As we start a new week, let's take a look at the significant events in the global economy over the past week with our weekly financial update, presented by Bas Kooijman, the CEO and Asset Manager of DHF Capital SA.

In the past week, U.S. stock market performance was mixed, with small-cap and value stocks continuing to outpace large-cap growth stocks. The technology-heavy Nasdaq Composite Index lagged behind the broader S&P 500 Index, showing a minimal performance edge over the small-cap Russell 2000 Index for the year before large-cap growth stocks rebounded towards the week’s end. The S&P 500 experienced its most significant single-day drop since February 2023, and the Nasdaq had its worst decline since October 2022.

Investor focus shifted towards individual company performances amid a bustling earnings reporting season. Notably, Tesla's stock plummeted by 12.33% and Alphabet's Class C shares dropped by 5.03% following their earnings reports, contributing to midweek market declines. Despite these setbacks, analysts surveyed by FactSet anticipated a 9.8% increase in S&P 500 earnings compared to the same quarter last year.

Economic data presented a mixed picture. The Commerce Department reported a slump in new home sales, with June figures falling to 617,000, well below expectations. Additionally, S&P Global’s manufacturing activity index unexpectedly fell into contraction territory. However, there were positive surprises, such as a 1.0% rise in durable goods orders and an increase in consumer spending. The U.S. economy grew at an annualized rate of 2.8% in the second quarter, driven largely by inventory building and increased government spending.

Investor sentiment was further boosted by the Commerce Department's core personal consumption expenditures (PCE) price index, which remained stable at an annual rate of 2.6%, suggesting controlled inflation and increasing the likelihood of a Federal Reserve rate cut in September. Consequently, the yield on the 10-year Treasury note ended the week slightly lower. In the bond market, municipal bond yields remained stable, and investment-grade corporate bond issuance slightly exceeded expectations.

European stock markets had a mixed week, with the pan-European STOXX Europe 600 Index rising by 0.55%, driven by a rally on Friday following positive quarterly earnings reports. Among major indices, Germany's DAX gained 1.35%, while France's CAC 40 and Italy's FTSE MIB fell by 0.22% and 1.27%, respectively. The UK's FTSE 100 Index saw a 1.59% increase.

Earnings reports in the technology and luxury goods sectors weighed on European equity markets midweek, exacerbated by negative sentiment from the U.S. tech sector. Despite challenges, France geared up for the Paris Olympics, although travel disruptions due to arson attacks on high-speed rail infrastructure did not significantly impact the CAC 40 Index.

Eurozone sovereign bond yields decreased as weaker-than-expected purchasing managers' indexes raised expectations for monetary easing by the European Central Bank (ECB). Markets began to price in 50 basis points of interest rate cuts by the ECB for the remainder of 2024. German bonds benefited from a broadly risk-off market tone, although yields on French and Italian bonds widened due to political concerns.

In the UK, Chancellor Rachel Reeves prepared to announce the results of an audit of public finances, with reports speculating a potential GBP 20 billion deficit that might necessitate tax increases. The Bank of England introduced a new facility to fund nonbank financial institutions, aimed at preventing bond market volatility. Mixed economic data has led to speculation about whether the BoE will follow the ECB with an interest rate cut in its upcoming meeting.

Japan's stock markets faced significant losses, with the Nikkei 225 Index falling 6.0% and the TOPIX Index declining by 5.6%. Japanese technology stocks were pressured by ongoing declines in U.S. tech stocks. The yen strengthened for the third consecutive week, affecting exporters' profit outlook. This strengthening was attributed to government intervention in the foreign exchange markets and expectations of narrowing U.S.-Japan interest rate differentials.

The yield on Japan's 10-year government bond rose slightly, as investors anticipated potential rate hikes and plans for gradual tapering of bond purchases by the Bank of Japan (BoJ). Despite increasing inflation, indicated by a rise in the Tokyo core consumer price index, weak private consumption remained a constraint against raising rates. However, flash Purchasing Managers' Index data showed growth in Japan’s private sector activity, driven by service providers.

In China, equities fell as the central bank's unexpected rate cuts failed to boost confidence in the economic outlook. The Shanghai Composite Index declined by 3.07%, while the CSI 300 Index fell by 3.67%. The People’s Bank of China cut its medium-term lending facility rate and short-term policy rate, signaling efforts to support growth amid weaker-than-expected economic data. The lack of significant policy initiatives from the recent Third Plenum meeting also contributed to bearish sentiment in the market.

Overall, the global markets experienced a week of mixed performance driven by sector-specific developments and macroeconomic data, highlighting ongoing volatility and investor caution.