U.S. equities rounded off the week with modest gains, with the Dow Jones Industrial Average and S&P 500 ending stronger while the tech-heavy Nasdaq ended marginally weaker.
So far about 90% of the companies in the S&P 500 have reported actual revenue numbers for the second quarter. Of these companies, 87% reported actual revenues above the mean revenue estimate and 13% reported actual revenues below the mean revenue estimate. In aggregate, these companies reported revenues that were 4.9% above expectations, according to Factset.
On Wednesday the US labor department reported that the July consumer price index rose 5.4%, while core inflation increased 4.3% year on year. Core inflation (excludes petroleum and food prices) rose less than expected by 0.3% for the month of July versus June’s 0.9% increase. Core inflation is regarded as the more reliable measure given the volatility of energy and food prices. The slowdown in core inflation aligns with the Federal Reserve’s view that the previous surge in core inflation would prove to be more transitory rather than a secular upswing. If inflation were to persist then it’s more likely that policymakers will need to reign in stimulus. Alternatively, if inflation settles then it becomes more likely that monetary and fiscal accommodation will remain longer.
The U.S. Senate passed a $1 trillion infrastructure package aimed at rebuilding traditional transportation infrastructure, improve access to broadband internet, and upgrade the electric grid and water systems. The bill will now make its way to the House for approval.
The UK economy grew at a rate of 4.8% in the second quarter after shrinking 1.6% in the first, as the easing of COVID-19 restrictions and a rapid vaccine rollout drove a solid economic rebound. The Bank of England expects the economy to regain its pre-COVID size by the end of 2021.
European counters advanced for the week as investors focused on stronger corporate earnings and the economic recovery. The pan-European STOXX 50 Index ended the week 1.32% higher while the UK’s FTSE 100 Index added 1.34% on the back of the improving growth outlook.
Japan’s Nikkei 225 index was up a modest 0.56% for the week. Coronavirus infections continue to rise in Japan with rising pressure on government to tighten restrictions further. Chinese stocks were similarly positive on the week with the benchmark Shanghai Composite recording a gain of 1.68%. The prospects of increasing regulation in China affecting key parts of the economy continues to weigh on investor sentiment.
Market Moves of the Week
Newly appointed Finance minister Enoch Godongwana has moved to assure international investors that he is committed to the policy trajectory set out by his predecessor Tito Mboweni, saying on Friday that he sees “no changes” in SA’s fiscal framework.
South Africa's health minister Joe Phaahla said on Friday he would not recommend a relaxation of COVID-19 lockdown measures despite a downward trend in infections. Phaahla said the national positivity rate, which gives an indication of how widespread infections are, had declined from a high of 35% in mid-July to an average over the last seven days of 19-20%.
The JSE All Share Index ended the week over 1% stronger, led higher by the resource (0.82%) and industrial (2.15%) sectors. The financial sector lagged while the listed property sector was modestly weaker for the week. By Friday close, the rand was trading at R14.73 to the U.S. Dollar, depreciating by 0.38% for the week.
Chart of the Week
Data out Wednesday showed inflation remained elevated in July rising 5.4% year on year, although on a monthly basis there were signs that price pressures had moderated. The Labor department’s consumer-price index climbed a seasonally adjusted 0.5% in July from June, a significantly slower pace than its 0.9% increase reported in June. Core inflation which excludes energy and food prices fell from 4.5% to 4.3% from a year before.