The Daily Update: The Week Ahead

It was a defensive start to the week after the S&P made a lifetime high the week before. The Hang Seng closed down over 4% with the Shanghai comp down nearly 2.5%. The reason for the drop was the Chinese government decision to crack down on the USD100bn education technology sector as it sought to rein in the big education and private tutoring companies. The new regulations stated that companies that teach school curriculums are prohibited from making profits, raising capital, go public or nor can they seek foreign capital through mergers and acquisitions.

The Nikkei did buck the trend, closing +1% after a two-day national holiday. Europe followed China’s lead, where equites were a sea of red. On the political front, Treasury Secretary Yellen urged a debt ceiling increase as soon as possible, warning that there are some scenarios in which emergency measures to stave off the debt limit could exhaust ‘soon after Congress returns from recess’ in September.

Later in the day the S&P 500 hit another peak after Tesla came in beating earnings with net income exceeding USD1bn for the first time. We also had new homes sales data released, which showed the sales of new U.S. homes surprisingly dropping in June to the lowest since April 2020, with sales in the month earlier also revised lower. New home sales fell 6.6% to a seasonally adjusted annual rate of 676,000 units last month, the estimates were for a rise of 3.5%. The Dallas Fed Manufacturing data mossed, falling to 27.3, the market survey came in at 31.6.

Mid-week we had some big tech earnings after hours, Apple warned on sales growth and tight supplies while Microsoft sales and profit beat estimates for the 10th straight quarter. Alphabet's revenue rose, helped by robust spending on ads by markets keen to get shoppers spending again. Amazon added to the concerns at the end of the week with a sales outlook that missed expectations. Earnings thin out next week with Berkshire Hathaway the largest, over half the names in the S&P 500 have reported with 88% beating expectations on EPS and 89% have beaten on sales.

Elsewhere was relatively quiet with the German IFO survey missing expectations by a margin, expectations fell from 104 previous to 101.2 as covid again had a huge impact. European GDP numbers for the second quarter were roughly in line towards stronger with Italy and Spain the strongest up around 2.8% pushing overall Euro area growth to 2% from 1.5 expected. CPI releases were also a little stronger with the Euro area up to 2.2%, especially Germany, where headline inflation rose 0.9% m/m in July, more than the expected 0.6%. The gain pushed German headline CPI up to 3.8% y/y. Core CPI also rose more than expected, pushing the y/y core CPI rate up to 3.1% vs. expected 2.9%.

The conclusion of the FOMC meeting had no market impact as Chair Powell announced the US has made progress, but not "substantial further progress" towards attaining the goals that will allow for a taper. But he expects to discuss that progress further over coming meetings that basically takes us to December. Just as the market was expecting.

GDP in the US for the 2nd quarter came in lower than the calls by a margin, posting 6.5% against expectations of 8.4%, the surprise was with Personal Consumption over 1% higher than the calls at 11.8%.

US S&P ended the week where it was the previous week, as did the DAX and the FTSE, the DXY US Dollar index closed the week just above 92.00 down almost 1% on the week, and ten-year Treasury yields traded around 1.23% down 3bp.

This week we are focussed again on the US with the release of the ISM and PMI data followed Friday by the Non-Farm Payrolls for July where calls are currently for another 926k of jobs added. We naturally have several Fed speakers following the “silence of the Lambs” period around the FOMC meeting last week. Also, further inflationary indicators will be released in Europe as well as the PMI’S. In the far east we have Tokyo’s CPI for July and then China’s Caixin PMI mid-week. In terms of central banks, we have the Australian RBA and the UK’s BoE with no change expected; in addition, we have Brazil and the Czech central bank’s both expected to raise rates, Brazil by 100bp and Czech by 25bp.

Have a good week.