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The Long and Short of it, week ending 28 July 2023

Posted: 31 July, 2023

Topic: Telecoms , Financials , Basic Materials , Energy , Industrials , Technology

The Long and Short of it, week ending 28 July 2023

Stock markets moved higher last week, this time with the Nasdaq Composite Index outperforming both the Dow Jones Industrial Average and the S&P 500 Index. Markets moved higher through mid-week in expectation of the Fed’s tightening operations reaching their zenith after one last 25bp increase. Those expectations were seemingly met Wednesday after an as-expected 25bp hike in the fed funds target range and after somewhat supportive comments by Fed Chair Powell opining that the after effects of heretofore tightening possibly have yet to be seen. Those expectations changed Thursday, however, following smaller-than-expected initial jobless claims and greaterthan-expected GDP growth, generating renewed concerns the Fed may find reason to tighten more (or keep rates higher longer), pushing all 3 indexes at least 1/2 percent lower and 10-year Treasury rates 13bps higher. Alas, Thursday’s concerns were lessened Friday with price and wage inflation data pointing to continued cooling. Both the headline and core PCE Price Index and the Employment Cost Index releases came in slightly better than expected, rejuvenating hopes of “peak rates” and a soon-to-be more benign Fed, powering stock markets markedly higher and partially reversing Thursday’s 10-year Treasury rate rise. For the week, the S&P 500 Index increased 1.0% to 4,582.23, the Nasdaq Composite Index rose 2.0% to 14,316.66, the Dow Jones Industrial Average gained 0.7% to close at 35,458.96, the 10-year U.S. Treasury rate increased 12bp to 3.96% and the U.S. dollar (as measured by the ICE U.S. Dollar index – DXY) strengthened 0.6%.

European stock indexes moved higher as well last week, this time with the STOXX 600 Index outperforming the FTSE 100 Index. Chinese pledges to stimulate its economy moved prices higher through Tuesday, but the failure of plans to materialize by Wednesday reversed most of previous days’ gains. Weak performing luxury stocks, in particular, affected the STOXX 600 Index while poor performing mining stocks had a more pronounced effect on the FTSE 100 Index Wednesday. Uncertainty in front of Wednesday’s FOMC announcement also weighed on index performance. Increased expectations - following the as-expected ECB 25bp rate increase – of the ECB nearing the end of the rate-hike cycle, supported both STOXX 600 and FTSE 100 Indexes as did Friday’s better-than-expected German inflation data. FTSE 100 Index gains, however, were muted in front of this week’s BoE rate decision and due to the BoJ’s hawkish tweak to its interest rate policy. 10-year Gilt rates, perhaps reflecting expectations of continued BoE tightening, increased 10bps over the week while 10-year Bund rates rose 2bps. For the week, the STOXX 600 Index increased 1.2% to 470.78, the FTSE 100 Index rose 0.4% to 7,694.27, the 10-year Gilt rate fell 10bps to 4.37%, the 10-year Bund rate decreased 2bps to 2.46%, the euro weakened 1.0% and the British pound was unchanged both versus the U.S. dollar.