GLOBAL CAPITAL MARKETS OVERVIEW:
European shares extended their rally for the third session on Friday, with the regional Stoxx 600 closing at a more than seven-week high of around 440 points, marking its best monthly performance since November 2020. Strong economic data, upbeat business updates, and hopes for a slower pace of Fed rate hikes drove risk appetite. Quick data showed that the eurozone grew 0.7% quarter-on-quarter in the second quarter, beating market expectations of 0.2%, with data from France, Italy, and Spain unexpectedly rising, while Germany's economy unexpectedly stalled. Still, another report showed that inflation has yet to peak as consumer prices in 19 countries accelerated to a new record of 8.9% in July. Domestically, the benchmark DAX 40 index rose nearly 2% this week after rising more than 50% through July, marking its best monthly performance since March 2021. On Friday, the CAC 40 closed up 1.7%, or 109 points, to a seven-week high of 6,449 points, its third straight session of gains and a weekly gain of 3.8%, supported by upbeat earnings and economic data. Hermes, one of the largest publicly traded companies in the index, rose 6.9% after its first-half profitability hit a record high, with quarterly results showing a rebound in June sales in China and strong growth in the U.S. and Europe. As a result, sales rose sharply. Air France-KLM's second-quarter profit topped market expectations, and BNP Paribas also beat expectations. On the data front, the French economy beat analysts' forecasts in the second quarter, growing by 0.5% versus expectations for a 0.2% increase. On a monthly basis, it was the best July performance since 1997, with the French index up 8.9%. The FTSE MIB rose more than 2% to close at a six-week high of 22,400 on Friday, outperforming other European stocks for a third session as investors welcomed strong corporate earnings and better-than-expected domestic CPI and GDP data. Italy's economy grew 1% in the quarter, well above expectations, and domestic consumer prices unexpectedly slowed. Nonetheless, while the eurozone economy continued to grow, inflation in the eurozone rose further to an all-time high. Eni and Saipem, among the leaders in the corporate sector at the session, increased nearly 6% each. As the sector broadly benefited from volatile energy markets in the second quarter, they tracked the uptrend of their peers. Industrials, banks, and consumer discretionary stocks also rose sharply. The FTSE MIB surged 5.6% for the week. The ruble-based MOEX-Russia index rose 1 percent to close at 2,210, its highest in three weeks, offsetting yesterday's losses on strong performances in energy and retail stocks. Rosneft and Tatneft tracked gains in crude oil prices, up 2.5% and 3.5%, respectively. Meanwhile, retail stocks continued to rally, with food chain O'Key soaring 30%. The aggregate retailer index soared nearly 8% this week, largely on the back of a larger-than-expected 150-basis-point rate cut by the central bank on July 22, bringing borrowing costs down to pre-Ukrainian-invasion levels. On the other hand, Gazprom closed below the flat line as investors monitored how much-increased exports to China could make up for lost revenue from falling gas flows to Europe. While Gazprom's stock was gradually recovering from the stock market crash following the Ukraine invasion, its stock tumbled again last month after it scrapped its dividend payment. For the week, the MOEX index is set to gain 5.6%. Canada's benchmark S&P/TSX rose for the third session on Friday to levels not seen in six weeks, as higher oil prices boosted energy shares and investors digested upbeat economic data. Canada's economy is likely to grow at an annualized rate of 4.6% in the first three-month period in the second quarter, which would be 0.6 percentage points higher than the central bank's forecast, according to preliminary data from Statistics Canada. On the earnings front, auto parts maker Magna International reported a second-quarter net loss of $156 million, or 54 cents a share, compared with analysts' estimates of 93 cents a share. On Friday, the Dow traded near a flat line, with the S&P 500 and Nasdaq up 0.7% and 1.1%, respectively, as investors welcomed the tech giant's upbeat outlook while digesting another slew of economic data. Shares of Amazon soared more than 10% after the e-commerce giant beat Wall Street's quarterly revenue estimates while offering strong guidance. Microsoft, Apple, and Google parent Alphabet also issued upbeat outlooks, bolstering confidence in the ability of Big Tech to weather the recession. At the same time, the Fed's preferred inflation gauge, the U.S. core personal consumption expenditures price index, was slightly higher than expected, suggesting a peak in inflation has yet to come. The Dow rose nearly 2% for the week, while the S&P 500 and Nasdaq gained 2.8%. All three major indices are also in their best months of 2022. Hong Kong stocks fell for a third straight session on Friday, dragged