Following the drop at the start of the week, stock markets are searching for a bottom to rebound from. However, that point has yet to be identified.
Mixed Signals in Europe
European stock markets closed the day without a distinct trend. The CAC 40 fell by 0.26% to 7,247.45 points, with significant declines from Teleperformance (-4.47%), L’Oréal (-1.28%), and Unibail-Rodamco-Westfield (-0.98%). The British FTSE dropped 0.27%, led by a 4.01% decline in BT Group shares. In contrast, the German DAX rose by 0.29%. The EuroStoxx 50 index was virtually unchanged, gaining 0.01%. The FTSEurofirst 300 gained 0.06%, and the Stoxx 600 rose by 0.08%. In Switzerland, the SMI saw a decline of 0.13%, and the SPI fell by 0.16%. Notably, Zurich Insurance dropped by 1.25% due to concerns about losses from natural disasters overshadowing the announcement of a record profit for the first half of the year. It’s important to note that insurers typically increase premiums in the years following disasters, so this is a situation to watch closely.
The yield on the 10-year German Bund closed almost flat at 2.271%, after its largest single-session increase in five weeks the previous day.
Renewed Interest from U.S. Investors
In the United States, unemployment data provided a boost for stock indices. The Dow Jones increased by 1.76% to 39,446.49 points, the tech-heavy Nasdaq surged by 2.87% to 16,660.02 points, and the S&P 500 rose by 2.30%, marking its best session since 2022 at 5,319.31 points. After recent volatility, investors returned to buying, which benefited stocks such as Caterpillar (+3.18%), Intel (+7.90%), IBM (+3.11%), and Nike (+2.16%). Within the Nasdaq, major tech stocks such as Nvidia, Taiwan Semiconductor Manufacturing, and AMD rebounded by 6%.
“Risk Off” Conditions Favor Bonds and the Dollar
U.S. 10-year yields remained at 3.9781%, significantly higher than Monday’s low of 3.667%, and are on track to increase by 18 basis points this week. Two-year yields rose by 15 basis points this week to 4.0193%.
The dollar stayed near a one-week high against major currencies on Friday, following the largest decrease in U.S. jobless claims in nearly a year, which eased concerns about an economic slowdown. The dollar was up 0.27% at 147.66 yen, representing a weekly gain of about 0.8%, despite a steep 1.5% drop on Monday. It remained steady at 0.8670 francs, setting the stage for a 1% weekly increase. The euro stabilized at $1.0915, up 0.08% from the previous week. Sterling showed little movement at $1.2744 after a 0.49% rise overnight, marking its lowest level in over a month. However, it is still on track for a 0.42% weekly decline, which would mark four consecutive weeks of losses. The Australian dollar retreated to $0.6584 after peaking at $0.65925, its highest since July 24, buoyed by optimistic comments from the Reserve Bank of Australia the previous day. It is up 1.24% this week. Bitcoin, the leading cryptocurrency, reached a one-week high of $62,717, trading last at $61,500, an increase of about 3.3%. For the week, it is up around 4%.
Raw Materials Show a Mixed Picture
On Thursday, oil prices, which initially fell at the beginning of the session, rebounded due to rising tensions in the Middle East and positive employment data from the United States, which supports energy demand. The price of a barrel of North Sea Brent, due for delivery in October, increased by 1.05% to $79.16. Its U.S. counterpart, West Texas Intermediate (WTI), for the same delivery month, climbed by 1.27% to $76.19.
Three-month copper on the London Metal Exchange dropped by 0.1% to $8,760 per metric tonne after slipping earlier to $8,716, near Monday’s 21-week low of $8,714. In other metals, LME aluminum reduced by 1.1%, nickel declined by 1%, and lead fell by 0.6%, while tin rose by 0.4% and zinc increased by 1.6%.
Corn decreased by 0.31% and has declined by 1.86% since the start of the week, marking its second consecutive weekly drop. Wheat saw an increase of 0.51% and is on track for a second consecutive weekly gain, with a rise of 0.23% for the week. The most active soybean contract on the Chicago Board of Trade (CBOT) increased by 0.57% but is predicted to experience a second consecutive weekly decline, with a drop of 1.3% thus far this week.
This Morning in Asia
Japan’s Nikkei rose another 1.7% following a strong rally overnight on Wall Street. It has recovered most of the 13% loss it experienced on Monday and is headed for a weekly decline of only 1.5%. MSCI’s broadest index of Asia-Pacific shares outside Japan climbed 1.4%, more than reversing Thursday’s drop. For the week, it is down 0.3%. Chinese blue-chip stocks gained 0.5%, and Hong Kong’s Hang Seng Index jumped 1.4%. The benchmark KOSPI index rose by 37.87 points or 1.48%. For the week, the index is down 3.3%, marking its biggest weekly decline since April 15, when it fell 3.4%.
What About Fed Policy?
The shift in sentiment has been so pronounced that at one point, interest rate swaps indicated a 60% chance of an emergency rate cut by the Fed in the upcoming week, well ahead of its next scheduled meeting in September. Current prices suggest reductions of approximately 40 basis points for September.
After a steep decline at the beginning of the week, the stock markets are searching for a bottom to bounce back. However, they still have to find it.
