02nd August 2022

Good morning,

Equities extended their recent positive run last week as markets took a fed hike of 0.75% and a negative Q2 GDP print from the US in their stride. There was a slew of earnings also, with big names Amazon, Apple, and Alphabet all reporting. I saw a number of market commentators refer to the results as ‘better-than-feared’ which nicely sums up the positive price action to some results which, on the surface at least, appeared to be less than impressive.

A few weeks back, we wrote about the technicalities of who and what decides that there is a recession in the US. The conversation has come to the fore a little bit quicker than anticipated following the latest GDP release (more details below). Irrespective of what ‘the powers that be’ ultimately decide upon, it certainly doesn’t feel like a recession in the US when we look at the jobs market. This Friday’s monthly job report will likely show another 250,000 plus jobs created with an unemployment rate still below 4%. On the other hand, personal savings rates in the US are now at 5.1%, which is the lowest since 2009. Consumers have been resilient as a result of the excess savings during the pandemic, but higher inflation appears to be biting. Does this mean the US is in a recession? We’ll have to wait and see.

Weekly Investment News
Stocks moved higher again last week as markets took the latest Fed interest rate hike in their stride. The early part of the week was relatively calm as all eyes were on the Fed rate announcement on Wednesday evening. The committee announced its second consecutive rate hike of 0.75%, bringing the headline rate to approximately 2.5%. Fed officials reaffirmed their commitment to lower inflation but also noted the outlook for the economy had detracted since they last met. This assessment was supported by Thursday’s Q2 GDP print, with growth coming in at -0.9% (QoQ). This second quarterly contraction in a row ignited the debate regarding a recession, with Treasury Secretary Yellen declaring she would ‘be amazed’ if NBER declared one.

In other economic data, new home sales in June showed an 8.1% decline from May and registered the slowest pace since April 2020. This caused the supply of homes to rise sharply to a level not seen since 2010 as higher interest rates and inflation continue to dampen housing demand. In the eurozone, inflation accelerated to another all time high, with prices up 8.9% in the year to June. Pricing pressure in Europe is predominately contained with food and energy, with the core measure up 4% in the last year.

Earning were broadly well received last week, as over 56% of the S&P 500 have now reported. According to Factset, almost 75% companies have seen a positive earnings surprise, with over 66% reporting a positive revenue surprise. Within Fixed Income the US yield curve steepened last week as demand at the short end of the curve sent yields lower, with longer maturity bonds generally steadier.

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