down by technology shares, with the benchmark Hang Seng Index closing at a two-month low of around 20,150. Hang Seng heavyweights Alibaba and Meituan each fell more than 7 percent. China's top leader reportedly said on Thursday that there had been no major stimulus to economic growth and downplayed the need to achieve a GDP target of "around 5.5 percent." The index fell about 8% in July, its worst monthly performance in a year. New Zealand NZX 50 rose 164.46 points, or 1.45%, to close at 11,493, its highest close since early May, extending the previous session's strong gains, up 2% this week and 6.9% this month. %, buoyed by continued gains on Wall Street on Thursday, hoping that the Federal Reserve may slow the pace of interest rate hikes after data showed the economy shrank for a second quarter. Traders have paid little attention to comments from some economists that New Zealand is at a growing risk of a recession in the second half of the year due to soaring prices and rising borrowing costs. In China, state media said on Thursday that Beijing would strive to achieve the best possible outcome for the economy this year while downplaying the need to achieve a GDP target of "around 5.5 percent" and sticking to its aggressive zero-coronavirus policy. Top performers included Burger Fuel Group (6.6%), Vista Group International (6.45%), NZ Automotive Investments (5.5%), and Wellington Drive Technologies (5%). Japan Nikkei 225 edged down 0.05% to end at 27,802 on Friday, while the broader Topix lost 0.44% to end at 1,940 in volatile trade, erasing earlier gains and shrugging off a global stock market rally. As investors evaluate mixed-income results for major domestic companies. Global stocks rebounded as the U.S. economy contracted for a second quarter, fueling recession fears but raising expectations that the Federal Reserve may need to slow the interest rate hikes. Japanese stocks that fell on poor quarterly results included Keyence (down 2.8%), Renesas Electronics (down 7.4%), Denso Corp (down 5.2%), and Murata Manufacturing (down 5.2%). Murata Manufacturing) (down 2.7%). Meanwhile, other companies such as M3 Inc (5.8%), Advantest (4.1%), and Oriental Land (3.6%) rose on earnings optimism. The Nikkei and Topix lost 0.4% and 0.8%, respectively, for the week, giving up some of their gains after a sharp rebound the previous week.
REVIEWING ECONOMIC DATA:
Looking at the last economic data:
- CA: In May 2022, the Canadian government budget moved from a deficit of C$13.98 billion a year earlier to a surplus of C$2.66 billion. Revenue rose 21.20% yearly to C$35.95 billion, reflecting a general improvement in revenue streams. Meanwhile, project expenses excluding actuarial net losses fell 27.2% to $29.39 billion, mainly reflecting lower transfers to individuals, businesses, and other levels of government.
- CA: Canada's CFIB's Business Barometer Long-Term Optimism Index, based on a 12-month outlook, fell for the fourth straight month in July 2022 to 52.7, the lowest level since May 2020. Optimism was the lowest in the retail and agriculture sectors, while the hospitality sector led the way. The main limiting factor for business growth so far has been labor shortages. Full-time hiring plans show that 20% of companies are looking to add staff, while 17% are looking to lay off staff. Future prices (4.7%) and average wage plans (3.4%) remain high.
- CA: According to preliminary estimates, the Canadian economy may grow by 1.1% quarterly in the second quarter of 2022. In June, the economy was likely to expand by 0.1% month-on-month as output increased in construction, manufacturing, accommodation, and food services, while production in mining, quarrying, and oil extraction declined. In May, the Canadian economy stagnated, an improvement from a preliminary estimate of a 0.2% contraction. Of the 20 industrial sectors, growth was seen in 14 industries, with an increase in the production of the services sector (0.4%) offsetting declines in the goods-producing sector (1%). Transportation and warehousing (1.9%), food services and accommodation (1.9%), and agriculture, forestry, and fishing (1.6%) had more significant outputs, making up for construction (1.6%) and manufacturing (1.7%) decline.
- US: The University of Michigan's consumer confidence index rose to 51.5 in July 2022 from a record low of 50 in June, in line with preliminary estimates. The current economic conditions sub-index was revised to 58.1 from an initial 57.1, while the standard gauge was unchanged at 47.3, the lowest level since 2009. Meanwhile, concerns about global factors have eased. The easing provided limited support for purchasing conditions for durable goods, which remained near record lows last month, and long-term inflation expectations also eased. The final expected median year-over-year inflation rate in July was 5.2%, little changed from the middle of the month or the previous two months. The long-term forecast is 2.9%, still within the range of 2.9-3.1% over the past 11 months.
