Weekly market commentary

Markets have whipsawed through the week as investors were treated to a glut of information covering political developments in the Middle East, three central bank interest rate decisions, some of the world’s largest companies reporting their half-year earnings and a suite of macroeconomic data.

The week began with oil prices having fallen in the wake of a pause in missile strikes between the US and Iran, with some reports suggesting that the US are concerned about the diminishing stockpile of air defences. Despite subsequent strikes, interceptions and retaliations, Brent Crude has been anchored at around $90 per barrel, with negotiators from Oman working with the Iranians and Americans to find an agreement which would allow ships to restart transit through the Strait of Hormuz.

The Federal Reserve, the Bank of England and the Bank of Japan all held interest rates at their current levels while striking different tones in their messaging following their meetings this week. Fed Chair Warsh offered very little information in his press conference following the hawkish hold. This is perhaps unsurprising given his current stance of being data-driven and pulling back on forward guidance. The Treasury curve steepened with long-end yields rising as Warsh spoke; the 30-year yield hitting a post-2007 high. This was in contrast to the Bank of England, with their decision to leave rates unchanged interpreted dovishly. Governor Bailey noted how inflation has been lower than anticipated while there was little evidence that the rise in oil prices was generating more broad based inflation entrenchment. Gilts rallied across the curve, particularly at the front end, in response to the announcements.

The Bank of Japan raised the economic growth outlook and lowered its core inflation forecast, while keeping rates unchanged, reflecting some confidence that the path to policy normalisation is on track. It is suspected that the Japanese Ministry of Finance intervened in FX markets to prop up the Yen at the back end of the week, taking USDJPY back to around the 160 level (a more than 2% immediate appreciation) with a c.$50bn yen purchasing programme. The Yen has been at its weakest level since the mid-1980’s this year, which has exacerbated the increase in import costs and led to a rise in inflation through July.

The central bank meetings also came alongside key inflation, growth and employment data releases. In the US, the Fed’s preferred inflation measure (Core PCE) slowed to a monthly pace of 0.1% (below 0.2% expected) but headline GDP for Q2 disappointed (1.5% vs 2.0% expected, annualised). This downside was not seen as especially troublesome however, as the driver was lower imports while domestic demand remained strong. Euro Area Q2 GDP was a solid +0.4% (QoQ), adding to a sense of resilience for the bloc.

South Korea has had a wild week, with double-digit daily price moves in both directions driven by leveraged fast-money investors changing their position on AI related themes. The threat of Chinese companies offering similarly sophisticated AI-related offerings at a fraction of the price has weighed on the current status quo. But this also came in a week where the 2 largest Korean companies, SK Hynix and Samsung, delivered eye-watering results. SK Hynix quarterly profits rose +557%, while Samsung posted similarly impressive results and combined, the two companies generated $104bn in operating profit in Q2 alone.