Global equities rallied this week on the back of the ceasefire reached on the ongoing US-Sino trade war, which helped push the S&P500 close to record highs. The yield on the US 10-year Treasury note soared back above 2% on Friday after much stronger-than-expected employment growth in the June U.S. jobs report.
Payroll growth rebounded sharply in June as the U.S. economy added 224,000 jobs, countering recent worries that the employment picture and overall growth picture are weakening. Economists polled by Dow Jones had expected the U.S. economy to add 165,000 jobs in June after May’s initial anaemic print of 75,000. The unemployment rate edged up to 3.7%. Even with the strong number, markets are still pricing a 100% probability of a 25bp cut at the July FOMC meeting.
Federal Reserve Chairman Jerome Powell returns to the spotlight this week when he offers his latest outlook for monetary policy just three weeks before he convenes policy makers to set interest rates.
In the Eurozone, Christine Lagarde has been chosen to take over the European Central Bank, which sets monetary and banking policies for the 19 countries that use the euro. The first woman to hold the top job, she will succeed Mario Draghi, whose term ends in October.
Middle East tensions continue to escalate with Iran announcing it will break a limit set on uranium enrichment, in breach of the landmark 2015 deal designed to curb its nuclear ambitions. Tensions began rising in May when the U.S. rushed thousands of additional troops, an aircraft carrier, nuclear-capable B-52 bombers and advanced fighter jets to the Mideast. Mysterious oil tanker blasts near the Strait of Hormuz, attacks by Iranian-backed rebels in Yemen on Saudi Arabia and Iran shooting down a U.S. military drone have raised fears of a wider conflict engulfing a region crucial to global energy supplies.
Global equity market performances for the week were strong. In the U.S., the Dow Jones (+1.21%), S&P 500 (+1.65%) and Nasdaq (+1.94%) indices were all positive over the week. In Europe, the Euro Stoxx 50 (+1.56%) and FTSE 100 (+1.72%) indices moved higher, whilst Asian markets were also positive with the Nikkei 225 gaining +2.21% and the Shanghai Composite Index +1.08% over the week.
Market Moves of the Week
Locally, the rand weakened on Friday as data showing U.S. job growth rebounded strongly in June sending the dollar sharply higher, while the resources sector led South African stocks lower.
South Africa is in a tough position fiscally and without additional measures to counter the low economic growth, lower than expected tax revenue and higher debt, it is likely that growth projections are under pressure.
The broader All-Share Index dropped -1.05% over the week to 57,590 points. The resource (-3.71%) and financial sectors (-2.07%) were both negative over the week, with the industrial sector (+0.56%) slightly stronger over the week.
Chart of the Week
Source: Topdown Charts, Thomson Reuters Datastream. The global monetary policy pivot is well underway, this chart shows it quite dramatically with EM making a sharp about-face from a majority in tightening mode, to now a majority in easing mode.
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