- US: The U.S. Chicago PMI fell to 51.1 in July 2022 from 56.0 in June, below the consensus forecast of 55. This was the lowest level since August 2020, indicating a slowdown in economic activity.
In June 2022, the U.S. personal consumption expenditures price index rose 1% month-on-month, the most significant increase since September 2005. The price of goods rose 1.5%, and services cost by 0.6%. Excluding food and energy, the price index for perchloroethylene rose 0.6%.
- US: Compensation costs for U.S. civilian workers rose 1.1% month-over-month in the three months through June 2022, slightly down from a record 1.4% increase in the previous period and slightly above market expectations of 1.2% as the labor market remained muscular nervous. Wages and salaries rose 1.4% (compared to 1.2% in the first quarter), and benefits increased 1.2% (compared to 1.8% in the first quarter). Labor costs fell 2.4% in the second quarter compared with a year earlier and 3.7% in the third quarter ended March.
- US: U.S. personal spending rose 1.1% month-on-month in June 2022, beating consensus forecasts for a 0.9% increase and above the revised 0.3% increase in May. The data showed a general increase in spending as high prices forced consumers to pay more. Gasoline, motor vehicle fuels, healthcare, and housing led the gains.
- US: In June 2022, U.S. personal income increased by 0.5% year-on-year, unchanged from the previous month and above market expectations of 0.5%. This was the fifth consecutive rise, reflecting increases in wages, led by private wages and salaries, and income for operators, mainly non-farm payments. In addition, other recurring transfer revenue rose to $12.9 billion in June, reflecting the legal settlement of corporate business to individuals. The National Income and Products Account records these settlements on an accrual basis in the month they are reached, regardless of when they are recorded in the company's financial statements.
- EU: The eurozone economy grew by 0.7% quarter-on-quarter in the three months to June 2022, after growth in the first quarter was revised by 0.5%, beating market forecasts of 0.2%. It was the most robust performance in three quarters due to the easing of Covid-19 restrictions and the southern country's summer travel season. Spain (1.1%), Italy (1%), and France (0.5%) grew at strong and optimistic rates. At the same time, Germany's economy stagnated, including Portugal (0.2%), Lithuania (0.4%), and Latvia (1.4%). In addition, some countries, including the United States, have contracted, a worrying sign that a recession may be imminent. Meanwhile, Ukraine's energy crisis and war are far from over, and Russia's gas cuts threaten the outlook for the winter, further weighing on inflation and interest rates.
- EU: Preliminary estimates put annual inflation in the eurozone at a record 8.9% in July 2022, up from 8.6% in June. Data beat market expectations of 8.6% as food, alcohol, and tobacco prices continued to accelerate (9.8% vs. 8.9% in June); non-energy industrial goods (4.5% vs. 4.3%), and services (3.7% vs. 3.4%), but there was a slight decrease in energy (39.7% vs. 42%). Excluding energy, inflation also rose to 5.4% from 4.9%, and the core index, which excludes the cost of fuel, food, alcohol, and tobacco, rose to 4% from 3.7%. Compared with the previous month, consumer prices rose by 0.1%.
- IT: According to preliminary estimates, annual inflation in Italy could fall to 7.9% in July 2022 from a 36-year high of 8% touched last month, below market expectations for growth of 8.1%. Prices of energy commodities rose more slowly (42.9% vs. 48.7%), especially regulated commodities (47.8% vs. 64.3%). Prices for entertainment and cultural services also fell (4.6% versus 5%). On the other hand, costs for processed foods (9.6% vs. 8.1%) and transportation services (3.3% vs. 2.8%) rose faster. As a result, annual core inflation, which excludes energy and unprocessed food, jumped to 4.1% from 3.8% the previous month. On a monthly basis, consumer prices were likely to rise 0.4%, below consensus expectations for a 0.6% gain and a sharp pullback from June's 1.2% rise.
- UK: Consumer credit in the UK rose by £1.781 billion in June 2022, up from an upwardly revised £903 million in the previous month and beating analysts' expectations for an increase of £1 billion. As of February 2020, the figure was above the 12-month pre-pandemic average of £1bn. Consumers borrowed £1 billion through credit cards and £900 million through other consumer loans and advances. The annual growth rate for all consumer credit was 6.5% in June, up from an upwardly revised 5.8% in May.
