Week ending 5th July 2024.

As you can see from the accompanying table, it was broadly a positive week for financial markets.

It was a shortened trading week in US due to markets being closed on Thursday for the 4th of July holiday. Despite the shorter week US markets pushed higher with the S&P 500 closing the week up near 2% and the NASDAQ up 3.5%. There was plenty for markets to digest, with a slew of economic data highlighting a slowing but not necessarily weakening economy, carrying implications for Federal Reserve policy and market expectations in the coming months.

The services sector has been a key driver of economic strength, but recent ISM data suggests some softness in its activity, reporting a significant drop from 53.8 in May to 48.8 in June. This decline marked the index’s lowest level since the early pandemic lockdowns of 2020, moving into contraction territory. New orders plunged, and business activity and employment all contracted. In contrast, S&P Global’s similar survey indicated continued expansion in the services sector, with a slight increase from 55.1 to 55.3.

Crucial US labour market data was released on Friday. The data mostly came in line with expectations, offering no big surprises, which markets appreciated. The Labour Department’s official jobs report revealed a deceleration in job growth, with June job gains at 206,000, a decrease of 12,000 from the previous month but slightly better than anticipated. Further signs of weakening were evident, with average earnings growing at the slowest pace in two years. Average hourly earnings grew by 3.9% in June, down from the 4.1% annual rate observed in May. Slowing wage growth is positive for Federal Reserve policymakers as it may help translate into slower inflation, providing more confidence to cut interest rates this year. The unemployment rate came in at 4.1% in June, slightly above the 4% recorded in the previous month, indicating more Americans are out of work.

In the UK, Sir Keir Starmer’s Labour Party won a resounding victory in the general election, ending 14 years of Conservative rule. Rachel Reeves has been named the country’s first female Chancellor of the Exchequer. Her role will be pivotal as she navigates the complexities of the UK’s economic policies and finances. Market reaction was fairly muted; however, investors will be closely monitoring the initial steps and policy directions of the new government in the upcoming weeks. For greater insight into the markets’ initial reaction to the 2024 election result, please refer to our market update on the 5th of July.

France’s political landscape has been shaken following the unexpected triumph of the leftist alliance in the second round of elections on Sunday, securing the most seats and thwarting the far-right’s bid for power. President Emmanuel Macron’s centrist group came in second, while Marine Le Pen’s far-right party finished third. Uncertainty remains as no party has enough seats to govern. This outcome positions Macron in a challenging situation as he navigates potential coalition talks. Despite the political uncertainty, market reactions have remained relatively muted thus far. Investors will continue to monitor the evolving situation closely.

Coming up next week are Fed Chair, Jerome Powell’s testimony, US inflation data, and the University of Michigan consumer sentiment report. In the UK, data on GDP for May, as well as industrial production and retail sales, will be released. Over in China, inflation data is also expected.

Kate Mimnagh, Portfolio Economist

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