Markets Wrap (1H July)

The first positive US inflation surprise in a while

US finally received good inflation news. Prices have deflated for the first time in 4 years, even if it's just for 0,06%. YoY inflation now stands at 3%, at the same level it was a year ago. However, now price rises for services is much lower, standing at 3%, down from 3,5% a year ago. In more good news in the inflation front, the labour market is also showing signs of slowing down. Unemployment has unexpectedly ticked up to 4,1% in June and revised nonfarm payrolls data is also showing a less rosy picture. To top it all off - hourly earnings have declined back below 4%, showing sustained signs of moderating labour pressures. While these are basically papercuts to the labour market, once unemployment starts moving in one direction it tends to sustain the trend. One concern that remains for the sceptics is that inflation will come back with a bit of a lag as producer prices are starting to rise again and shipping costs have soared 300% in a year.

Time to cut interest rates and FED knows it

All the good news on the inflation front have been acknowledged by the FED. While not saying anything concrete as usual, Chair Jerome Powell has acknowledged that labour market is no longer a source of pressure as it was before. It seems that his wish of slowing inflation without crushing the economy is coming to fruition, as the FED's preferred measure of inflation, the PCE is at 2,6%. The market is now pricing in the first rate cut in September and 2-3 cuts by 25 bps this year. The next meeting is coming in on the 31st of June with investors reeling for clues for the rate cut path of the FED.

No change in ECB expectations pushes up the euro

For the last month while FED's rate cut expectations increased, the outlook for ECB's rate cuts have stayed just under 2 more cuts this year. This has pushed the euro higher against the US dollar, ignoring the political risk stemming from the turmoil in France. More news on what Lagarde and company think about the situation in eurozone will come out on 18th of July with no anticipation of interest rate changes just yet.

Equity market records helped by growing earnings

Numerous US equity records were fueled not only by AI hype, but by growing earnings too. 2024 3Q is expected to show a YoY increase of around 15%. So far only 34 out of S&P 500 index companies have reported earnings, but it seems that the actual earnings growth will outperform even sky-high expectations, but with a lower surprise than before. With summer events calendar thin, earnings will be in the spotlight.

How markets are preparing for Trump 2.0: tariffs, inflation, bitcoin

With the US elections finalizing in around 4 months we will be hearing more and more about the US election almost every day. As Trump looks more likely to take back the White house, the main playbook is that expansionary policy (especially in the form of tax cuts) will prevail with expectations of long-term inflation and yields rising. Other likely actions include an even deeper war with China with a rumored 60-100% tariffs slap, revocation of green policies and fossil fuel sector bolstering and a more friendly environment to cryptocurrencies and related companies.

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