- GE: Germany's seasonally adjusted unemployment rate rose to a nine-month high of 5.4% in July 2022, the second rise in a row, again driven by Ukrainian refugees registering with the Labour Office in search of work. However, the head of the Federal Labour Office, Detlef Scheele, said that "the overall labor market remains stable."
Today, investors will receive:
- USD: Final Manufacturing PMI, ISM Manufacturing PMI, Construction Spending m/m, ISM Manufacturing Prices, and Loan Officer Survey.
- EUR: German Retail Sales m/m, Spanish Manufacturing PMI, Italian Manufacturing PMI, French Final Manufacturing PMI, German Final Services PMI, Final Manufacturing PMI, Italian Monthly Unemployment Rate, and Unemployment Rate.
- GBP: Final Manufacturing PMI.
- JPY: Final Manufacturing PMI.
- NZD: Building Consents m/m.
- AUD: AIG Manufacturing Index, MI Inflation Gauge m/m, and ANZ Job Advertisements m/m.
- CNY: Caixin Manufacturing PMI.
KEY EQUITY & BOND MARKET DRIVERS:
- IT: Italian 10-year BTP yields retreated further to 3.1% at the end of July, the lowest level in two months, contrary to the trend of major European peers, as strong domestic growth data and improving CPI data strengthened the interest in Italy. Credit confidence. Italy's GDP grew by 1% in the second quarter, while inflation unexpectedly fell to 7.9%. The figures stand in stark contrast to the eurozone, where inflation has once again hit record highs, and output in Germany has stagnated amid the ongoing energy crisis. Italian debt is also gaining momentum as investors continue to assess the ECB's TPI and how it will support the euro zone's heavily indebted economies. As a result, the spread between the 10-year BTP and the Bundesbank narrowed sharply to 230 basis points, reflecting a decline in perceptions of Italian debt risk.
- US: U.S. 10-year Treasury yields held above 2.7% after U.S. consumer spending and personal income beat analysts’ expectations for June. At the same time, the price index of perchloroethylene exceeded expectations, reaching the highest level in more than 40 years. The rise in the Fed's preferred inflation gauge has fueled fears that the U.S. economy may continue to contract as the central bank adopts restrictive monetary policy to combat soaring inflation. Still, U.S. Treasury yields remained near three-month lows hit in late July, as the deteriorating macroeconomic backdrop strengthened the appeal of safe assets. In addition, investors continued to assess the extent to which the Federal Reserve is likely to tighten policy before the end of the year after U.S. gross domestic product unexpectedly contracted for the second quarter.
- GE: Germany's 10-year bond yield rose to 0.9%, rebounding from a three-month low of 0.8% hit on July 29, as a slew of new economic data reinforced bets for a more significant rate hike from the European Central Bank. The eurozone economy expanded by 0.7% in the second quarter, well above market forecasts, while euro zone inflation rose further to a record high of 8.9%, also above expectations. However, despite strong growth figures, recession fears remain widespread as Europe faces uncertain energy supplies and poor economic sentiment. Fears of slowing growth have been further pressured by falling gas inflows from Russia, leading EU countries to agree to a 15% cut in gas consumption by March next year. In addition to contracting PMI data for the eurozone, Germany's stagnant economy and rising domestic unemployment in the second quarter also underlined recession fears. Meanwhile, investors continued to assess the possible impact of the TPI on bond yield spreads.
STOCK MARKET SECTORS:
- High: Consumer Discretionary, Energy, Information Technology, Financials, Materials.
- Low: Consumer Staples, Health Care.
TOP CURRENCY & COMMODITIES MARKET DRIVERS:
- USD: The dollar index traded near 106.5 at the end of July, down from a 20-year high of 109.3 hits earlier this month, and remained near a two-month low as investors tried to assess the economic outlook and the Fed's next move. The Fed raised rates by 75 basis points as expected during its July meeting, and Chairman Jerome Powell hinted that, based on the data, the Fed funds rate could be raised slightly later. GDP data for the second quarter showed the U.S. economy contracted 0.9% after falling 1.6% in the previous quarter. At the same time, new PCE inflation and employment costs were higher than expected, suggesting inflation has yet to peak. As a result, most investors expect the Fed to raise rates slightly by 50 basis points in September, peak in December, and cut rates in 2023.
