Overview
Financial markets remained highly volatile during July amid rapidly changing macroeconomic and geopolitical environment. Although some progress was seen on the inflation front, however, risks of it being sticky or even rising again remained high. The world’s highly tracked equity benchmark, S&P 500 index, depicted positive sentiment in the first half of the month when it crossed 5667 threshold before correcting sharply towards 5400 level in the second half amid concerns over AI boom sustainability and significantly high valuations, although it recovered some of the losses on the last trading day of the month after Fed’s policy announcement. The yield curve kept softening during July that buoyed the fixed income markets. The geopolitical situation including assassination attempt on Trump, killing of Hamas political chief Ismail Haniyeh in Tehran and Hezbollah’s top commander Fuad Shukr in Beirut fuelled fresh debate over the risks of widening war in Middle East.
Looking at the performance of major asset classes, global equity markets portrayed a cautious approach amid excessive valuations, concerns over sustainability of AI driven optimism, and geopolitical situation. UK FTSE 100 index was the best performing equity benchmark with 2.5% surge in July amid optimistic view over newly elected Labour government’s policies followed by the US equity market barometer S&P 500 index that gained just under 1%. DJ Islamic market index, the benchmark for shariah-compliant investments, ended the month flat. On the negative side, China’s Shanghai index took the lead and fell 1.87% as the economy struggled to show enough growth to entice risk investors, and Japan’s Nikkei 225 index declined 1.34% amid currency appreciation against US dollar. The European stocks broader index, Euronext 100, dropped 0.51%. Commodity markets also showed mixed performance with DJ Commodity Index decreased by 5.16% while gold surged 4.88%. Lastly, DJ Sukuk Index rose 1.28% amid easing pressure on the yield curve while UK pound appreciated by 1.64% against US dollar amid market sentiment towards improved economic outlook under Labour government.
Market Snapshot
News & Key Events in July
UK
• Annual inflation rate in the UK was steady at 2% in June 2024, the same as in May and holding at 2021-lows, although forecasts were pointing to 1.9%.
• The Bank of England lowered its Bank Rate by 25bps to 5% in its meeting on 1st August, aligning with anticipations of a small majority of the market, but noted that it will move cautiously in further rate cuts until they are more certain that inflation will remain restrained.
• The United Kingdom’s unemployment rate stood at 4.4% from March to May 2024, unchanged from the previous three-month period and aligning with market expectations.
• Labour won a majority in the 2024 general election. Labour won 411 seats, up 209 on their total from the 2019 election. The Conservatives won 121 seats, down 244 from their 2019 total of 365 seats.
• King Charles delivered the King’s Speech, outlining the Labour Party’s legislative agenda. This marked Labour’s first such speech in many years and highlighted 39 key bills aimed at driving significant changes across various sectors.
• To deal with the housing crisis, the government has announced an overhaul of the planning system to fix the foundations and grow the economy. Government to fix the foundations with an overhaul of the planning system that will see new mandatory targets for councils. All councils in England are to be given new, mandatory housing targets to pave the way to deliver 1.5 million more homes – tackling the most acute housing crisis in living memory.
US
• The annual inflation rate in the US fell for a third straight month to 3% in June 2024, the lowest since June 2023, compared to 3.3% in May and below forecasts of 3.1%.
• The Federal Reserve maintained the federal funds rate at a 23-year high of 5.25%-5.50% for the 8th consecutive meeting in July 2024, in line with expectations, but signalled first cut in September.
• The US economy expanded an annualized 2.8% in Q2, up from 1.4% in Q1, and above forecasts of 2%, the advance estimate showed.
• Former President Donald Trump survived in an assassination attempt at a Pennsylvania rally, days before he was to accept the Republican nomination for a third time.
• President Joe Biden drops out of 2024 presidential race. He endorsed Vice President Kamala Harris as presidential nominee for general election in November 2024.
Europe
• Annual inflation rate in the Euro Area unexpectedly edged up to 2.6% in July 2024 from 2.5% in June, compared to forecasts it would slow to 2.4%, preliminary estimates showed.
• The ECB decided to keep interest rates unchanged in July 2024, as expected, as current data supports their previous inflation outlook. The main refinancing operations rate remained at 4.25%, the deposit facility rate at 3.75%, and the marginal lending rate at 4.5%.
• The Gross Domestic Product (GDP) In the Euro Area expanded 0.30 percent in the second quarter of 2024 over the previous quarter.
• The unemployment rate in the Euro Area ticked up to 6.5% in June 2024, from an all-time low of 6.4% in the prior month and above market forecasts of 6.4%.
China
• China’s annual inflation rate edged down to 0.2% in June 2024 from 0.3% in the prior two months, falling short of market estimates of 0.4%.
• The People’s Bank of China slashed key lending rates to new record lows at the July fixing to help a fragile economic recovery. The one-year loan prime rate (LPR), the benchmark for most corporate and household loans, was cut by 10bps to 3.35%. The five-year rate, a reference for property mortgages, was also trimmed by the same margin to 3.85%.
• The Chinese economy grew by a seasonally adjusted 0.7% in Q2 of 2024, after a marginally revised 1.5% increase in Q1.
• The Caixin China General Manufacturing PMI slipped to 49.8 in July 2024 from 51.8 in June, missing market forecasts of 51.5
Others
• The annual inflation rate in Japan stood at 2.8% in June 2024, holding steady for the second straight month while remaining at its highest level since February.
• The Bank of Japan (BoJ) raised its key short-term interest rate at its July 2024 meeting to around 0.25% from the prior range of 0 to 0.1% it set in March.
• The Japanese yen appreciated past 150 per dollar, the strongest in four-and-a-half months after the Bank of Japan raised its policy rate “to around 0.25%,” the highest level since 2008.
• The annual inflation rate in Russia rose to 8.6% in June of 2024 from 8.3% in the earlier year, the highest since February 2023, when base effects from Western sanctions softened the soaring levels of price growth in the Russian economy.
• The annual inflation rate in Canada eased to 2.7% in June of 2024 from 2.9% in the earlier month, surprising market expectations that it would remain at the 2.9% mark, equaling the three-year low from April to resume the disinflation trend in Canadian consumer prices.
• Ethereum ETFs approved by US SEC. The regulators have given final approval for spot exchange-traded funds that hold Ethereum’s ether (ETH), giving investors access to the second largest cryptocurrency via ETFs, the easy to trade investment vehicles.
• Hamas political chief Ismail Haniyeh assassinated in Iran’s capital, Tehran, shortly after attending the swearing-in ceremony of Iran’s newly elected president.
• Hezbollah’s top commander Fuad Shukr was killed in Israeli strike on Beirut.
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