Financial Markets’ Weekly Recap: Week with more rate cuts, significant data

Global equities fell for the second straight session on Friday, despite being up for the week, mostly because of weakness in technology shares.

On Monday, the starting reading of 105.52 on the Dollar Index saw it rise to its highest level since early May, closing the trading week at 105.83. This was due to a gauge of US business activity that increased to a level that has been above averages recorded within two years to date.

PMIs and Other Key Data

According to S&P Global, this month’s flash US Composite PMI Output Index increased marginally to 54.6, the highest level since April 2022. An expansion is indicated by a reading above 50, yet the reading was raised by an increase in employment. In addition to recent data that has increased confidence that inflation may be slowing down, price pressures have decreased.

May saw a decline in US existing home sales for the third consecutive month as prospective buyers were deterred from purchasing by record-high prices and rising mortgage rates. European equities ended the day lower due to declines in technology and bank companies and economic data indicating a dramatic slowdown in company activity in the euro zone this month.

Rising stock market and housing prices have driven household net worth to new records, creating a wealth effect that supports spending. However, the benefit of rising wealth is not distributed equally, and low-income consumers are under increasing pressure. As long as inflation continues to cool and consumers remain employed, the economic expansion and bull market should continue.

Wall Street

The tech sector saw a decline of more than 3% in Nvidia (NVDA.O) shares, which resulted in a modest decline in the S&P 500 and Nasdaq on Wall Street. The chipmaker is still up over 155% on the year despite the fall, since both indices have recently reached many all-time highs thanks to a strong rise in equities tied to artificial intelligence. Despite setting an intraday record of 807.17 on Thursday, MSCI’s global stock index dipped 2.98 points, or 0.37%, to 801.37, but it was still on course for a third consecutive week of gains.

US Treasury Yields

After the data, US Treasury rates slightly increased but otherwise saw little movement during the session. The euro fell 0.09% to $1.069, while the dollar index increased by 0.17% to 105.81. The value of sterling decreased by 0.05% to $1.2649. The dollar gained 0.43% against the Japanese yen, reaching 159.59.

Sino-EU Trade Dispute

The European Union and China are facing a trade war over electric vehicles, with both sides facing significant risks of escalation. While China has publicly opposed such a war, analysts believe Europe would not fare well in one. Diplomatic efforts are underway to prevent this conflict, but positions remain deep. German Economy Minister Robert Habeck visited Beijing to explain the EU’s position on electric car tariffs and mitigate China’s reaction. Habeck criticized Germany’s China strategy, calling it outdated, short-sighted, and inconsistent with other European countries’ positions.

Central Banks Worldwide

Japanese data earlier on Friday indicated the country’s demand-led inflation slowed in May, clouding the picture for a rate hike from the Bank of Japan.

Switzerland is leading the global rate-cutting trend among developed economy central banks, lowering borrowing costs again on Thursday. The Swiss National Bank followed up on March’s interest rate cut with another reduction on Thursday to 1.25%, surprising some analysts due to a recent pick-up in Swiss growth and a mild rise in inflation to 1.4% in April.

Switzerland’s franc had been trading around a three-month high but dropped more than 0.5% against the dollar after the decision.

Sweden’s Riksbank lowered borrowing costs to 3.75% from 4% in May and is expected to hold them steady when it announces the next rate decision on June 27 and markets still expect further easing.


The Bank of England left rates unchanged at a 16-year high of 5.25% on Thursday ahead of a July 4 election, but some policymakers said their decision not to cut rates was now “finely balanced.” Money markets price in almost 50 basis points of cuts by year-end and a roughly 44% chance of a quarter point move at the next meeting in August, compared to 32% a day earlier.

Commodities:

In commodities, the stronger dollar helped send oil prices lower, with US crude settling down 0.69% at $80.73 a barrel and Brent off 0.55% to settle at lower than $84.22 per barrel. Both crude benchmarks finished up about 3% on the week, however.

Gold has reversed earlier gains following the release of higher-than-expected US PMI data, which showed strong activity levels in US Manufacturing and Services in June. This indicates that inflation and interest rates will remain higher for longer, causing gold to drop off a cliff to trade in the $2,330s on Friday, specifically trading around $2,333.25 per ounce at the time of writing; down -1.14%.

Higher PMIs indicate that inflation will likely remain elevated, resulting in the US Federal Reserve (Fed) having to delay the time when it will be able to cut interest rates, a key determinant of gold price. Lower interest rates are positive for Gold as they reduce the opportunity cost of holding gold, which is non-coupon paying, compared to other assets like bonds.