- EUR: The euro rose to around $1.02, just above the key $1 parity mark, after a brief report on economic growth and inflation beat analysts' expectations, reinforcing the case for the European Central Bank to raise interest rates more and faster. Quick data showed that the eurozone grew 0.7% quarter-on-quarter in the second quarter, beating market expectations of 0.2%, with data from France, Italy, and Spain unexpectedly rising, while Germany's economy suddenly stalled. In addition, a separate report showed that inflation has yet to peak as consumer prices in 19 countries accelerated to a new record of 8.9% in July. It comes after the European Central Bank began tightening monetary policy to rein in soaring prices and announced a higher-than-expected 50 basis point rate hike this month. In contrast, markets began lowering expectations for a September rate hike amid recession fears. Still, Ukraine's energy crisis and war are far from over, with Russian gas cuts threatening winter prospects.
- CNY: The offshore yuan appreciated more than 6.75 against the dollar, moving further away from a two-month low hit in mid-July. U.S. GDP posted negative growth for a second quarter, and less hawkish remarks from Federal Reserve Chairman Jerome Powell signaled that the U.S. Monetary tightening might slow. At the recent Politburo meeting, China's top leaders refrained from announcing new stimuli, removing some downward pressure on the yuan. The country's leaders dropped earlier calls that they would seek to achieve a target of 5.5 percent GDP growth this year, instead saying they would focus on achieving the best possible outcome for the economy. Nonetheless, China's disparate monetary policy, strict zero-coronavirus approach, and the real estate sector's woes all raise the risk of increased capital outflows and further devaluation of the yuan.
- AUD: The Australian dollar rose more than $0.70 to a six-week high as U.S. GDP turned negative for a second quarter. Less hawkish comments from Federal Reserve Chairman Jerome Powell suggested that U.S. monetary tightening may be slowing. Meanwhile, the Australian government expects inflation to peak at an annual rate of 7.75% in the fourth quarter, above the Reserve Bank of Australia's forecast of 7%. Markets are now betting that the RBA will raise rates by 50 basis points for a second straight month in August, paring earlier speculation of a more significant 75 basis point hike after the latest inflation reading came in just below expectations. Rates are at least neutral, around 2.5%, to dampen inflation expectations.
- NZD: The New Zealand dollar gained more than $0.63 to its highest level in a month, U.S. GDP was negative for a second quarter, and less hawkish comments from Federal Reserve Chairman Jerome Powell suggested U.S. monetary tightening may be slowing. On the domestic front, New Zealand's headline inflation surged 7.3% in the second quarter of 2022 from a year earlier, accelerating at the fastest pace in 32 years and raising interest rates by an unprecedented 75 basis points at next month's central bank policy meeting possibility. The Reserve Bank of New Zealand increased its policy rate by 50 basis points to 2.5% in early July, a widely expected move. It said it would "maintain price stability and support maximum sustainable employment. The pace tightens monetary conditions.”
- JPY: Yen jumps to six-week highs around 133 yen, rebounds further from 24-year lows, U.S. GDP turns negative for the second quarter, Fed Chair Jerome Powell not so much. The hawkish rhetoric suggested that U.S. monetary tightening could ease in the coming months. The yen also received an additional boost after Bank of Japan Deputy Governor Amamiya said the central bank must always consider the appropriate means of exiting ultra-easy monetary policy, even if the actual shift does not happen soon. His remarks reflected the views of new BOJ directors Asayoshi Takada and Naoki Tamura. Naoki Tamura has previously said the Bank of Japan needs to withdraw from its massive stimulus program. However, Amamiya stressed the need to maintain loose monetary conditions, arguing that wages must catch up to stimulate consumption and help the Japanese economy recover.
CHART OF THE DAY:
The FTSE MIB index surged to 22,250 on Friday as investors digested a slew of macroeconomic data, on track to close at a six-week high on the back of strong corporate earnings. Italy's GDP grew 1% in the quarter, well above expectations, and domestic consumer prices unexpectedly slowed. Nonetheless, inflation in the eurozone rose to an all-time high as the eurozone's economy continued to expand. Eni and Enel, among the leaders on the corporate side of the conference, tracked gains in their European counterparts as the sector broadly benefited from volatile energy markets in the second quarter. trend. Industrials, banks, and consumer discretionary stocks also rose sharply. Leonardo, on the other hand, fell 5% after reporting earnings. As a result, the FTSE MIB index is set to gain nearly 5% this week.
- Italy FTSE MIB index - D1, Resistance (consolidation) around ~ 21627, Support (target zone) around ~ 23047.