The Weekly Update

After holding above the 3,000 level from the previous Friday until last Tuesday, the S&P 500 sold-off towards the end of the week to close at 2,976, down 1.23%. US Treasury 10-year yields trimmed 7 basis points, pulling-back to just 2.05% following further threats from Trump of a $325 billion hike on Chinese import tariffs and somewhat weak corporate earnings throughout the week - notably a number of major technology stocks, large banks and energy companies. Global growth concerns also rose to the forefront again after China posited its weakest rate of growth in 27 years; the second-quarter GDP figures showed the economy slowed to 6.2% from a year ago.

Also, the Fed’s image became a little more disjointed than usual last week after some outlying dovish comments from John Williams, President and CEO of the New York Fed, were then downplayed by the central bank with a spokesperson clarifying that, "This was an academic speech on 20 years of research… It was not about potential policy actions at the upcoming FOMC meeting." Nevertheless markets pushed up their expectation of a 50-basis-point rate-cut and President Trump jumped at the opportunity to endorse William’s dovish comments “100%”.

Emerging Markets outperformed, broadly up by around 1%, with rate cuts coming from a number of central banks including South Korea and South Africa. The weak GDP figure from China that started the week was also softened with an upside surprise in both Chinese Retails Sales and Industrial Production. Even problem-child of late Turkey saw its 10-year dollar debt yields fall 45 basis-points to just above 7%, now notably lower than the 8-8.5% levels seen in May. Peripheral European debt also bounced back (after a short one-week sell-off) with Greek 10-year euro yields returning to their downward trend of recent months from 3.5% mid-May, falling 19 basis-points on the week to 2.14%. Also, the US dollar strengthened modestly whilst oil prices fell notably with Brent falling from $66.7 to $62.5 per barrel.

The economic calendar for the week ahead starts on Monday with a broader economic US indicator in the Chicago Fed National Activity Index, which has remained flat or negative for the past 4 months and with surveys estimating it edging back into positive territory reflecting an aggregate of 85 economic measures. On Tuesday we have Eurozone Consumer Confidence, and on Wednesday Germany and the US release Manufacturing and Services PMI data. Thursday sees US Durable Goods and Jobless Claims, German IFO Business Climate Index with focus on the ECB rate decision with the possibility of a cut or suggestion of further easing. Lastly, on Friday the US publishes its Q2 GDP preliminary figure along with Personal Consumption, Core PCE and Dallas Fed Manufacturing Activity data.

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