Weekly Market Update and Featured Chart #26

This week’s market update highlights the latest economic news and general market performance across the UK, US, EU and Asia.

The key takeaways:

📈 UK inflation defies expectations – inflation held steady at 2% in June, disappointing investors who were expecting a fall to 1.9%. One of the largest upswings came from the price of hotels, which some blame on the temporary effects of Taylor Swift’s tour.

🏦 ECB holds rates steady after historic cut – following last month’s major interest rate cut, the European Central Bank left rates unchanged in July as inflation remains stubbornly high.

📉 China misses growth projections – the Chinese economy grew at its slowest pace in over a year, with a 4.7% year-on-year expansion in Q2, ahead of a key communist party meeting.

🌍 Von der Leyen re-elected as EU Commission Chief – Ursula Von der Leyen secured another term, pledging to boost the Bloc’s industrial competitiveness, maintain climate goals and continue to support Ukraine.

🚀 ‘Trump trades’ surge after rally – a defiant Trump saw his odds of being re-elected soar after his campaign event shooting, boosting shares in his media company and sectors likely to thrive under his leadership, including gun stocks, cryptocurrencies and private prisons.

As optimism grew for early rate cuts from the Bank of England, this week’s stubborn inflation and unchanged unemployment at 4.4% dashed hopes. That said, investors will be pleased to hear cuts are still expected before year end.

In China, slowing growth and disappointing industrial production and retail sales put the spotlight on the Third Plenum, an important (once-in-5-year) gathering for Xi and other top officials. Investors hoped for a solid long-term economic plan to tackle the property crisis, US trade barriers and an aging population. But the initial readout was underwhelming, causing Chinese stocks to fall.

Chart of the week

Source: FTSE Russell and LSEG. All data as of June 30, 2024.

The chart shows factors like yield and size (smaller companies) have underperformed compared to momentum-driven and quality style investing. This trend isn’t just in the US; small-cap stocks have also lagged in the UK, Europe and Emerging Markets.

While this has challenged our portfolios’ bias towards smaller companies over the past year, it also highlights that significant value opportunities remain. Small-cap companies are now trading at historically low valuations compared to large-caps, making them an increasingly attractive asset class moving forward.

UK & US: While UK market returns were muted, the US tech-heavy NASDAQ fell due to concerns that a tougher China stance would affect chipmakers. Signs of a weakening economy and political uncertainty spread to wider pullbacks across the S&P.

Asia reactions: Reports on potential US trade curbs hit the Hang Seng, causing it to fall. While in Japan, tech stocks in the Nikkei dropped for similar reasons and a strengthening Yen started to cause issues for exporters.

Oil slips and gold shines: Oil prices saw marginal declines over concerns about China’s slowing growth affecting demand, coupled with reports OPEC are likely to increase supply later in the year. Gold prices rose on Fed rate cut expectations and political uncertainty in the US.

This article is for financial professionals only. Any information contained within is of a general nature and should not be construed as a form of personal recommendation or financial advice. Nor is the information to be considered an offer or solicitation to deal in any financial instrument or to engage in any investment service or activity. Parmenion accepts no duty of care or liability for loss arising from any person acting, or refraining from acting, as a result of any information contained within this article. All investment carries risk. The value of investments, and the income from them, can go down as well as up and investors may get back less than they put in. Past performance is not a reliable indicator of future returns.