US equities advanced, albeit with thin trading during a holiday shortened week. Signs of a slowdown in the US economy raised expectations that the Federal Reserve would begin cutting interest rates in September, which in turn provided a boost to growth stocks. ISM’s manufacturing purchasing managers’ index (PMI) remained in contractionary territory in June, while the services PMI also slipped below the 50-level. Jobs data were mixed but generally pointed to a cooling; Friday’s non-farm payrolls report saw 206,000 jobs added last month, down 12,000 while the unemployment rate ticked up to 4.1%.
For the week, the S&P 500 was up 2%, closing at a record high. The Nasdaq Composite also ended at a new record, jumping 3.5% while the weekly gain of the Dow Jones Industrial Average was more contained at 0.7%. Technology stocks were some of the best performers, with Tesla gaining 27% for the week, its strongest performance since January 2023 and pushing it back into positive territory for the year. US Treasury yields were lower for the week given the economic data, with the 10-year Treasury ending at 4.278% after two weeks of gains.
Politics was in the spotlight in Europe. France’s CAC 40 rose 2.6% for the week as there was a sigh of relief that the far-right National Rally party did not win an outright majority it the first round of voting. There was however a slight pullback on Friday in equities, while government bonds rallied, as uncertainty crept back in ahead of the second round of voting on Sunday. Meanwhile in the UK, the Labour Party won a landslide victory, ending 14-years of Conservative leadership. The blue-chip FTSE 100 slightly fell on Friday with a strengthening pound after the result, however for the week it saw a small gain of 0.5%. The pan-European STOXX 600 added 1%.
It was a week of fresh highs for Japanese equities. The Nikkei 225 added 3.4% while the Topix was up 2.7%, managing to secure a record high for the first time since December 1989. Ongoing weakness in the yen has helped the indices scale new heights. The Topix snapped a five-day winning streak on Friday, with household spending unexpectedly falling in May. Chinese markets were amongst the few decliners of the week, given weaker data raising concerns about the span of the economic rebound.
Weekly macro highlights
US ISM PMIs fall in June
The US ISM manufacturing purchasing managers’ index (PMI) declined from 48.7 in May to 48.5 in June, remaining below the 50 level that separates expansion from contraction. The faster rate of contraction reflected a decline in production, which fell from expansion, at 50.2, into contraction, at 48.5. Respondents noted decreased demand, which was corroborated by the new orders component remaining in contraction territory for the third consecutive month in June, at 49.3. With demand falling, firms reduced employment, which dropped into contraction territory declining from 51.1 to 49.3 in June. While the manufacturing PMI has been in contraction territory for three consecutive months, June’s PMI data saw the services PMI fall from expansion into contraction. The headline services PMI declined from 53.8 in May to 48.8 in June. The drop reflected a large decline in business activity from 61.2 to 49.6. In addition, demand softened as the new orders component eased from 54.1 to 47.3.
US non-farm payroll employment rises in June
US non-farm payroll employment rose by 206,000 in June, below the downwardly revised 218,000 increase in May but above market expectations of 190,000. April’s data was revised down by 57,000 meaning that combined with the 54,000 downward revision to May’s data, employment in April and May combined was 111,000 lower than previously reported. Driving the job gains in June were respective increases of 70,000 and 49,000 in government employment and healthcare. The household survey data collected by the Bureau of Labor Statistics showed a 116,000 person increase in employed persons, below the 206,000 increase reported in the establishment survey. In addition, the number of unemployed persons rose by 162,000, leading to the labour force rising by 277,000 persons. As a result, the unemployment rate rose by 0.1 percentage points for the second consecutive month, reaching 4.1% in June. Average hourly earnings for all employees on private non-farm payrolls rose by 0.3% to USD 35.00.
Eurozone flash inflation eases in June, PMIs decline
Eurozone flash Harmonized Index of Consumer Prices (HICP) inflation fell from 2.6% year-on-year (YoY) in May to 2.5% YoY in June, in line with market expectations. The data, released by Eurostat, reflected a decline in energy prices from 0.3% YoY to 0.2% YoY. In addition, unprocessed food inflation dropped from 1.8% YoY in May to 1.4% in June, although processed food, alcohol and tobacco inflation was unchanged at 2.8% YoY. Core HICP inflation, which excludes energy, food, alcohol and tobacco, was unchanged at 2.9% YoY in June. Services inflation, which has been a key area of focus for the European Central Bank, was also unchanged at 4.1% YoY in June. In addition to inflation data, PMI data released by S&P Global highlighted a slower rate of expansion in the eurozone in June. The composite PMI declined from 52.2 to 50.9, reflecting a slower rate of expansion in the services sector and faster rate of contraction in the manufacturing sector.
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