good day as did aerospace & defence stocks.
FTSE 100 opens up
In contrast to the big tech-weighted US indices, the FTSE 100 has held its ground this week, and has opened up this morning. That’s after big tech stocks dragged down both the S&P 500 and the Nasdaq Composite yesterday, albeit at a slower pace than the previous day’s correction. But there were some pockets of positivity.
Thursday 25th July
US GDP: second quarter growth exceeds expectations
The US economy grew 2.8% in the second quarter of 2024, according to the US Bureau of Economic Analysis. Market consensus forecasts were for GDP growth of 2% in the three months to the end of June. Economic growth was fuelled by consumer strength and business spending. US jobless claims also fell. Today’s release also revealed the GDP Price Index – the impact of inflation on economy growth – and Personal Consumption Expenditures (PCE) Price Index and core PCE Price Index data, further measures of price increases, and the Federal Reserve’s preferred inflation data point.
The PCE Price Index rose 2.9%, above the expected figure of 2.7%. This is a key metric in predicting the Federal Reserve’s next steps when it comes to interest rate policy. While this is higher than target, it is falling and coupled with a robust economic growth figure, it lessens the pressure on the Federal Reserve to cut rates next week. A Reuters poll of economists released yesterday revealed consensus view that the Fed will not cut until September from today’s 5.25-5.5% range. The Fed has not cut rates since two emergency meetings during the pandemic in March 2020.
The good economic news comes in a week of significant stock market turbulence, with the equity rout driven by tech stock losses following mixed results. The Magnificent Seven have driven global stock market gains for most of the past 18 months but, over the past week, the NASDAQ has recorded its worst trading day since the recession fears of early 2023. Bond yields have also been volatile over the past week – initially spiking following the news that US President Joe Biden would not be running for re-election in November, before falling in expectation of rate cuts off the back of today’s GDP data.
Brent Crude futures drift lower to $81.13
Crude oil markets are pretty muted at the moment, with prices easing gently. Brent futures are hovering just above $81 with markets awaiting news of possible ceasefires in the Gaza conflict and a better handle on the state of demand from China, the world’s largest importer of crude oil.
US and Asian markets tumble as AI bubble pops
Yesterday saw a wave of selling in leading AI shares. With large losses mounting up in the AI space, selling became more widespread, with investors looking to take profits across the technology sector, leading to drops for the Magnificent 7. If there was a bubble in the AI market, and the Magnificent 7 is part of that market, then last night saw it pop. For the wider NASDAQ index, the drop came to almost 4% overnight as the selling widened out across the tech sector.
In the currency markets, sterling is sharply unchanged from yesterday against the dollar. But sterling is not today’s story, for that belongs to the Japanese Yen, which is rampant, reaching ¥152.8 against the dollar having been trading around the ¥162 level just days ago. Currency traders are speculating on whether the Bank of Japan will start to push interest rates higher.
Japan was not so long ago celebrating regaining the highs that it last attained in 1989, but last night’s 3.3% plunge took the Nikkei into technical correction territory, with the index having retreated over 10% from the highs reached just a few days ago. Japan’s losses have been quite widely spread, with a diverse collection of major losers in the last week, all dropping by double digits.
Wednesday 24th July
Brent crude oil – futures steady at $81.44
With little change to the state of play in the Middle East, Brent Oil futures were holding steady around $81.44, having slipped back from $87 at the start of the month.
Sterling eases to $1.289
Sterling eased back to $1.289 in the face of a dollar that is making gains against all major currencies presently as investors reassess the US political outlook.
Tuesday 23rd July
Brent crude steadies around $82.30
Brent Crude prices are flat today at around $82.30 a barrel as they hover around their one-month low, weighed down by concerns about softening demand and the potential for a surplus in production by the middle of next year.
FTSE down and tech bounce leads US rally
After a pedestrian start to the week, the FTSE 100 has ticked down slightly this morning. That’s despite US markets having their best day in weeks as big Tech overcame the recent stutter in the sector’s relentless rise.
The likely nomination of Kamala Harris as the Democratic Party’s presidential candidate and subsequent drop in former President Trump’s probability of regaining the White House may also have had a hand in the market’s positive uplift. The doubts Trump raised last week about defence commitments to Taiwan, the semiconductor manufacturing hub, saw sector valuations take a hit. But it’s important to remember that, for now, Trump remains the favourite to be sitting in the Oval Office at the end of this year.
Monday 22nd July
Oil futures remain close to recent lows
Brent oil futures are making gains this morning, but the black stuff continues to trade close to its lowest level since mid-June. Renewed optimism for a ceasefire in Gaza and the rotation in the equity markets have been weighing on prices. As always, though, the tug of war continues, and there should be support levels for oil given short-term supply concerns driven by Canadian wildfires and hopes of a US rate cut.
China cuts key interest rates by 0.1%
China surprised markets by cutting its key lending rate to new record lows in a bid to help stoke the belly of its fragile economic recovery. The move signals the government’s concern about weak economic growth and could point to further stimulus coming down the line. Both the 1-year and 5-year rates were cut, the latter of which is what mortgages are priced off. But this won’t fix the housing market, given excess inventory and falling prices are the main issues.
FTSE 100 opens higher in the wake of Biden's exit
UK markets open higher in the wake of Biden's exit from the US presidential race. Traders around the world will be trying to game out what Biden dropping out of the US election campaign means for markets. US stock market futures are set to open higher, but with just three months to go, this is uncharted territory, and markets don't tend to like uncertainty. As well as general jitters, investors can expect sectors that have been given a boost in the so-called ‘Trump trade’ to pull back a little now he faces an unknown opponent. This includes sectors like energy, banks, and bitcoin, given they're all expected to get support from a Trump administration. A cautious pullback wouldn't be a surprise, but Trump is still a clear favourite, so don't expect any major shifts just yet.