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Weekly Market Update Monday 10th July 2023

Weekly Market Update Monday 10th July 2023

US markets were closed Tuesday for the Independence Day holiday, stocks generally closed the week lower, in a fairly quiet week. The main moves for the week were seen on Thursday, in which markets sold off following growing concerns of further monetary policy tightening. This was after the release of US labour data that sent bond yields higher and equity markets lower.

The main focus for the week was on US job reports, which offered mixed signals as to the strength of the labour market. First, the ADP private payrolls report for the month of June came in well above expectations, adding 497,000 jobs versus forecasts for 225,000. Of the jobs added, around 75% were in services sectors while 25% were in goods-producing sectors, with the biggest gains coming from leisure and hospitality.

Total US nonfarm jobs added in June were 209,000, below expectations of 230,000 and well below last month’s 306,000. Meanwhile, the average hourly wage gains continue to remain elevated at 4.4%, whilst official unemployment fell to 3.6%.

Ahead of quarter 2 earnings season kicking off, Tesla delivered a record 466,000 vehicles in the second quarter of this year. Price cuts fuelled demand in China while American government subsidies for electric cars helped at home. More broadly, analysts’ expectations for S&P 500 second quarter earnings are 7.2% lower than the previous year.

Over the week, the S&P 500 and the NASDAQ slipped around 1% and the Dow fell nearly 2%. STOXX Europe 600 Index fell 3.09% on fears that central banks might need to keep tightening monetary policy, whilst The UK’s FTSE 100 Index dropped 3.65%. Rising mortgage rates continued to take their toll on the UK housing market in June. House prices fell 2.6% year over year, which marked the largest such decline since 2011. In Asia, Japan’s stock markets fell over the week, with the Nikkei 225 Index registering a 2.4% loss and in China, equities retreated as the latest economic data raised concerns about the country’s sputtering post-pandemic recovery. The Shanghai Stock Exchange Index fell 0.17% and In Hong Kong, the benchmark Hang Seng Index plunged 2.91%.

Renewed worries about the outlook for more interest-rate increases sent yields of U.S. government bonds higher for the second week in a row. The yield of the 10-year Treasury bond climbed to 4.05%—the highest level in four months—and the 2-year note briefly eclipsed 5.00% on Thursday before setting below that threshold on Friday. European government bond yields ticked higher with the yield on the benchmark German 10-year bond ending above 2.6% and in the UK, yields rose to their highest levels since mid-2008, with 10-year Gilt yields closing at 4.64%.

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