In Europe, No Clear Direction
European stock markets ended the day without a definitive trend. The CAC 40 closed down 0.26% at 7,247.45 points, with notable declines for Teleperformance (-4.47%), L’Oréal (-1.28%), and Unibail-Rodamco-Westfield (-0.98%). The British FTSE dropped 0.27%, impacted by a significant decline in BT Group (-4.01%). In contrast, the German DAX rose by 0.29%. The EuroStoxx 50 index gained a modest 0.01%, while the FTSEurofirst 300 and Stoxx 600 recorded slight increases of 0.06% and 0.08%, respectively. In Switzerland, the SMI declined by 0.13% and the SPI by 0.16%. Notably, Zurich Insurance saw a 1.25% drop amid concerns over loss projections linked to natural disasters, overshadowing a record profit announcement for the first half of the year. It’s crucial to note that insurers typically boost premiums following disasters, so this situation warrants close attention.
The yield on the 10-year German Bund ended virtually unchanged at 2.271%, after experiencing its largest one-day increase in five weeks.
Renewed Interest From American Investors
In the United States, recent unemployment figures provided a boost to stock indices. The Dow Jones climbed 1.76% to 39,446.49 points, while the tech-heavy Nasdaq surged 2.87% to 16,660.02 points. The S&P 500 also posted an impressive gain of 2.30%, marking its best session since 2022, closing at 5,319.31 points. Following several volatile sessions, investors began purchasing stocks, favoring companies like Caterpillar (+3.18%), Intel (+7.90%), IBM (+3.11%), and Nike (+2.16%). On the Nasdaq, major tech players such as Nvidia, TSMC, and AMD experienced gains of approximately 6%.
The “Risk Off” Benefits the Bond Market and the Dollar
U.S. 10-year yields held steady at 3.9781%, significantly above Monday’s low of 3.667%, and were on track to gain 18 basis points for the week. Two-year yields also rose by 15 basis points this week to 4.0193%.
The dollar maintained its position near a one-week high against major rivals on Friday, following the largest drop in U.S. jobless claims in nearly a year, which alleviated fears of an economic slowdown. The dollar rose 0.27% to 147.66 yen—marking a weekly gain of about 0.8%, despite a sharp 1.5% plunge earlier in the week. The dollar remained stable against the Swiss franc at 0.8670, also maintaining a 1% weekly gain. The euro traded at $1.0915, up 0.08% from the previous week. The British pound was little changed at $1.2744, having risen 0.49% overnight, but remained on track for a 0.42% decline this week, marking its fourth consecutive week of losses. The Australian dollar eased back to $0.6584 after reaching $0.65925 for the first time since July 24, supported by optimistic comments from the Reserve Bank of Australia earlier in the week, showing a weekly increase of 1.24%. The leading cryptocurrency, Bitcoin, hit a one-week high of $62,717, last trading at $61,500—up about 3.3%, with a weekly increase of approximately 4%.
Raw Materials Present a Mixed Picture
Oil prices exhibited volatility, initially declining before rebounding, driven by heightened tensions in the Middle East and a positive employment outlook in the U.S. which fosters energy demand. The price of North Sea Brent crude for October delivery rose by 1.05% to $79.16, and West Texas Intermediate (WTI) crude for the same month climbed by 1.27% to $76.19.
Three-month copper on the London Metal Exchange dipped 0.1% to $8,760 per metric tonne after earlier hitting $8,716, close to Monday’s 21-week low of $8,714. In other metals, LME aluminum fell by 1.1%, nickel dropped 1%, and lead decreased by 0.6%, while tin increased by 0.4% and zinc rose by 1.6%.
Corn prices fell by 0.31%, marking a decline of 1.86% since the start of the week, set for its second consecutive weekly drop. Conversely, wheat increased by 0.51% and is on track for a second consecutive weekly gain, with a rise of 0.23% for the week. The most actively traded soybean contract on the Chicago Board of Trade (CBOT) gained 0.57% but is set for a second straight weekly decline, dropping 1.3% thus far this week.
This Morning in Asia
Japan’s Nikkei rose another 1.7% following a strong overnight rally on Wall Street. It has rebounded significantly from a 13% drop earlier in the week, with a weekly decline now at just 1.5%. The MSCI broadest index of Asia-Pacific shares outside Japan climbed 1.4%, reversing Thursday’s decline, though it remains down 0.3% for the week. Chinese blue-chip stocks increased by 0.5% and Hong Kong’s Hang Seng Index surged by 1.4%. The benchmark KOSPI index rose 37.87 points, or 1.48%, although it’s down 3.3% for the week, marking the largest weekly decline since April 15.
What About Fed Policy?
The shift in market sentiment has been pronounced, with interest rate swaps at one point suggesting a 60% chance of an emergency rate cut by the Federal Reserve before its next scheduled meeting in September. Current market pricing indicates anticipated cuts of approximately 40 basis points for September.
| Index | Last Price | % Change |
|---|---|---|
| CAC 40 | 7,247.45 | -0.26% |
| DAX | Last update pending | +0.29% |
| Dow Jones | 39,446.49 | +1.76% |
| Nasdaq | 16,660.02 | +2.87% |
| Brent Crude | $79.16 | +1.05% |
