Global Market Update : 1-6 July 2024

United States

- Economic Growth & Jobs: US hiring and wage growth stepped down in June while the jobless rate rose to the highest since late 2021, bolstering prospects that the Federal Reserve will begin cutting interest rates in the coming months. Nonfarm payrolls increased by 206,000, slightly above expectations of 190,000, but job growth for the prior two months was revised down by 111,000. The unemployment rate rose to 4.1%, and average hourly earnings cooled.

- Debt Securities: Treasury yields initially spiked after Biden's debate performance but later calmed as economic data bolstered the case for rate cuts. The S&P 500 gained 2% during the week, with investors expecting the Fed to reduce rates twice this year.

- Inflation: Inflation eased to 2.6% in May, keeping the Fed on course for at least one interest rate cut this year. The ISM services index slumped to 48.8 in June, contracting at the fastest pace in four years.

United Kingdom

- Election & Economic Growth: Labour won the General Election in the UK, with Keir Starmer becoming the new Prime Minister after 14 years under Conservative rule. The British pound rose to 1.2815 following the news. Labour secures a House of Commons majority. Starmer ruled out rejoining the EU single market.

- Debt Securities: Financial planners noted that wealthy individuals in the UK are selling assets in preparation for an incoming Labour government that they fear might increase capital gains tax.

- Jobs & Inflation: Shop price inflation fell by 0.2% MoM in June, indicating a sharp easing in the cost-of-living crisis. House prices rose by 0.2% MoM, suggesting market stabilization ahead of expected interest rate cuts from the BOE.

Eurozone

- Economic Growth: Eurozone inflation slowed to 2.5% in June from 2.6% in May. ECB minutes revealed doubts among policymakers about cutting rates in June, given that wage growth had surprised to the upside and inflation seemed stickier, mainly due to services.

- Debt Securities: Bundesbank head Joachim Nagel highlighted that investors were increasingly avoiding Germany due to its lagging growth, urging the government to implement measures to rekindle investor confidence.

Japan

- Economic Growth & Jobs: Japan issued newly designed banknotes for the first time since 2004, potentially boosting the economy. Household spending fell by 1.8% YoY in May, raising concerns that consumption won't be a key economic driver in the second quarter. The BOJ noted a 5.1% gain in annual pay negotiations, the highest in more than three decades.

- Inflation: Economists revised their growth projections, predicting that 2024 could mark Japan's first annual contraction since 2020.

China

- Economic Growth & Debt Securities: The PBOC plans to intervene directly in bond markets to maintain stability, indicating discomfort with the current rally that has pushed borrowing costs to the lowest in two decades.

- AI Developments: Nvidia is forecasted to sell $12 billion worth of AI chips in China despite US export controls. Lambda Labs is in talks to raise $800 million, capitalizing on the AI bull market.

Australia

- Economic Growth & Inflation: Retail sales rose by 0.6% MoM in May, driven by discounts in the face of elevated borrowing costs, strengthening the case for an interest rate hike this year. The RBA reiterated the need for detailed analysis of economic data before deciding on future policy moves.

New Zealand

- Economic Growth: The NZ Institute of Economic Research reported that 44% of firms are pessimistic about the economic outlook over the next six months, increasing pressure on the central bank to cut interest rates sooner.

Switzerland

- Debt Securities: The Swiss National Bank largely refrained from interventions to influence the franc in Q1, buying currencies worth just 281 million francs after selling 22.7 billion francs the previous quarter.

Artificial Intelligence (AI)

- Corporate Developments: AI investments continue to surge, with Nvidia experiencing significant market value fluctuations. Apple plans to integrate ChatGPT into its devices, while Google faces challenges in meeting its net-zero emissions target by 2030 due to the expansion of data centers.

Conclusion

The first week of July 2024 saw significant political and economic developments across major global economies. In the US, mixed economic data fueled expectations for interest rate cuts. The UK witnessed a historic political shift with Labour's victory, impacting financial markets positively. The Eurozone faced ongoing inflation concerns, while Japan grappled with economic contraction prospects. China and AI companies continued to push forward with strategic investments and developments. Overall, the global economic landscape remains dynamic, with each region navigating its unique challenges and opportunities.