USA
Last week was eventful with significant news and statistics. Joe Biden announced on the X platform that he is withdrawing from the presidential race, yielding to pressure from his supporters, and recommending Vice President Kamala Harris as his successor. Biden also stated that he will remain in office until the end of his term in 2024.
The U.S. GDP growth for the second quarter was 2.8% year-over-year, exceeding the forecast of 2%. The GDP deflator was lower than expected at 2.3%, compared to the forecast of 2.6%, indicating a favorable scenario where the economy grows while inflation decreases. The report on initial jobless claims showed a decrease in weekly claims from 245,000 to 235,000, and the total number of Americans receiving jobless claims fell from 1.86 million to 1.85 million. The report on durable goods orders for June showed a sharp decline in the overall index by 6.6% month-over-month, but an increase in the core index, which excludes automobiles, by 0.5%.
On Friday, major U.S. stock indices posted significant gains, breaking a prolonged decline. This was supported by favorable statistical data, which reignited interest in tech sector stocks. The June report on Americans' personal finances showed moderate growth, with household incomes and expenditures slowing to 0.2% and 0.3%, respectively, while the core Personal Consumption Expenditures (PCE) price index remained acceptable at 0.2%. Although the subsequent University of Michigan report showed increases in household sentiment indices and expected inflation rates, the growth was moderate and largely ignored by the market.
On Friday, the S&P 500 and NASDAQ indices rose by 1.1% and 1.0%, respectively, and their futures are adding another 0.5-0.6% today. The yield on 10-year Treasuries has decreased to 4.18%.
Investors are maintaining their expectations that U.S. interest rates will decrease this year, despite increased political instability. According to CME data, there is about a 90% probability of rates being held steady next week and a cut occurring on September 18.
Europe
Last week, indices closed mixed. The STOXX Europe 600 Index finished 0.55% higher. The main continental indices saw losses of 0.22% for France's CAC 40 Index and 1.18% for Italy's FTSE MIB. The FTSE 100 Index rose 1.59% in the UK. Germany's DAX closed 1.35% higher.
The July purchasing managers' surveys for the Eurozone indicated that the recent economic recovery in the region is slowing down. Analysts at LBBW noted that Eurozone inflation, as measured by the harmonized consumer price index, is expected to decrease from 2.5% to 2.3%. If this prediction holds true, it would support the case for the ECB to cut interest rates. GDP data is anticipated to show that the second quarter was weaker than the first.
Japan
Over the course of the week, Japan's major markets saw losses; the Nikkei 225 Index dropped 5.98%, while the TOPIX Index as a whole down 5.64%. The yield on the 10-year Japanese government bond rose from 1.04% to 1.05% at the end of the last week due to speculation about whether the Bank of Japan (BoJ) could raise interest rates at its meeting on July 30–31.
The upcoming Bank of Japan (BOJ) meeting has sparked speculation about a potential interest rate hike, possibly as early as this week. Policymakers are divided on whether this move would benefit or harm consumer spending, leading to uncertainty about the central bank's economic strategies.
During the two-day meeting ending Wednesday, the policy board will assess Japan's readiness for another rate increase as inflation remains above the 2% target. Since March, the BOJ has maintained an interest rate range of 0% to 0.1% following the end of negative interest rates. Expectations of a narrowing Japan-U.S. interest-rate gap have recently strengthened the yen against the dollar. However, some policymakers doubt the effectiveness of a small rate increase on the yen’s recovery and worry about potential negative impacts on consumer confidence.
China
China's central bank has taken new measures to support the struggling economy, indicating growing concerns about growth following Xi Jinping's announcement of a long-term vision for transforming China into a technological powerhouse. The People's Bank of China (PBOC) unexpectedly cut a key interest rate and injected over $25 billion into the banking system. This move, along with other easing measures taken earlier in the week, represents the most significant policy easing since the beginning of the year.
While the yuan strengthened slightly against the dollar, many economists argue that rate cuts alone won't solve the economy's deeper issues, such as the ongoing property crisis and declining consumer confidence. The economy grew by 4.7% in the second quarter, down from 5.3% in the first quarter. Economists suggest that the government should increase fiscal spending and take bold actions to address the property market issues.
There is speculation that China's cautious approach might be to reserve options in case of potential escalations in U.S.-China tensions, especially with the upcoming U.S. elections. Despite aiming for 5% growth this year, major stimulus measures are unlikely due to high debt levels and concerns about reinflating the real estate bubble. Instead, China focuses on long-term goals to enhance its manufacturing capabilities and technological edge.
The PBOC cut the medium-term lending facility rate to 2.3% from 2.5%, and Chinese banks plan to lower deposit rates to maintain their margins. The central bank is expected to continue easing policies in the coming months. The Shanghai Composite Index was up 3.07% while the blue chip CSI 300 added 3.67%. In Hong Kong, the benchmark Hang Seng Index retreated 2.28%.