Weekly Market Summary 26 July – 30 July 2021

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    Weekly Market Summary 26 July – 30 July 2021
    Weekly Market Summary 26 July – 30 July 2021
    02 August 2021

    Key Points

    • Wall Street indices lower for the week but posted gains for July
    • Delta variant spread and lower US GDP curb optimism over growth
    • Chinese markets expected to be a focus in Asia after tech rout

    US indices closed the week (26-30 July) lower with the S&P 500 down by 0.4% and the tech-focused Nasdaq Composite losing 1.1% but all three major indices including the Dow ended the month higher – the S&P by nearly 2.3% for the sixth straight monthly gain, led by tech, utilities, health care and real estate with energy and financials lagging. Nasdaq rose 1.2% while the Dow added 1.3% in July.

    Friday’s close saw Amazon fell nearly 7.6% after reporting its first quarterly revenue miss in three years with a weaker guidance going forward at a time when the prospects of reopening momentum seems to be shifting to reflation trades with gains in materials (2.8%), energy (1.6%), financials (0.7%) while techs fell (0.7%) during the month as consumers shift from online to in-person services which impact sales for companies like Amazon.

    Worries over the Fed dialing back on bond purchases was meanwhile cooled somewhat by a weaker-than-expected second-quarter US GDP at 6.5% on the year – much lower than the 8.4% estimate. The latest weekly jobless claims also came in higher than expected while the Fed’s preferred inflation indicator, the core personal consumption expenditures (PCE) index rose 3.5% in June on year, which was also below expectations of a 3.6% rise.

    Concerns that the Delta variant of the coronavirus will crimp the recovery momentum from earnings and impact on price actions going forward were also reflected in the US 10-year yield which closed at 1.23% on Friday.

    While the Bank of America had noted that recovery from one-day S&P shocks is 2.6 days so far this year, some investors may be getting slightly wary of buying on dips with some even anticipating the possibility of a correction by as much as 10% should the Fed signal the gradual unwinding of its bond purchases if inflation pressures heighten.

    Hence, investors will be keeping a keen eye on key data this week especially the July employment report and average hourly wage rise besides those of the manufacturing and services PMIs, construction spending, factory orders, vehicle sales. The next two monthly jobs reports are expected to be strong and Fed chair Jerome Powell had said last Wednesday that he would like to see strong jobs reports before paring the central bank’s $120 billion a month bond-buying programme.

    This week will also see more than a quarter of S&P 500 report earnings from companies in sectors in consumer staples, insurance, pharmaceuticals, travel, media and semiconductors.

    Eurozone economies have meanwhile rebounded from a recession with 2% growth for the second quarter with countries badly hit by the pandemic such as Italy and Spain growing by almost 3% and Austria and Portugal expanding by 4.9%. In France, for instance, there was a 29% surge in the hotel and restaurant revenue. Indications are that the third quarter GDP will nudge closer to pre-pandemic levels especially if vaccination rates and economic reopening keep pace.

    Closer home, China will likely dominate market scrutiny following the rout in Chinese tech shares which spilled over Hong Kong and saw the Hang Seng Index shedding 5% the past week as Chinese regulators continued to crack down on internet companies including fintechs, online education and delivery platforms as part of an ongoing national review of data security and monopolistic practices.

    For now, some institutional houses like Morgan Stanley are warning clients not to catch falling knives in Chinese equities, reiterating that it is time yet for bottom-fishing after the CSI 300 index lost more than 3% on consecutive days with Chinese tech stocks suffering their worst month since the financial crisis of 2008.

    The CSI China Internet ETF has lost about half its value from its peak in February and was down another 2.6% on Friday. Alibaba which is one of the ETF’s top holdings will be releasing its earnings results on Tuesday.

    It remains to be seen how the Chinese regulators will try to calm investor nerves after actions that have created ripples through emerging markets. For now, the likes of sectors such as energy renewables, electric vehicles, semiconductors, industrial automation and domestic consumption seem safe from the regulators.

    The Caixin manufacturing PMI for China will be released on Tuesday (3 Aug) with the Bloomberg median forecast at below 51 for July (from 51.3 in June) while the services PMI (4 Aug) is likely to edge higher to 50.5 (50.3 in June). There is still no official confirmation of the annual informal gathering of China’s past and current senior officials at Beidaihe which normally takes place in late July or early August.

     

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