| What happened last week?
A modestly negative week in world equities as stocks pull back from fresh all-time highs towards the weekend. The same old headlines continue to dominate market sentiment as inflation data out during the week again surprising to the upside and fears that increasing coronavirus cases across the globe could derail the economic recovery.
The benchmark S&P 500 recorded a -0.97% loss to stand at +15.20% for the year to date. The more cyclical Dow Jones industrial average ended down 0.52% to stand +13.34% for the year and the technology heavy Nasdaq composite ended the week down -1.88% to place at +11.94% year to date.
The major news story of the week was the consumer price index inflation gauge, showing the prices generally rose by 5.4% year over year and the core index, which strips out food and energy, rose by 4.5%, the highest level since 1991. This was the 4th consecutive monthly upside surprise and was largely driven by the usual suspects, areas that are affected to supply shortages, such as sky-rocketing used-car prices or the obvious in demand services like airline fares and hotel room prices.
Despite the constant inflationary pressures, the Fed Chair Powell stood firm in his messaging, saying that inflation is transitory and the US economic recovery hasn’t progressed enough to begin scaling back the central banks asset purchases. The weeks underwhelming economic data helped support this view, with manufacturing output contracting slightly in June and shortages of raw materials affecting supply chains across the globe.
The market sought comfort from Jerome Powells testimony to congress during the week, which in summary reassured the market that the Fed would pursue a gradual, controlled and transparent route back to a more normal monetary policy.
In Europe, equity benchmarks lost ground throughout the week as fears grow over surging coronavirus cases across the Eurozone stifle investor confidence. Many countries and popular holiday destinations have announced tighter controls to help prevent the spread of the virus.
The UK will be the first European country to completely end all COVID-19 restrictions today, in what has been dubbed Freedom Day by the UK government. The declaration comes amid a fresh surge of cases and a self-isolation issue for Boris Johnson himself. Despite most countries recording the highest new daily cases since January, hospitalisations remain relatively low and stable.
What to look out for in the week ahead
Earnings season continues this week where companies like Airlines, Coca-Cola, J&J and Netflix are all reporting results. The majority of corporates are expected to report blowout earnings growth on a year over year basis however most investors will be concentrating on the forward looking guidance for the next six months.
Analysts will be seeking answers on how the major corporates plan on navigating inflation, a cautious consumer, supply chain issues and a potential resurgence of COVID-19 cases. Investors will also focus on the continued decline in the 10 year US treasury yield and rising coronavirus cases across the globe for the week ahead. |
