Global shares remained steady on Friday as investors closely analyzed inflation data from both sides of the Atlantic. This marked the end of a turbulent quarter for markets that disrupted expectations of interest rates reaching their peak.
Oil prices were on track to record their first monthly gain this year, as a significant decrease in U.S. oil stocks outweighed concerns about diminishing fuel demand due to potential increases in borrowing costs.
The dollar looked set to reverse two quarters of losses against six major currencies, driven by the prospect of additional U.S. interest rate hikes aimed at curbing inflation. Conversely, gold was heading for its worst quarter since September of last year, as expectations of further rate hikes weighed on the precious metal.
The MSCI All Country stock index demonstrated slight firmness and was on track to achieve first-half gains of approximately 11.5 percent. This marked a significant recovery, recouping over half of the losses experienced throughout the previous year. The surge in the index was attributed, at least in part, to the artificial intelligence (AI) boom that has been driving growth in the technology sector.
Patrick Spencer, Vice Chair of Equities at RW Baird, expressed confidence in the upward trajectory of the market, stating, “Despite rising rates and concerns of a recession, the market continues to climb a wall of worry, and I think earnings will justify the multiples expansion that we’ve seen this year.” Similarly, Spencer acknowledged that normalized interest rates of 3 to 5 percent might not be particularly high historically but emphasized the presence of disinflationary factors in the market.
In Europe, the STOXX index, comprising 600 companies, experienced a 0.6 percent increase. The index also recorded a 7.5 percent gain thus far this year.
In terms of inflation, the euro zone exhibited mixed results. French inflation in June eased more than expected, while German inflation exceeded expectations for the same month, interrupting a downward trend since the beginning of the year. Spain witnessed a decline in consumer prices in June, falling below 2 percent, the lowest level since March 2021.
Investors’ attention turned to the U.S. Personal Consumption Expenditures (PCE) index reading, which serves as the Federal Reserve’s preferred inflation indicator. This data was scheduled for release before the opening bell on Wall Street. On Thursday, Federal Reserve Chair Jerome Powell hinted that the central bank would likely resume its tightening campaign after a brief hiatus earlier this month. U.S. stock index futures indicated stable to slightly firmer market expectations.
Asian stocks inched higher due to weak factory activity data from China, which fueled expectations of fresh stimulus measures. Copper prices were on track for their largest quarterly decline since September 2022, influenced by deteriorating conditions in the Chinese economy and the likelihood of additional U.S. interest rate hikes.
The yen remained fragile after breaching the psychologically important barrier of 145 per dollar, causing concerns of intervention as Japan’s Finance Minister warned against excessive weakening of the currency. MSCI’s broadest index of Asia-Pacific shares outside of Japan witnessed a 0.1 percent increase, on course to achieve a gain of just over 1 percent in the first half of the year.
Rob Carnell, ING’s Regional Head of Research for Asia-Pacific, highlighted the growing divergence in inflation paths across the region, leading to disagreements regarding policy directions. China’s blue-chip CSI300 Index and the Shanghai Composite Index rose approximately 0.5 percent, while Hong Kong’s Hang Seng Index remained stable. Although Japan’s Nikkei closed slightly lower, it surged 27 percent in the first half of the year, driven by the booming chip-related companies and inflows into trading houses.
Positive U.S. economic data propelled Treasury yields higher, with the yield on 10-year Treasury notes reaching a three-month high on Thursday, standing at 3.8858 percent. U.S. crude prices increased by 0.5 percent to $70.25 per barrel, while Brent crude stood at $74.88, also up 0.5 percent for the day. Gold prices slightly weakened, hovering around $1,905 per ounce, having briefly dropped below the key level of $1,900 on Thursday, a level not seen since mid-March.
By Huw Jones
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