The Long and Short of it, week ending 14 July 2023
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Stock markets moved higher last week, supported by strong economic data, decent bank earnings and falling inflation levels. All 3 major stock market indexes moved higher throughout the week, rising early in the week (before CPI and PPI releases) on continued indications of a resilient economy and, to some extent, positive earnings reports expectations. Wednesday’s CPI release showing both headline and core inflation slowed substantively added to market sentiment, boosting hopes of softer Fed monetary policy going forward and of a “soft landing”. Thursday’s better-than-expected PPI release added to this sentiment. Better-than-expected major bank earnings reports Friday were somewhat ameliorated by concerns regarding profits going forward and uncertainty regarding upcoming regional bank earnings reports. Unchanged (and very high) expectations of a Fed rate hike in this month combined with hawkish comments from some Fed officials (stating one data point does not define a trend) contributed to this uncertainty, perhaps capping market gains on the week. Nonetheless, both the U.S. dollar and 10-year Treasury rates reflected growing expectations of a Fed pivot sooner than later, with the U.S. dollar sharply weakening and the 10-year Treasury rate dropping double digits. For the week, the S&P 500 Index increased 2.4% to 4,505.42, the Nasdaq Composite Index gained 3.3% to 14,113.70, the Dow Jones Industrial Average rose 2.3% to 34,510.22, the 10-year U.S. Treasury rate fell 24bps to 3.83% and the U.S. dollar (as measured by the ICE U.S. Dollar index – DXY) weakened 2.3%.
European stock indexes moved sharply higher last week, reversing most of the previous week’s declines. Indexes moved higher mainly as a result of much better-than-expected U.S. CPI and PPI releases (Wednesday and Thursday, respectively) but also benefited from China’s 1-year extension of its real estate-related stimulus package (following sharply falling producer prices). Increased expectations of easier U.S. monetary policy going forward pushed both the euro and British pound higher against the U.S. dollar, restricting gains in the FTSE 100 index. Nonetheless, a weaker U.S. dollar benefited energy and mining stock prices, helping to elevate oil and base and precious metal prices. Interestingly, 10-year Gilt and Bund rates experienced double digit declines last week, perhaps reflecting sentiment the ECB and BoE, while implementing tighter monetary policy than the Fed, may loosen policy sooner than previously expected. For the week, the STOXX 600 Index increased 2.9% to 460.82, the FTSE 100 Index rose 2.5% to 7,434.57, the 10-year Gilt rate decreased 16bps to 4.49%, the 10-year Bund rate also decreased 16bps to 2.48% and the British pound and euro appreciated 2.0% and 2.4%, respectively, both with respect to the U.S. dollar.
Top performing ETPs over the week
| . | 3x Long ETPs | 3x Short ETPs | ||
|---|---|---|---|---|
| UK | +3x Glencore (3LGL) | +21.0% | 3x Rolls-Royce (3SRR) | +4.9% |
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The Long and Short of it, week ending 14 July 2023
